The gasoline subsidy embodied the worst characteristics of the country’s economic governance. In 2011, the subsidy on gasoline cost the government over $9 billion, more than the entire federal government capital budget and about double the subsidy’s cost in 2010. The costs were exacerbated by rising interest charges and insurance premiums occasioned by payment delays.
By the end of 2011, Nigeria owed importers over $4 billion, the government decided to end the subsidy.
The Coordinating Minister of the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, has said the N888bn (approx. $ 5.6bn) 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.
The Federal Government has 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 Federal Government has 445,000-barrel per day crude oil refining capacity but has been relying on petroleum product imports for domestic consumption and 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 (approx. $ 6.1bn) for petroleum subsidy in the 2013 budget estimates presented to the National Assembly by the President.
The government’s efforts, according to analysts, suggest that it may not completely remove fuel subsidy until it gets the local refineries working optimally. It is reported that meanwhile, the Federal Government is targeting raising the amount in the Excess Crude Account to $10bn between January and February, 2013. Further that the Finance ministry is 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 in September 2012 was $8.4bn (N1.32tn), 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. Analysts report 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.