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N888bn fuel subsidy will run out before year end – Sanusi

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Image: Central Bank Governor, Sanusi Lamido Sanusi



April 20  2012



Nigeria’s 2012 budget allocation to pay for fuel subsidies will run out before the end of the year, risking the country raiding its oil savings and borrowing more, Central Bank governor, Sanusi Lamido Sanusi told Reuters.

Nigeria scrapped subsidies on petrol imports on January 1, potentially saving over N1 trillion ($6.35 billion). But more than a week of strikes and protests erupted across the coutry against the higher cost of motor fuel, forcing government to partially reinstate them.

The 2012 budget signed by President Goodluck Jonathan last week, allocated N888 billion for fuel subsidy payments. If this is insufficient, they will have to find more money or stop paying, which is unlikely, given public reaction in January.

“With oil prices where they’ve been since the beginning of the year, I’m sure that we will be exposed to that amount long before the year runs out,” Sanusi told the Reuters Africa Investment Summit.

“If I was asked for advice I’d simply say pay what you have in the budget and simply stop paying. (If not) They take the money from the excess crude account (or) you’ve got to borrow money.”

Jonathan came to power last April, promising to tackle Nigeria’s wasteful governance, and Sanusi praised the budget last month for being more fiscally disciplined.

The country which is Africa’s biggest crude oil exporter, is supposed to save money over a benchmark price, which was $72 a barrel in the 2012 budget, into an excess crude account to cushion the economy against potential oil price shocks.

But the account has been repeatedly raided by politicians and despite record high oil prices, it contained only $3.5 billion earlier this year, down from some $20 billion in 2007. It won’t last long if subsidy payments overshoot.

Nigeria’s total debt is about 20 percent of GDP, which is comfortable compared with other African countries, but, Sanusi argues this is poor for a country pumping as much oil as Nigeria.

Debts are rising despite high oil revenue and economists are concerned that borrowing is increasingly internal, which means from banks and pension funds. If the government fails to pay, then other parts of the economy are at risk.

The country relies on crude exports for more than 80 percent of government revenues and budgets for this amount based on the benchmark oil price and assumed production, which was set at 2.4 million barrels per day this year. This is at the top-end of actual production last year and if there are any output shortfalls, which have been common in the past, government will have to borrow to cover any shortfall.

“(The output) assumption was too optimistic ... based on the most rosy forecasts of operating environment,” Sanusi said.

“When you’ve got militancy, you’ve got production shortages, you’ve got natural operational failures, a more conservative output figure to begin with would have been better.”, he said. High oil prices have enabled the country’s economy to grow at more than 7 percent a year but poverty is rising.

President Jonathan pledged before his election last year to improve the country’s woeful electricity system by privatising the power sector and to reform the oil sector, to weed out corruption and save the indebted national oil firm, the Nigerian National Petroleum Corporation (NNPC).

The ambitious Petroleum Industry Bill (PIB), which was supposed to change everything from taxes to the structure of the NNPC, has been stuck in parliamentary dispute for years.

Reforms are running months behind schedule and risk being blocked off by politicians who benefit from the status quo.

“Clearly we should have made much more progress than we’ve made,” Sanusi said. “The PIB is a major disappointment ... after several years (it) is about to start again its tortuous path through the National Assembly.





Article credit: Businessday Newspaper

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