28 November 2014, Sweetcrude, Abuja – The pump price of premium motor spirit otherwise known as petrol will likely rise from 2015 as the Federal Government has proposed a reduction in monies budgeted for subsidy payment in the coming year, according to Sweetcrude Reports findings.
Sharp falls in the global price of crude may have afforded the Federal government an opportunity to finally cut subsidies on petroleum products after more than three years of trying, as exemplified by recent moves to revise its 2015 budget downwards.
President Goodluck Jonathan submitted the revised budget figures to law makers last week, proposing to spend N458.68 billion ($2.59 billon) on petrol subsidy in 2015, down from N971.14 billion presented for 2014. It also assumed further cuts to petrol subsidies in 2016 to N408.68 billion and N371.18 billion for 2017.
The government’s proposal is contained in the revised 2015-2017 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper submitted to the National Assembly by President Jonathan last week.
Earlier in October, the president had forwarded the MTEF document to the legislature pegging the pump price of fuel at N97 per litre with the expected total subsidy payment of N971 billion in 2015, same amount that was expended in 2014. The crude oil benchmark price of $78 per barrel in 2014 was also retained for 2015.
However, the government withdrew the document from the National Assembly and proposed a reduction in the oil benchmark from $78 to $73 as a result of dwindling oil prices in the international market.
The N971.14 billion earlier budgeted for subsidy was reduced to N458.68 billion, representing a cut of N512 billion or about 50 percent reduction.
Based on the revised MTEF projections also, the government is planning a gradual cut in monies subsidizing consumption of fuel in the country to N408.68 in 2016 and N371.18 in 2017.
According to the pricing template of the Petroleum Products Pricing Regulatory Agency (PPPRA), the government currently subsidises a litre of petrol at N44.94. The template puts the expected price of PMS in the open market at N143.06. The government-regulated price is N97.00.
It is difficult to determine exactly how much oil will cost per litre but consumers are likely to pay for the difference.
Nigeria’s finance minister has proposed lowering the assumed benchmark of oil price for the country’s 2015 budget to $73 per barrel from the $78 proposed in September, after global crude oil prices collapsed.
Ngozi Okonjo-Iweala told the media on Thursday that declines in the price of oil, which has lost almost 30 per cent since July, would impact Africa’s largest economy and top oil producer, requiring the government to cut non-essential spending and raise more revenues.
The Federal government tried to end subsidy in 2012 in efforts to cut government spending and encourage badly needed investment in local refining, doubling the price of a litre of petrol overnight to about N150 ($0.93) from about N65. The move angered citizens, who see cheap petrol prices as the only benefit they derive from living in an oil-rich country, and lead to an eight-day nationwide strike. The government later reinstated part of the subsidy to end the strike.
The budget proposal assumed an exchange rate of N162 to $1dollar for 2015, weaker than N160 assumed for 2014. It expects the naira to weaken further to 163.50 in 2016, reaching 165 in 2017.
The naira has come under pressure in the past two months, losing almost 11 per cent this year, from falling oil prices, which have weakened appetites for assets in Africa’s biggest economy and chief oil exporter.