Read Lai Muhammed’s Text While Addressing Media Today On New Fuel Regime And Government Palliatives

                                                                                                                                                                           Text of a Press Conference Addressed by The Hon. Minister of Information and Culture, Alhaji Lai Mohammed, in Abuja on Monday, May 16th 2016

Gentlemen of the Press,

Thank you for once again honouring our invitation.

We have invited you here today for an interactive session on the most topical issue of the day – The price of Premium Motor Spirit, otherwise known as petrol.

As you are undoubtedly aware, a new price regime for PMS was recently announced by the Federal Government. Many have been asking why this would happen at this time and what triggered the decision concerning the new framework for petrol products supply, distribution and pricing.

Gentlemen, we have no choice than to liberalize the price of petrol, if we are to end the crippling fuel scarcity that has enveloped the country, ensure the availability of the products and end the suffering of our people over the lingering scarcity.

Before going into the details, let me debunk the notion that this new price regime amounts to removal of subsidy. No. There is no subsidy to remove because no provision was made for subsidy in the 2016 budget. Last year, the government paid out 1 trillion Naira in subsidy, and that’s one sixth of this year’s budget. We can’t afford to pay another 1 trillion Naira in subsidy.

Secondly, many people have asked if the government is planning any palliatives in the wake of the new price regime. Our answer is that the entire 2016 Budget is packed with palliatives. Some 500,000 billion Naira has been set aside for social intervention that will touch the lives of millions of Nigerians and lift millions more out of poverty.

Let me briefly enumerate some of these intervention programmes:

§  500,000 graduates are to be employed and trained as teachers

§  370,000 non-graduates (artisans, technicians) to be trained and employed

§  1.6 million people (Farmers, market women, etc) to be granted loans to set up small businesses.

§  Conditional Cash Transfer to be made to the most vulnerable people (not unemployed graduates)

§  School Feeding targeting 5.5 million school children

§  And Bursaries/Scholarships for STEM (Science, Technology, Engineering and Mathematics) students.

Many have also tried to compare what happened in 2012, when the last Administration increased fuel price, with the new price regime of 2016. Our answer to that is that there is no basis for comparison.

The conditions in 2012 were vastly different from the conditions now. Then, oil was selling for over 100 dollars a barrel, compared to just a little over 40 dollars a barrel now. Then, the country was awash in forex, thanks to the high earnings from oil. Then the foreign reserves was high. The situation today is dire: Earnings from oil have fallen drastically. Foreign reserves have fallen. The new price regime is simply inevitable.

With the drastic fall in the price of crude oil, which is the nation’s main foreign exchange earner, there has also been a drastic reduction in the amount of foreign exchange available. The unavailability of forex and the inability to open letters of credit have forced marketers to stop product importation and imposed over 90% supply on the NNPC since October 2015, in contrast to the past where NNPC supplies 48% of the national requirement

The truth is that the NNPC does not have the resources for, nor is it designed to meet this increase in supply. The result is the crippling fuel situation across the country. Pushed to supply 90% of the products required for domestic consumption, the NNPC has continued to utilize crude oil volumes outside the 445,000 barrels/day allocated to it, thereby creating major funding and remittance gaps into the Federation account

As I said earlier, there is no provision for subsidy in the 2016 Appropriation. The erstwhile PMS price of N86.50 gives an estimate subsidy claim of N13.7 per litre which translates to N16.4 billion monthly. There is neither funding nor appropriation to cover this.

Also, the renewed insurgency and pipeline vandalism in the Niger Delta have drastically reduced national crude oil production to 1.65 million barrels per day, against 2.2 million barrels per day planned in the 2016 budget, further reducing income to Federation account and also affecting crude volumes for PMS conversion and impacting Federal Government’s forex earnings.

Let me also note that the resultant fuel scarcity has created an abnormal increase in price, resulting in Nigerians paying between N150 and N300 per litre as prevalent hoarding, smuggling and diversion of products have reduced volumes made available to citizens.

In the absence of available forex lines or crude volumes to continue massive importation of PMS, it is clear that unless immediate action is taken to liberalize the petroleum supply and distribution, the queues will persist, diversion will worsen and the current prices will spiral out of control.

Under the new price regime, the PPPRA and DPR will be further empowered to ensure a level playing ground and strict compliance with market rules by all stakeholders and consumer protection.

The liberalization of petrol supply and distribution will allow marketers and any Nigerian entity willing to supply PMS to source for their forex and import PMS to ensure availability of products in all locations of the country

In summary, the new pricing regime brings the following benefits:

§  Solves the recurrent fuel scarcity by ensuring product availability across the country.

§  Reduces hoarding, smuggling and diversion of products substantially and stabilizes price.

§  Ensures market stability and improves fuel supply situation through private sector participation

§  Creates labour market stability, as this will potentially create additional 200,000 jobs through new investments in refineries and retails and prevents potential loss of 400,000 jobs in existing investments.

We are therefore seeking the understanding of all Nigerians, and appealing to the organized labour to sheathe their sword. This is not the time for any action that will further worsen the economy. The situation is dire, not just in Nigeria but elsewhere around the world. For instance, the United Arab Emirates, the third-biggest oil producer in OPEC, has become the first country in the oil-rich Persian Gulf to remove transport fuel subsidies.

In addition, the country has announced that with effect from 1 Aug. 2016, fuel prices will be deregulated. Also, in response to fiscal pressure caused by the fall in crude oil prices, OPEC’s top oil producer Saudi Arabia has announced a plan to raise fuel prices. You can now see that this is indeed a global problem.