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News Update (January 11, 2012 05:49 AM...)

Analysts commend reformers' defends of subsidy removal


WorldStage Newsonline-- Analysts have commended the coordinating minister for the economy and minister of finance, Ngozi Okonjo-Iweala, and the Central Bank of Nigeria governor, Lamido Sanusi for coming strongly to defend the policy of the government to remove fuel subsidy, at a time when protests against the decision by the main labour unions and civil right groups, had paralised economic activities across the country.

Okonjo-Iweala and Sanusi on Tuesday came out strongly to defend governments position, focusing on the long term benefits to be derived once accruals from the subsidy withdrawal begin to be utilised.

Ngozi mentioned that prices of petroleum products would decline once the nations four refineries become fully operational sometime within the next 18-24 months. Further price declines are expected once additional investment goes in the Federal Government is willing to co-invest (passively) with private sector operators in the construction of green field refineries.

Analysts from FBN Capital, the investment banking unit of First Bank said In light of the above, we welcome attempts by some of the leading reformers in government to engage the public.

The noted many inaccuracies and misinformation doing the rounds locally on the subsidy removal, including some suggestions that the government should reverse the price of PMS back to N65 per litre and pay no subsidy to any marketer, or that if refineries were operating optimally, there would be no need for subsidies (or PMS imports).

One would have assumed that it would be obvious that no marketer will import PMS (at a loss) without the subsidy being in place if the fixed price regime was still being adhered to, the analysts said.

On the claim that the refineries could potentially satisfy all PMS demand, based on NNPC data for second quarter 2011, if the refineries had operated at 100 per cent utilisation rate, all things being equal we estimate that 50 per cent of PMS demand would be filled. No wonder 20 refinery licences have been issued to private companies since 2000.

The governments resolve will no doubt be tested over the coming days and weeks. Crucially the President still has the backing of state governors (some of the savings will help pay for the minimum wage). Rivers State governors recent offer of N4 per litre subsidy on PMS sold in the state does not suggest a move to break rank, in our view.

Story by Segun Adeleye (segunadeleye@worldstagegroup.com)

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