The Federal Government seems to have finally realized that fuel subsidy is doing incalculable harms than good to the Nigeria economy and its citizens that it has commenced plans to jettison subsidy payment in 2016. This was disclosed as some ministers appeared before the joint committees of the National Assembly on Finance to defend the 2016, 2017 and 2018 Medium Term Expenditure Framework and Fiscal Strategy Paper, MTEF & FSP, documents presented to the National Assembly.
This is coming as crude oil prices hit a seven-year low with global reference crude, West Texas Intermediate and Brent trading yesterday at $34.7 and $36.7 per barrel respectively, effectively disrupting Nigeria’s $38 per barrel benchmark for 2016 budget.
The crash has resulted into about N1.45 trillion shortfall in the value of the projected oil output in the international market based on production target increased in the 2016 plan to 2.2 million barrel per day (mbpd), up from actual 1.9 mbpd in 2015. On official exchange rate of N198/ $1 upon which the revenue projection was based, the value of the total budgeted oil output is $35.14 billion or N6.95 trillion but with the latest price development, the output would now yield $27.8 billion or N5.5 trillion.
The Federal Government has also planned to reduce the personnel cost of N1.8 trillion by N100 billion as part of moves to reduce expenditure and save cost. According to the ministers, who appeared at the National Assembly, yesterday, attention would be given to Internally Generated Revenue, IGR, to fund the N6.1 trillion 2016 budget, adding that in 2016, it would remove fuel subsidy and reverse the earlier N10 per litre reduction effected by ex-President Goodluck Jonathan this year.
Speaking at the meeting,Ministers for Budget and National Planning, Udoma Udo Udoma, who noted that it was important that substantial reductions were made on the spending pattern if the expected change must come in, said: “In preparing the MTEF, we seek a dramatic shift from spending on recurrent to spending on capital aspect of the budget. It is going to be tighter for everybody. All non essential expenditure would be cut out. We will reduce the overheads by seven per cent.
“We are beginning a journey of change and change has to start with the clarity of purpose of where we are going.”
On the issue of N500 billion for Social Welfare Programme, Udoma said: “As at the time we were preparing the MTEF, we didn’t have the number and we didn’t want to put in anything that we are not 100 percent sure of. We are still going to relate with relevant agencies on the issue. We are making this arrangement because the NNPC and other stakeholders had advised against subsidy in 2016 although consultations are still ongoing in this regard.”
On sources of funding for the N6.1 trillion 2016 budget, the Budget and National Planning Minister, who disclosed that priority would be given to Internally Generated Revenue ,IGR, said: “We will also look at the accounts of agencies and sweep those surpluses that might not be on essential things that we want to focus on.” Udoma, however, told the lawmakers that “ultimately we must borrow N1.8 trillion to fund this budget apart from all those adjustments we are trying to make.”
Finance Minister, Kemi Adeosun, who told the joint committee of the National Assembly that expenditure of all MDAs would be strictly monitored to avoid wastes, said government would take steps to ensure that whatever money was being taken from the account of any MDA was done electronically.
The Finance minister, who noted that measures had been put in place to compel revenue generating MDAs to remit all funds they generated to the treasury, said: “The era when an agency generates money and spends 99 per cent of it is over.” On strategy to reduce costs of governance, the minister said: “The country paid N1.8 trillion in 2015 as personnel cost but there is a strategy in place in the 2016 budget to reduce it by N100 billion. For instance, we are already working with banks so that we can go cashless, so that we could give debit cards to MDAs to procure items.
Also speaking, Minister of State for Petroleum Resources, Dr Ibe Kachikwu, who disclosed that with NNPC inclusive, Excess of N1 trillion was paid for fuel subsidy in 2015, with plans to move fuel price from N87 to N97 per litre in 2016 as well as total removal of fuel subsidy next year.
On the issue of daily oil production target, Kachikwu said, “From August this year, we have been exceeding two million daily production through stringent monitoring of our production by getting quick fixes to instances of pipelines breaking. The internal projection for our system next year is in excess of 2.4 million which is coming from enhanced and increased production from NPDC field.
“A lot of efficiency had really been applied in this regard. NPDC will for instance be producing 300, 000 barrels on its own while other partners would process at least 2.2m barrels. We would address issues of security and other impediments to the realization of our target. We are looking at a collective and holistic handling of security issues between the NNPC and the oil majors with us taking the lead.
On the oil price benchmark of $38, he said: “The projection at OPEC was along the line of the fact that once we do not interfere in term of production cost will lead to a southward movement in terms of pricing. We expect an increase as from early January when we expect it to go up by $45 to $50 per barrel in spite of OPEC projection. We expect it to hit $70 per barrel in 2017.”
