The World Bank on Tuesday stated that Fuel Subsidy does not
benefit Nigeria and should be further scrutinized as he noted that the
continued sustenance of Subsidy is responsible for the country’s inability to
accumulate a fiscal reserve which could have cushioned the Economy against the
impact of the Oil price crash.
According to the Lead Economist of the World Bank Mr John
Litwack, speaking at the launch of the
bank’s third Nigeria Economic Report (NER), he said that the Bank would not
influence Nigeria’s decision on the issue of fuel subsidy, adding that it could
only point out the costs and benefits.
“We did not make any recommendations on fuel subsidy because
precisely we don’t think it is our place to do that; we understand this is a
difficult decision for Nigeria.
“There are implications that should be considered but we
think Nigeria will ultimately decide; so what we are trying to do is to inform
the debate by pointing out the cost implications. “The costs quite frankly look very high and the benefits for
the ordinary Nigerian does not look that high,’’ he said.
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| World Bank - Nigeria Economic Report Launch |
He noted that the annual spending on fuel subsidy in the
country accounted for about one-fourth of all budgetary spending. According to
him, this is significantly greater than the entire federal capital budget and
greater than all federal spending on education and public health combined. He,
however, said that weak enforcement of administrative prices of petrol and
kerosene had in no small measure reduced the benefits of fuel subsidies to
Nigerians.
The World Bank Chief Economist noted that uncertainty about the fuel
subsidy had strongly discouraged investment in domestic oil refining. “Allegations of corruption and fraud surrounding the
implementation of the fuel subsidy were costly to the reputation of the
government.
“Subsidy related fuel shortages have repeatedly disrupted
economic activity and imposed serious welfare costs on Nigerian households.’’ Litwack advised Nigeria to seriously reform its tax system
to address economic challenges being faced in the country. He said the country
should build a tax system that was not dependent on oil.
“A lot of the problem is tax administration and if the
government is collecting all the taxes that it should be collecting, then we
won’t have this type of crisis.
“So the approach is not simply increase in tax rate, but
bringing people under the tax net and probably using incentives to get people
to pay taxes.’’
Gas
Lead Energy Specialist of the bank Masami Kojima, said
although Nigeria boasted of being the ninth largest natural gas reserve in the
world, it suffered from chronic shortages.
This, she said was evident in the amount of gas flared as
against the amount used for power generation.
Kojima said that although successive administrations were
aware of the need to provide sound regulatory and commercial conditions for
natural gas development, progress made in modernising the sector had been
limited.
She listed some issues affecting a robust natural gas sector
in the country as lack of proper design of institutional framework for
regulating the sector and the lack of clarity for some regulations and
regulators.
She said others included incomplete or missing regulations,
low pricing policy, payment delays and inadequate transparency that stood as
major obstacles to investment in Nigeria’s natural gas sector.
Kojima advocated the establishment of a domestic gas
aggregator, announcement of annual domestic gas demand and allocation of
domestic supply obligation to licensed petroleum producer at the beginning of
each year.
She also said that a dedicated gas bill for the midstream
and downstream should be considered.
Kojima said Nigeria should renew licences promptly and fully
implement roadmap for power sector reform to ensure prompt and full payment.
“Realising the vast potential of Nigeria’s natural gas
sector will demand a bold new strategy that includes revisiting the pricing
policy and regulations from 2008.
“With a new administration in place and the recent
announcement by NNPC of its change agenda, there is a historic opportunity to
transform the gas sector,’’ she said.
The report examined issues bordering on fuel subsidy and the
natural gas sector.
NER is a series of reports produced to inform public debate
on some of the macroeconomic opportunities and challenges of the country.
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