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IMF raises alarm over rising cost of oil subsidy in Nigeria

The International Monetary Fund has expressed concern over the resurfacing of fuel subsidies in Nigeria, describing it as ‘concerning, particularly in the context of low revenue mobilisation’.

The Federal Government had in March 2020 removed petrol subsidy after reducing the pump price of the product to N125 per litre from N145 following the sharp drop in crude oil prices.

The landing cost of Premium Motor Spirit being imported into Nigeria surged by more than 60 per cent between December 2020 and mid-June this year, although the pump price of the product remained unchanged.

From an average of N143.60 per litre in December, the landing cost of petrol rose to N231.98 per litre on June 16 this year on the back of the rally in global oil prices and the depreciation of the naira against the dollar.

The Petroleum Products Pricing Regulatory Agency had in March this year released a pricing template that indicated the guiding prices for the month.

The template, which showed that petrol pump price was expected to range from N209.61 to N212.61 per litre, was greeted with widespread public outcry and was later deleted by the agency from its website.

Allaying fears official source had said “The recent introduction and implementation of an automatic fuel price formula will ensure fuel subsidies, which we have eliminated, do not reemerge,”

The Nigerian government had told the IMF in the letter of intent dated April 21, 2020 with respect to its request for emergency financial assistance of $3.4bn.

In February this year, the IMF said in a report after its Article IV consultation with Nigeria that the Nigerian authorities expressed strong commitment to prevent fuel subsidies from resurfacing and to fully eliminate electricity tariff shortfalls by mid-2021.

But petrol subsidy re-emerged earlier this year as the government did not allow the pump price of the product to reflect the significant rise in oil prices.

“The mission expressed its concern with the resurgence of fuel subsidies. It reiterated the importance of introducing market-based fuel pricing mechanism and the need to deploy well-targeted social support to cushion any impact on the poor,” the IMF said on June 17.

The Group Managing Director, Nigerian National Petroleum Corporation, Mele Kyari, said on March 25 that with the current market situation, the actual price of petrol could have been anywhere between N211 and N234 per litre.

He said the Federal Government was subsidising petrol with about N100bn to N120bn monthly (N3.3bn-N4bn daily) as it was being sold for N162 per litre.

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