The Federal Government has come with a plan to raise the pump price of the Premium Motor Spirit (PMS) to N97 from N87 as from 2016 to save cash for capital projects.
Minister of State for Petroleum Resources, Ibe Kachikwu made the disclosure on Monday while briefing a joint meeting of the Senate and the House of Representatives vetting the 2016, 2017 and 2018 Medium Term Expenditure Framework (MTEF).
“Price of refined products today is N87. It was N97 before it was reduced and we really have to go back to that because we don’t really have the finance to remove it,” Kachikwu said.
“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, ”he added.
According to him, the Federal Government may not need to spend money on subsidizing fuel in 2016 if the new price template is approved.
“The current pricing work we are doing has shown that there shouldn’t really be subsidy. The government doesn’t need to fund subsidy. There is synergy 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. 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.
On subsidy payment for 2015 he said, “The total subsidy figure for 2015 when taken along with the NNPC will be in excess of N1trillion. We can get this specifics but the point is largely that it does not involve NNPC because the agency takes its, off-cuff. We will work towards taking those figures off our budget in 2016. They are critical issues”.
The minister who doubles as Group Managing Director (GMD) of the Nigerian National Petroleum Corporation (NNPC) also assured that modalities are in place to ensure sustained improvement in oil production output.
“Since August, we have been exceeding two million daily production through stringent monitoring of our production by getting quick fixes to instances of pipelines breaking”, he disclosed, adding that the government projections for 2016 is 2.4 million barrels per day oil output.
“The internal projection for our system next year is in excess of 2.4m 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 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 explained.
On 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, it 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.”
Minister of Budget and Planning Udoma Udo-Udoma also stressed that the strict measures which may lead to more austere conditions was designed to help the country tackle its infrastructure development challenges.
According to Udoma, “In preparing the MTEF, we seek a dramatic shift from spending on recurrent to spending on capital aspect of the budget. So, 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,” he added, stressing that “challenging times need firm and robust response”.
Udoma argued that the MTEF 2016-18 “was also designed to create better governance; to turn things around and promote economic prosperity for the people”.
On sources of funding for the N6trillion 2016 budget, Udoma said priority will be given to Internally Generated Revenue (IGR) but part of it will come from borrowing.
His words: “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. Ultimately we must borrow N1.8 trillion to fund this budget apart from all those adjustments we are trying to make”.
Minister of Finance, Mrs Kemi Adeosun in her briefing explained that Federal Government spent N1.8trillion on personnel cost this year, noting that there is a new strategy to reduce it by N100billion in 2016.
“We are really working hard to drive down overhead. 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. If they want to buy fuel for instance, their drivers would make use of the cards. We would be able to control the cards to know who and where the fuel was bought.
“If we don’t attack our recurrent, the risk is that extra money goes into it and we will have nothing to show for it, this is a big risk that we cannot afford”, she added.
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She further explained that the funds borrowed to finance the budget will be channeled to capital projects for greater impacts. “We are speaking with some of the lenders already. The money we will borrow will be capital tied, project tied. Much of the concessional money is project tied. Also most funds we are taking from the various EXIM banks is specifically tied to capital projects,” she said.
On the projected N1.5trillion revenue for 2016, Adeosun said: “We are just trying to be conservative. It is possible that we get much more but I think for the purposes of this budget its better to leave it at that”.
Central Bank of Nigeria (CBN) Governor Godwin Emefiele, also spoke on the latest plunge of the country’s local currency, the Naira.
His words: “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 is substantially dominated by speculators and rent seekers. In the last 12 to 15 months, we have seen a massive drop in commodity prices especially oil that significantly affected the country’s revenue”.
That, according to the CBN boss, has placed some pressures on the reserves and also resulted in the upsurge in activities of speculators and rent seekers in the market.
According to him,”What we did at that time when naira was N155 to a dollar, precisely late 2014, was to adjust the currency and move it from N155 to N197 to a dollar.
“We have through that arrangement depreciated the currency by about 22 per cent. The objective is to make export cheaper to encourage it but unfortunately we don’t have export. Our export has dropped very drastically in the last 10 years,” he added.
E xecutive Chairman of the Federal Inland Revenue Service (FIRS), Mr Babatunde Fowler, assured that the Service “will increase revenue by over one trillion.” “We are targeting two trillion from Value Added Tax (VAT),” Fowler said.
By Olisemeka Obeche