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Fuel Subsidy Stifles Competition, Private Investment – Envoy

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Nigeria’s Ambassador to the United States, Prof. Adebowale Adefuye, says fuel subsidy discourages competition and stifles private investment in the downstream sector.

“Due to the lack of deregulation, investors have shied away from investing in the development of refineries, petro-chemicals and fertiliser plants,’’ Adefuye said at a special town hall meeting with Nigerians in Chicago on Saturday.

Our North America Correspondent reports that the meeting was convened to discuss issues relating to the fundamentalist, Boko Haram sect and fuel subsidy removal.

Adefuye noted that subsidy encouraged smuggling of petroleum products across the borders to neighbouring countries where prices were higher.

“Continuing with the fuel subsidy system will pose a serious danger to the economic survival of the country.

“With 72 per cent of the country’s budget being spent on recurrent expenditure, there will come a time when there will be no money available for capital projects.

“We would then have to say goodbye to plans to improve power supply, repair our roads, rebuild our railways, improve the quality of our education and attain the objectives of our Vision 20:2020.’’

The envoy noted that in 2011, fuel subsidy was more than the aggregate sectoral allocation for education, health, power, agriculture and rural development as well as water resources.

He equally observed that from 2006 to 2011, more than N3.7 trillion was spent on subsidy and in 2011, N1.348 trillion was spent between January and October while N1.436 trillion was spent at the end of the year.

“This represents 30 per cent of total Federal Government’s expenditure, 118 per cent of the capital budget and 4.18 per cent of the Gross Domestic Product.’’

Adefuye said the government had to borrow N52 billion in 2011 to finance its deficit.

He said that subsidy was no longer economically sustainable as it was increasing in leaps and bounds, fuelled by corruption.

“In 1999, N600 billion went into subsidy; in 2010, it was N800 billion and in 2011, N1.3 trillion. This means that it would reach a stage when nearly the entire federal budget would be diverted to fuel subsidy alone.

“What is even more annoying is that the subsidy regime has been captured by the ‘fat cats’ in the oil cartel of about hundred oil companies owned by some of the richest Nigerians.

“These are some of the people suspected to be encouraging and sponsoring some elements in the current civil strife.’’

The ambassador added that removal of fuel subsidy would mean right pricing of fuel in Nigeria and would attract foreign investment in the downstream sector of the oil and gas industry.

“It will attract foreign investments for the establishment of private sector refineries, petrochemical plants and it will enable companies issued licences to establish projects and create job opportunities for the youth and ensure technology transfer.

“In fact, the estimate is that in a few years, not less than 750,000 direct and related jobs would be created on account of this.

“With fuel subsidy removed, three Green Refineries already in the pipeline with a total production capacity of 300,000 barrels per day will be speedily established.

“There will be more money to effect turnaround maintenance of the existing refineries in Kaduna, Warri and Port Harcourt to ensure maximum production.’’

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Lawmakers Want CBN To Halt Naira Devaluation

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The House of Representatives has asked the Central Bank of Nigeria (CBN), to urgently put in place a policy to check further devaluation of the naira to the United States dollar and other international legal tenders.
The House decried that while the Nigerian currency was losing value, others in Africa were appreciating.
At the plenary on Wednesday, the House unanimously adopted a motion moved by the Deputy Chairman of the Committee on Pensions, Mr Bamidele Salam, which warned the CBN of the implications of further devaluing the naira.
The motion was titled, ‘Matter of urgent public importance on the need for the Central Bank of Nigeria to urgently put in place monetary policies to stop the free fall of the naira against the dollar and other international legal tenders’.
Salam recalled that the CBN governor, Godwin Emefiele, while addressing the Bankers’ Committee at a summit on the economy in Lagos earlier in February, informed the committee about the naira devaluation against the dollar.
The lawmaker also quoted Emefiele as saying at the summit that the official exchange rate stood at N410 to the dollar.
“That is 7.6 per cent weaker than the rate of N379 published on the central bank’s website,” Salam noted.
According to the lawmaker, while the value of the naira relative to the dollar had declined by nine per cent in the last six months, the South African rand and Ghanaian cedi had appreciated by 11.4 per cent and one per cent, respectively.
Salam also recalled that the CBN adopted multiple exchange rates in 2020, in a bid to avoid an outright devaluation. 
He noted that the official rate used as a basis for budget preparation and other official transactions differed from a closely controlled exchange rate for investors and exporters known as the Nigerian Autonomous Foreign Exchange Rate Fixing Methodology.
He stressed that the naira had traded in a tight range between N400 and N410, while the NAFEX rate was different from the parallel market, considered illegal by the CBN, where the naira closed at 502.
Salam said, “The House is concerned that devaluation is likely to cause inflation because imports will be more expensive any imported goods or raw material will increase in price; aggregate demand increases, causing demand-pull inflation. Firms/exporters have less incentive to cut costs because they can rely on the devaluation to improve competitiveness.
 ”The concern is that the long-term devaluation may lead to lower productivity because of the decline in incentives.
 ”The House is further concerned that devaluation of the naira makes it more difficult for Nigerian youths especially in the IT sector, whose businesses are online and must necessarily transact businesses in the US dollars. 
“It also reduces real wages. In a period of low wage growth, a devaluation that causes rising import prices will make consumers feel worse off “.

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Four West African Countries To Buy Nigeria’s Unutilised Electricity

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Four West African countries, Niger, Togo, Benin and Burkina Faso, are collaborating to buy the unutilised power produced in Nigeria. 
The Chairman of the Executive Board of the West African Power Pool (WAPP), Sule Abdulaziz, disclosed this at the WAPP meeting on the North core project in Abuja, on Wednesday. 
Abdulaziz, who is also the acting Managing Director of the Transmission Company of Nigeria (TCN), said the four countries were collaborating to make the power purchase from Nigeria through the North core Power Transmission Line currently being built.
He explained, “The power we will be selling is the power that is not needed in Nigeria.
“The electricity generators that are going to supply power to this transmission line are going to generate that power specifically for this project. So, it is unutilised power”.
He said Nigeria was expecting new generators to participate in the energy export for the 875km 330KV Northcore transmission line from Nigeria through Niger, Togo, Benin to Burkina Faso.
Abdulaziz said, “In addition, there are some communities that are under the line route, about 611 of them, which will be getting power so that there won’t be just a transmission line passing without impact”.
The WAPP chairman noted that the project, funded by World Bank, French Development Council and the African Development Bank, had recorded progress, adding that the energy ministers would be addressing security issues for the project at another meeting in Abuja.
He said, “Nigeria has the greatest advantage among these countries because the electricity is going to be exported from Nigerian Gencos (generation companies). 
“So, from that, the revenue is going to be enhanced and a lot of people will be employed in Nigeria”.
The Secretary-General, WAPP, Siengui Appolinaire-Ki, said the cost of the project was about $570 million, adding that part of the investment in each country would be funded by that particular nation.
According to him, the countries in the partnership, including Nigeria, are also being supported by donors.
He said the funding agreement was ready as partner countries were awaiting the disbursements.
Appolinaire-Ki, however, said the donor agencies had said they needed a Power Purchase Agreement between the buying and the selling countries to be executed before releasing the fund.

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Reps Probe N275bn Agric Loans Under Yar’Adua, Jonathan, Buhari

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The House of Representatives has resolved to investigate the disbursement of loans and credit facilities by the Federal Government in the agriculture sector since 2009.
The period under review covers the administrations of the late Umaru Yar’Adua, Goodluck Jonathan as well as the present President, Muhammadu Buhari.
The resolution was sequel to the unanimous adoption of a motion moved by Hon. Chike Okafor at the plenary last Wednesday, titled ‘Need to investigate disbursements of all agricultural loans/credit facilities to farmers from 2009 to date to enhance national food security’. 
Okafor said, from 2009 to date, the Federal Government had approved the disbursement of funds to farmers in various schemes to the tune of over N275billion, ranging from Commercial Agricultural Credit Scheme to the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending, to help farmers improve agricultural production and guarantee food security in Nigeria.
The lawmaker also noted that apart from increasing food supply, the schemes were to grant agricultural loans to large and small-scale commercial farmers to lower the prices of agricultural produce, generate employment and increase foreign exchange earnings.
He said, “The House is aware that since the approval, most farmers have not been able to access the loans due to stringent requirements being demanded by banks from prospective borrowers and the alleged siphoning of over N105billion meant for farmers by management of NIRSAL.
“The House is concerned that food production has not attained the expected level, despite the approval of over N275billion facilities to farmers. 
“The House is worried that the projected diversification of the economy from oil production to agricultural production and increase in agricultural output, food supply and promoting low food inflation will not be achieved if farmers are unable to access loans meant to increase agricultural production”.
Adopting the motion, the House resolved to mandate the Committee on Banking and Currency to “investigate disbursements and compliance of all agricultural loans/credit facilities to farmers from 2009 to date to enhance national food security in the country”.

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