THE Federal Government plans to adjust the price of petroleum products and commence a subsidy removal process in 2016, Minister of State for Petroleum Resources, Dr Emmanuel Ibe Kachikwu, has said.
The minister, who made the disclosure while appearing before a joint committee of the Senate and House of Representatives on Finance and National Planning, to defend the 2016 to 2018 Medium Term Expenditure Framework (MTEF), said the government would have spent the sum of N1 trillion at the end of 2015.
The minister, who disclosed that a gradual process of subsidy removal would be put in place, said the price of petrol might first be adjusted to N97 per litre, from the current N87 per litre, after which the government might finally go for full subsidy removal.
According to him, the current projections around oil had shown that there should not be subsidy, adding, however, that instead of going for a total subsidy removal, the government was thinking of “price modulation.”
He stated that the subsidy figures for 2015 would stand at N1 trillion if the portion of the Nigerian National Petroleum Corporation (NNPC) was added to the subsidy expenses.
He disclosed that though fuel price stood at N97 per litre before the previous government took it to N87 per litre, the incumbent government had to take it back to N97 in the nearest future.
“The current pricing work we are doing had shown that there should not really be subsidy. The government does not need to fund subsidy. There is energy around the removal of subsidy. Most Nigerians we talk to today would say, that’s where to go. I have since left the dictionary of subsidy by going to price modulation, which is a bit more technical.
“Price of refined products today is N87. It was N97 before it was removed and we really have to go back to that because we don’t really have the finance to remove it.
“There are lots of safety barometer between the N87 and N97per litre regime between which government does not have to fund subsidy. Yet the prices would be fairly close to what it used to be today. That is the first mechanism we are going to work out. It is when that mechanism fails that we will begin to look at a total subsidy exit. We believe we could achieve that,” he said.
He also assured the National Assembly that the government would meet the projected daily oil production schedule in the 2016 budget.
According to him, from August this year, the daily oil production had exceeded two million barrels, adding that while the NDPC plans to produce 300,000 barrels per day, internal projections in the system stands at 2.4 million barrels per day.
“We would address issues of security and other impediments to the realisation 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,” he said.
While defending oil benchmark of $38 per barrel, which forms the basis for the 2016 budget, Kachikwu said the projection at OPEC was along that line.
He also stated that the projection indicated that non-interference in production cost would lead to a southward movement in terms of pricing, leading to an expected rise to $45 per barrel in January.
“We expect an increase as from early January when we expect it go up by $45 to $50 per barrel in spite of OPEC projection. We expect it to hit $70 per barrel in 2017,” he said.
Minister of Budget and National Planning, Senator Udoma Udo Udoma also spoke in line with the Minister of Petroleum Resources, adding that though consultations were ongoing, stakeholders have advised against subsidy in 2016.
Minister of Finance, Mrs Kemi Adeosun, who also addressed the Joint National Assembly sitting, said government was setting up strategies to reduce personnel cost by N100 billion in 2016.
The figure for 2015 stood at N1.8 trillion. She said government would take steps to ensure that whatever money that was being taken from the account of any MDA was done electronically, adding that while Nigeria paid N1.8 trillion in 2015 as personnel cost strategies were being put in place to reduce it by N100 billion in 2016.
On borrowing, she informed that government was already speaking with some of the lenders, disclosing that any money borrowed would be capital and project tied.
The minister insisted that the word bailout was not correct, because it suggested that it was a dash, maintaining that all states that benefitted would actually pay back through monthly deductions from their statuary allocation.
On the projected N1.5 trillion revenue for 2016, Adeosun stated that the government was just trying to be conservative, believing that it is possible.
The Central Bank of Nigeria (CBN) governor, Godwin Emefiele, in his own submission, said stability of prices would be guaranteed in addition to ensuring stable exchanges rate.
According to him, “the exchange rate is actually N260 per dollar at the parallel market, but the official rate is N197 per dollar.
“The CBN rate would revolve around a particular band which is N197. It could swing up to N197 or below. The truth is that, historically, exchange rate for budget has never been based on the parallel market rate which, as far as we are concerned, is a shallow market because it controls about five per cent of the market,”
The market, he said, was substantially dominated by speculators and rent seekers, adding that “in the last 12 to 15 months, we have seen a massive drop in commodity prices, especially oil.”
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