This government is walking on a tight financial rope

The federal government, apparently, is walking a financial tight rope as it will soon be faced with inadequate financial resources to meet its obligation to the Nigerian people. Expectations are that the federal government will continue with fuel subsidy. But as it is now, Nigerians may soon find out that this government can not meet their expectations.
The total provision for subsidy payments in the 2012 budget of the Federal Government was N888.1 billion, inclusive of N231.8billion for 2011 outstanding subsidy claims and N656.3billion for 2012 claims.
It is obvious that the 2012 budget provision will be insufficient given that N451 billion had been spent already for 2011 claims (N241 billion to private importers and N210 billion to NNPC). This government has about three options to choose from. One is the vexed deregulation of product pricing i.e. elimination of subsidy. The attempt to do so brought the nation to a stand still. The second option is increase in the 2012 budgetary provision for subsidy payments.
Reports from international oil market last week indicate deals in Nigerian crude were said to be thin as two Indian import tenders were set to be awarded later this week. A deal for private equity firm Carlyle Group to save and expand Sunoco’s 330,000 barrel-per-day Philadelphia refinery in the United States failed to provide support to the Nigerian market. Sunoco had been a key buyer of light crude, including Nigerian, but Carlyle and Sunoco now plan for the refinery to capitalise on cheap U.S. domestic shale oil.
According to oil report, Qua Iboe crude one of Nigerians sought for crude for August loading was little changed at two-year lows, with differentials assessed at dated Brent plus $1 a barrel and sellers pegged around dated plus $1.40 a barrel. Some traders said August-loading Qua Iboe was offered at dated plus $1.80/$1.90, but the level was higher than where buyers were based.
More than 15 million barrels of July-loading Nigerian crude have remained unsold. Most of the small cargoes have not found homes. For August loading, only about 15 cargoes out of about 75, including condensate, have been sold on spot and into Asian Tenders so far. “The August-loading programme came out very late, and now we have received the term allocation, which listed many companies we have not heard of. These companies do not have track record or experience.
This is not cheering news for Nigeria. Resources to increase budgetary provision for subsidy may not just be there if the country cannot find ready buyer of crude. It is either the government goes borrowing, and internal debt is already at worrisome proportion or may find it difficult to import products which will return the country to the old days of scarcity.
The third option is for government to brace up and implement drastic changes to the Petroleum Support Fund scheme by enforcing stringent compliance. But with the monumental fraud in the system it will be an uphill task to do so.
Aigboje Aig-Imuokhude’s Committee which reviewed subsidy payment has made recommendations for refund of subsidy payments to the Federal Government up to a total sum of N422billion. It has also called for changes in the requirement of oil companies drawing subsidy.
But what ever changes are made with the lack of adequate provisions for dealing with violations and a deterrent to prevent oil marketing and trading companies from making false subsidy claims in the PSF guidelines and the inclusion by PPPRA of oil marketing and trading companies that did not meet the eligibility criteria in the PSF guidelines created significant opportunities for abuse of the subsidy process. It is better to do away with subsidy now than attempt to implement the recommended changes.
Nigeria does not have a verifiable statistical basis for computing its daily consumption of petroleum products and the absence of this data opened up the determination of the nation’s requirement for imported petroleum products to abuse. This situation cannot continue to drain the nation’s resources. Nigerians should just in one breadth accept deregulation of the petroleum sector as solution to the monumental fraud in the sector.