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Nigeria’s kerosene subsidy conundrum

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With the dust raised by the al¬legation of non-remittance of oil revenue levied on the Nigerian National Petroleum Corporation (NNPC) still swirling around, the question has arisen as to whether or not kerosene subsidy, which gulped at least N1 trillion in the past four years, is really benefitting the target audience in the country.

Adeola Adenikinju, president, Nigerian Association for Energy Economics and director, Centre for Petroleum, Energy Economics and Law, University of Ibadan said that “the subsidy has provided a conduit pipe for some highly placed and connected people to swindle the country.”

The government requires market¬ers to sell Household kerosene (HHK) at below market rates. It then pays the marketers the difference between the market price and the government-approved retail price. The Nigerian National Petroleum Corporation (NNPC) is the sole importer of the fuel. But despite the kerosene subsidy regime, retail prices of HHK across the country have been far above the government-approved price of N50 per litre, ranging from N100 to N250 per litre, depending on the location, with only the NNPC petrol stations and a few retailers in Lagos, Port Harcourt and Abuja selling at the ap¬proved regulated price.

Presidential directive on stoppage of subsidy

The end is yet to be seen to the controversy over the allegation by Sanusi Lamido Sanusi, the suspend¬ed governor of the Central Bank of Nigeria, that the NNPC flouted the presidential order stopping kerosene subsidy in 2009.

In 2009, a directive from President Umaru Yar’Adua ordered the NNPC to discontinue subsidy payments on kerosene since they were not reaching the intended beneficiaries. The NNPC discontinued its claim for funds to pay for the subsidy until February 2012, when it claimed arrears for kerosene subsidies for the period between 2009 and 2011.

According to NNPC, the directive was stayed for execution as a result of its possible repercussions on the masses.

The Technical Committee on Pay¬ment of Fuel Subsidies had stated that the NNPC sold products to de¬pot owners rather than retail outlet

owners as required by regulation. The committee maintained that two thirds of the kerosene sold by NNPC between 2009 and 2011 was sold to depot owners and middle-men who in turn sold the product to owners of retail outlets at inflated prices between N115 and N125 per litre.

The country has spent at least N1 trillion over the past four years to sub¬sidise kerosene, Aminu Tambuwal, speaker of the House of Representa¬tives said. He queried the source of funding of kerosene subsidy and on

Unless very telling actions are taken, I do not see the relevance of the subsidy, as the commodity is rendered so scare that the aver¬age Nigerian is then forced to buy it at higher than the land¬ing price

whose authority such monies were appropriated since there were no bud¬getary provisions for the subsidy.

The jury is out

In a motion entitled “Urgent Need to Stop N700 million a Day Ille¬gal Kerosene Subsidy’, Babajide Omo¬worare, a senator stated that less than 10 percent of petroleum products outlets across the country sell kero¬sene at the alleged subsidised rate of N50 per litre while the general price is not less than N150 per litre. An¬other senator Isa Galaudu urged the government to as a matter of urgency stop payment of subsidy on kerosene to allow more marketers to import it into the country.

Adeola Adenikinju noted that the poor who ordinarily should benefit from the subsidy struggle to get the product even at much higher price. “In the rural areas where most of the poor live, kerosene prices are far beyond their ability, and have had to continue to depend on the forest for the energy supply.”

Claire Lawrie, head of oil and gas advisory for Africa, Ernst & Young, said: “Nigeria’s spending on ‘subsidised’ products like petrol and kerosene is among the highest in the world. No country that spends most of its funds on consumption wil grow.”

Oladiran Ajayi, energy expert and senior associate with Templars law firm is of the view that “in the long-term, the subsidy initiative ap¬pears unsustainable as it undermines private and public investment in the energy sector. Fuel price subsidies are the primary reason that the crude pe¬troleum refining sector cannot attract investment. The sector languishes for lack of funds, increasing fuel imports, which in turn worsen the fiscal bur¬den.”

Ayodele Oni, energy law and policy expert and senior associate in top law firm Banwo & Ighodalo said a lot of dynamics impact the price of kerosene, which vary from the han¬dling charges, arbitrage, diversion for use as aviation fuel, its use for other things because of its multifunctional capability, smuggling to neighbor¬ing African countries, amongst other factors. Unless very telling actions are taken, I do not see the relevance of the subsidy, as the commodity is rendered so scare that the average Nigerian is then forced to buy it at higher than the landing price.”

The subsidy needs to be removed in a staged way, said Lawrie. “Lique¬fied Petroleum Gas (LPG) supply should slowly start getting more trac¬tion so that consumers don’t have to rely solely on kerosene. This will act as a buffer during a period of kerosene subsidy removal,” she added.

According to Adenikinju, the overall implications of removing the kerosene subsidy on the poor will be minimal since they currently do not benefit from the subsidy. “It is those that fraudulently benefit from the existing practices that will lose out. However, that is not to suggest that we should not find a better approach that will assist the poor directly to enable them access modern energy sources for their energy services like cooking, lighting and heating, for which they currently depend heavily on biomass that have negative impact on the en¬vironment, their health and economic productivity.”oando

With the dust raised by the al¬legation of non-remittance of oil revenue levied on the Nigerian National Petroleum Corporation (NNPC) still swirling around, the question has arisen as to whether or not kerosene subsidy, which gulped at least N1 trillion in the past four years, is really benefitting the target audience in the country.

Adeola Adenikinju, president, Nigerian Association for Energy Economics and director, Centre for Petroleum, Energy Economics and Law, University of Ibadan said that “the subsidy has provided a conduit pipe for some highly placed and connected people to swindle the country.”

The government requires market¬ers to sell Household kerosene (HHK) at below market rates. It then pays the marketers the difference between the market price and the government-approved retail price. The Nigerian National Petroleum Corporation (NNPC) is the sole importer of the fuel. But despite the kerosene subsidy regime, retail prices of HHK across the country have been far above the government-approved price of N50 per litre, ranging from N100 to N250 per litre, depending on the location, with only the NNPC petrol stations and a few retailers in Lagos, Port Harcourt and Abuja selling at the ap¬proved regulated price.

Presidential directive on stoppage of subsidy

The end is yet to be seen to the controversy over the allegation by Sanusi Lamido Sanusi, the suspend¬ed governor of the Central Bank of Nigeria, that the NNPC flouted the presidential order stopping kerosene subsidy in 2009.

In 2009, a directive from President Umaru Yar’Adua ordered the NNPC to discontinue subsidy payments on kerosene since they were not reaching the intended beneficiaries. The NNPC discontinued its claim for funds to pay for the subsidy until February 2012, when it claimed arrears for kerosene subsidies for the period between 2009 and 2011.

According to NNPC, the directive was stayed for execution as a result of its possible repercussions on the masses.

The Technical Committee on Pay¬ment of Fuel Subsidies had stated that the NNPC sold products to de¬pot owners rather than retail outlet

owners as required by regulation. The committee maintained that two thirds of the kerosene sold by NNPC between 2009 and 2011 was sold to depot owners and middle-men who in turn sold the product to owners of retail outlets at inflated prices between N115 and N125 per litre.

The country has spent at least N1 trillion over the past four years to sub¬sidise kerosene, Aminu Tambuwal, speaker of the House of Representa¬tives said. He queried the source of funding of kerosene subsidy and on

Unless very telling actions are taken, I do not see the relevance of the subsidy, as the commodity is rendered so scare that the aver¬age Nigerian is then forced to buy it at higher than the land¬ing price

whose authority such monies were appropriated since there were no bud¬getary provisions for the subsidy.

The jury is out

In a motion entitled “Urgent Need to Stop N700 million a Day Ille¬gal Kerosene Subsidy’, Babajide Omo¬worare, a senator stated that less than 10 percent of petroleum products outlets across the country sell kero¬sene at the alleged subsidised rate of N50 per litre while the general price is not less than N150 per litre. An¬other senator Isa Galaudu urged the government to as a matter of urgency stop payment of subsidy on kerosene to allow more marketers to import it into the country.

Adeola Adenikinju noted that the poor who ordinarily should benefit from the subsidy struggle to get the product even at much higher price. “In the rural areas where most of the poor live, kerosene prices are far beyond their ability, and have had to continue to depend on the forest for the energy supply.”

Claire Lawrie, head of oil and gas advisory for Africa, Ernst & Young, said: “Nigeria’s spending on ‘subsidised’ products like petrol and kerosene is among the highest in the world. No country that spends most of its funds on consumption wil grow.”

Oladiran Ajayi, energy expert and senior associate with Templars law firm is of the view that “in the long-term, the subsidy initiative ap¬pears unsustainable as it undermines private and public investment in the energy sector. Fuel price subsidies are the primary reason that the crude pe¬troleum refining sector cannot attract investment. The sector languishes for lack of funds, increasing fuel imports, which in turn worsen the fiscal bur¬den.”

Ayodele Oni, energy law and policy expert and senior associate in top law firm Banwo & Ighodalo said a lot of dynamics impact the price of kerosene, which vary from the han¬dling charges, arbitrage, diversion for use as aviation fuel, its use for other things because of its multifunctional capability, smuggling to neighbor¬ing African countries, amongst other factors. Unless very telling actions are taken, I do not see the relevance of the subsidy, as the commodity is rendered so scare that the average Nigerian is then forced to buy it at higher than the landing price.”

With the dust raised by the al¬legation of non-remittance of oil revenue levied on the Nigerian National Petroleum Corporation (NNPC) still swirling around, the question has arisen as to whether or not kerosene subsidy, which gulped at least N1 trillion in the past four years, is really benefitting the target audience in the country.

Adeola Adenikinju, president, Nigerian Association for Energy Economics and director, Centre for Petroleum, Energy Economics and Law, University of Ibadan said that “the subsidy has provided a conduit pipe for some highly placed and connected people to swindle the country.”

The government requires market¬ers to sell Household kerosene (HHK) at below market rates. It then pays the marketers the difference between the market price and the government-approved retail price. The Nigerian National Petroleum Corporation (NNPC) is the sole importer of the fuel. But despite the kerosene subsidy regime, retail prices of HHK across the country have been far above the government-approved price of N50 per litre, ranging from N100 to N250 per litre, depending on the location, with only the NNPC petrol stations and a few retailers in Lagos, Port Harcourt and Abuja selling at the ap¬proved regulated price.

Presidential directive on stoppage of subsidy

The end is yet to be seen to the controversy over the allegation by Sanusi Lamido Sanusi, the suspend¬ed governor of the Central Bank of Nigeria, that the NNPC flouted the presidential order stopping kerosene subsidy in 2009.

In 2009, a directive from President Umaru Yar’Adua ordered the NNPC to discontinue subsidy payments on kerosene since they were not reaching the intended beneficiaries. The NNPC discontinued its claim for funds to pay for the subsidy until February 2012, when it claimed arrears for kerosene subsidies for the period between 2009 and 2011.

According to NNPC, the directive was stayed for execution as a result of its possible repercussions on the masses.

The Technical Committee on Pay¬ment of Fuel Subsidies had stated that the NNPC sold products to de¬pot owners rather than retail outlet

owners as required by regulation. The committee maintained that two thirds of the kerosene sold by NNPC between 2009 and 2011 was sold to depot owners and middle-men who in turn sold the product to owners of retail outlets at inflated prices between N115 and N125 per litre.

The country has spent at least N1 trillion over the past four years to sub¬sidise kerosene, Aminu Tambuwal, speaker of the House of Representa¬tives said. He queried the source of funding of kerosene subsidy and on

Unless very telling actions are taken, I do not see the relevance of the subsidy, as the commodity is rendered so scare that the aver¬age Nigerian is then forced to buy it at higher than the land¬ing price

whose authority such monies were appropriated since there were no bud¬getary provisions for the subsidy.

The jury is out

In a motion entitled “Urgent Need to Stop N700 million a Day Ille¬gal Kerosene Subsidy’, Babajide Omo¬worare, a senator stated that less than 10 percent of petroleum products outlets across the country sell kero¬sene at the alleged subsidised rate of N50 per litre while the general price is not less than N150 per litre. An¬other senator Isa Galaudu urged the government to as a matter of urgency stop payment of subsidy on kerosene to allow more marketers to import it into the country.

Adeola Adenikinju noted that the poor who ordinarily should benefit from the subsidy struggle to get the product even at much higher price. “In the rural areas where most of the poor live, kerosene prices are far beyond their ability, and have had to continue to depend on the forest for the energy supply.”

Claire Lawrie, head of oil and gas advisory for Africa, Ernst & Young, said: “Nigeria’s spending on ‘subsidised’ products like petrol and kerosene is among the highest in the world. No country that spends most of its funds on consumption wil grow.”

Oladiran Ajayi, energy expert and senior associate with Templars law firm is of the view that “in the long-term, the subsidy initiative ap¬pears unsustainable as it undermines private and public investment in the energy sector. Fuel price subsidies are the primary reason that the crude pe¬troleum refining sector cannot attract investment. The sector languishes for lack of funds, increasing fuel imports, which in turn worsen the fiscal bur¬den.”

Ayodele Oni, energy law and policy expert and senior associate in top law firm Banwo & Ighodalo said a lot of dynamics impact the price of kerosene, which vary from the han¬dling charges, arbitrage, diversion for use as aviation fuel, its use for other things because of its multifunctional capability, smuggling to neighbor¬ing African countries, amongst other factors. Unless very telling actions are taken, I do not see the relevance of the subsidy, as the commodity is rendered so scare that the average Nigerian is then forced to buy it at higher than the landing price.”

The subsidy needs to be removed in a staged way, said Lawrie. “Lique¬fied Petroleum Gas (LPG) supply should slowly start getting more trac¬tion so that consumers don’t have to rely solely on kerosene. This will act as a buffer during a period of kerosene subsidy removal,” she added.

With the dust raised by the al¬legation of non-remittance of oil revenue levied on the Nigerian National Petroleum Corporation (NNPC) still swirling around, the question has arisen as to whether or not kerosene subsidy, which gulped at least N1 trillion in the past four years, is really benefitting the target audience in the country.

Adeola Adenikinju, president, Nigerian Association for Energy Economics and director, Centre for Petroleum, Energy Economics and Law, University of Ibadan said that “the subsidy has provided a conduit pipe for some highly placed and connected people to swindle the country.”

The government requires market¬ers to sell Household kerosene (HHK) at below market rates. It then pays the marketers the difference between the market price and the government-approved retail price. The Nigerian National Petroleum Corporation (NNPC) is the sole importer of the fuel. But despite the kerosene subsidy regime, retail prices of HHK across the country have been far above the government-approved price of N50 per litre, ranging from N100 to N250 per litre, depending on the location, with only the NNPC petrol stations and a few retailers in Lagos, Port Harcourt and Abuja selling at the ap¬proved regulated price.

Presidential directive on stoppage of subsidy

The end is yet to be seen to the controversy over the allegation by Sanusi Lamido Sanusi, the suspend¬ed governor of the Central Bank of Nigeria, that the NNPC flouted the presidential order stopping kerosene subsidy in 2009.

In 2009, a directive from President Umaru Yar’Adua ordered the NNPC to discontinue subsidy payments on kerosene since they were not reaching the intended beneficiaries. The NNPC discontinued its claim for funds to pay for the subsidy until February 2012, when it claimed arrears for kerosene subsidies for the period between 2009 and 2011.

According to NNPC, the directive was stayed for execution as a result of its possible repercussions on the masses.

The Technical Committee on Pay¬ment of Fuel Subsidies had stated that the NNPC sold products to de¬pot owners rather than retail outlet

owners as required by regulation. The committee maintained that two thirds of the kerosene sold by NNPC between 2009 and 2011 was sold to depot owners and middle-men who in turn sold the product to owners of retail outlets at inflated prices between N115 and N125 per litre.

The country has spent at least N1 trillion over the past four years to sub¬sidise kerosene, Aminu Tambuwal, speaker of the House of Representa¬tives said. He queried the source of funding of kerosene subsidy and on

Unless very telling actions are taken, I do not see the relevance of the subsidy, as the commodity is rendered so scare that the aver¬age Nigerian is then forced to buy it at higher than the land¬ing price

whose authority such monies were appropriated since there were no bud¬getary provisions for the subsidy.

The jury is out

In a motion entitled “Urgent Need to Stop N700 million a Day Ille¬gal Kerosene Subsidy’, Babajide Omo¬worare, a senator stated that less than 10 percent of petroleum products outlets across the country sell kero¬sene at the alleged subsidised rate of N50 per litre while the general price is not less than N150 per litre. An¬other senator Isa Galaudu urged the government to as a matter of urgency stop payment of subsidy on kerosene to allow more marketers to import it into the country.

Adeola Adenikinju noted that the poor who ordinarily should benefit from the subsidy struggle to get the product even at much higher price. “In the rural areas where most of the poor live, kerosene prices are far beyond their ability, and have had to continue to depend on the forest for the energy supply.”

Claire Lawrie, head of oil and gas advisory for Africa, Ernst & Young, said: “Nigeria’s spending on ‘subsidised’ products like petrol and kerosene is among the highest in the world. No country that spends most of its funds on consumption wil grow.”

Oladiran Ajayi, energy expert and senior associate with Templars law firm is of the view that “in the long-term, the subsidy initiative ap¬pears unsustainable as it undermines private and public investment in the energy sector. Fuel price subsidies are the primary reason that the crude pe¬troleum refining sector cannot attract investment. The sector languishes for lack of funds, increasing fuel imports, which in turn worsen the fiscal bur¬den.”

Ayodele Oni, energy law and policy expert and senior associate in top law firm Banwo & Ighodalo said a lot of dynamics impact the price of kerosene, which vary from the han¬dling charges, arbitrage, diversion for use as aviation fuel, its use for other things because of its multifunctional capability, smuggling to neighbor¬ing African countries, amongst other factors. Unless very telling actions are taken, I do not see the relevance of the subsidy, as the commodity is rendered so scare that the average Nigerian is then forced to buy it at higher than the landing price.”

The subsidy needs to be removed in a staged way, said Lawrie. “Lique¬fied Petroleum Gas (LPG) supply should slowly start getting more trac¬tion so that consumers don’t have to rely solely on kerosene. This will act as a buffer during a period of kerosene subsidy removal,” she added.oando

According to Adenikinju, the overall implications of removing the kerosene subsidy on the poor will be minimal since they currently do not benefit from the subsidy. “It is those that fraudulently benefit from the existing practices that will lose out. However, that is not to suggest that we should not find a better approach that will assist the poor directly to enable them access modern energy sources for their energy services like cooking, lighting and heating, for which they currently depend heavily on biomass that have negative impact on the en¬vironment, their health and economic productivity.”

 

According to Adenikinju, the overall implications of removing the kerosene subsidy on the poor will be minimal since they currently do not benefit from the subsidy. “It is those that fraudulently benefit from the existing practices that will lose out. However, that is not to suggest that we should not find a better approach that will assist the poor directly to enable them access modern energy sources for their energy services like cooking, lighting and heating, for which they currently depend heavily on biomass that have negative impact on the en¬vironment, their health and economic productivity.”

 

The subsidy needs to be removed in a staged way, said Lawrie. “Lique¬fied Petroleum Gas (LPG) supply should slowly start getting more trac¬tion so that consumers don’t have to rely solely on kerosene. This will act as a buffer during a period of kerosene subsidy removal,” she added.

According to Adenikinju, the overall implications of removing the kerosene subsidy on the poor will be minimal since they currently do not benefit from the subsidy. “It is those that fraudulently benefit from the existing practices that will lose out. However, that is not to suggest that we should not find a better approach that will assist the poor directly to enable them access modern energy sources for their energy services like cooking, lighting and heating, for which they currently depend heavily on biomass that have negative impact on the en¬vironment, their health and economic productivity.”

 

 

One Response to Nigeria’s kerosene subsidy conundrum

  1. Bad condition, in this jungle lions should eat their own share & let goat take their own….

    Anekwe Arinze chris
    March 2, 2014 at 3:29 pm
    Reply

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