N888bn enough for 2012 fuel subsidy – Okonjo-Iweala

 

Minister of Finance, Dr. Ngozi Okonjo-Iweala
| credits: File copy

The Federal Government believes it has no compelling reason to prepare a supplementary appropriation for petroleum subsidy payments because the fund earmarked for that purpose in the 2012 budget should be enough, MARTIN AYANKOLA writes.

The Coordinating Minister of the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, has said the N888bn allocated for subsidy payments in the 2012 budget should be enough to pay petroleum product importers.She told journalists in Tokyo, Japan, recently that the fund had not been exhausted and should be enough to pay the subsidy bills for this year.

“We have not exhausted the fund and there may not be a need for a supplementary budget,” Okonjo-Iweala said.The Federal Government spent over N1.7tn on fuel subsidy in 2011, but it had since tightened the payment system and is currently prosecuting some oil marketers for subsidy fraud.

The government is also making efforts to revamp the nation’s comatose refineries with about $1.6bn set aside for their turnaround maintenance.The nation has 445,000-barrel per day crude oil refining capacity but has been relying on petroleum product imports for domestic consumption.

It has, however, invited the original builders of the refineries in Port Harcourt, Warri and Kaduna to help revamp them.

Also, the Federal Government has earmarked N971bn for petroleum subsidy in the 2013 budget estimates presented to the National Assembly by President Goodluck Jonathan.

The government’s efforts, according to analysts, suggest that it may not completely remove fuel subsidy until it gets the local refineries working optimally.Meanwhile, the Federal Government is targeting raising the amount in the Excess Crude Account to $10bn between January and February, 2013.Our correspondent gathered from sources close to the Ministry of Finance that the government was seeing the balance in the account, currently at $8.4bn, climbing to $10bn by the first quarter of the year.It was gathered that the Finance ministry was anticipating that the fund would increase to $10bn, even if deductions had to be made from the account to pay for petroleum subsidy in 2012.

The country currently saves oil revenue above the benchmark budgeted price of $72 per barrel in the ECA.

The 36 state governors agreed in June to boost savings in the account to $10bn. Its balance last month was $8.4bn (N1.32tn), the Minister of State for Finance, Dr. Yerima Ngama, said on October 12.

The nation’s foreign-exchange reserves have increased by 28 per cent this year to $42bn. The Nigerian benchmark Bonny Light crude has risen by 27 per cent from a June low to $114.52 a barrel.

Meanwhile, it has been reported that the country’s chance of a rating upgrade is being hindered by a lack of clarity over how its Sovereign Wealth Fund will grow amid tensions between the Federal Government and state governments over revenue allocation, according to Standard & Poor’s.

Increasing the size of the fund from its initial $1bn was key to building up external buffers that were needed for an upgrade in the B+ rating of Africa’s biggest oil producer, Christian Esters, a sovereign analyst at S&P, said in a phone interview from Frankfurt.

President Goodluck Jonathan signed the SWF into law in May last year but the 36 states said they planned to file a lawsuit challenging transfers by the Federal Government, including those to the wealth fund.

The constitution requires government revenue to be shared among local, state and federal authorities.

Esters said, “I don’t think currently we have visibility about how quickly this new Sovereign Wealth Fund will grow.“It continues to be a challenge for the Federal Government to convince the states to get them on board and to convince them what the advantages would be.”

Okonjo-Iweala had said on September 21 that the suit by the state governors would not affect the $1bn already set aside for the SWF.She named a management team for the Nigerian Sovereign Wealth Investment Authority on August 28, headed by Mr. Uche Orji, a former Goldman Sachs Group Incorporated, UBS AG and JPMorgan Chase & Co. banker.

There has also been a serious contention on the oil price benchmark to be used for the 2013 budget.

While, the Federal Government has proposed $72 per barrel, the House of Representatives has adopted $80, while the Senate had adopted $78.However, a financial analyst and Managing Director, Financial Derivatives Company Limited, Mr. Bismark Rewane, said the price adopted by the Senate was high.“As an economist, I think it is still high at $78. Why is it a problem for them to reduce it? If there is a 25 per cent decline in international oil price, there will be problem. To be on a safe side, it is necessary to adopt $75 rather than $80,” he said.Okonjo-Iweala had also argued that a benchmark price higher than $75 could pose a threat to the economy by triggering inflation and leading to naira depreciation.