Nigeria’s government is aiming to remove subsidies on domestic fuel prices by the end of next year at the latest, after investing in a mass transit system to ease the impact on the poor, Finance Minister Olusegun Aganga said. “It is going to be sooner rather than later,” Aganga said in an interview in London today. Everything will be ready “by the end of 2011 at the latest. It could be this year.”
The subsidies will cost the government N 520 billion ($3.4 billion) this year, compared with 1 trillion in 2009, central bank Governor Lamido Sanusi estimated in June. That compares with a federal budget deficit of N1.9 trillion this year, which Aganga said he wanted to narrow in 2011.
The abolition of the subsidies would increase gasoline prices to N115 to N120 a liter from 64 naira currently, Aganga said. “If that happened, it would be a big shock to the system,” he said.
Nigeria, Africa’s biggest oil producer, imports more than 80 per cent of its domestic fuel due to a lack of refining capacity, according to the country’s Petroleum Ministry. The government, through the Nigerian National Petroleum Corp, guarantees regulated fuel prices by paying importers the difference with market prices.
Crude oil for October delivery declined $1.33, or 1.8 percent, to $73.69 a barrel at 12:14 p.m. on the New York Mercantile Exchange. Nigeria’s budget estimated an average oil price for the year of $60 a barrel. About N10 billion has been earmarked to improve public transportation and many buses have already been ordered, Aganda said. The government is also in talks with labour unions to gain their support and avoid social unrest, he said. “I think we are making very good progress” in the talks.
“Everyone accepts that there is no economic sense to maintaining subsidies,” Aganga said. “The question is, what would be the impact of removing the subsidy on those that you want to protect, the most vulnerable in society?”