The sudden increase in the price of Premium Motor Spirit (PMS), also known as petrol in Benin, Togo and other countries within the Nigerian borders, following the removal of subsidy by the Federal Government is a confirmation that these countries have been benefiting from smuggling of petroleum products, a report by KPMG, a global accounting services company has revealed.
KPMG Nigeria revealed in the report that the removal of fuel subsidy by President Bola Tinubu has led to the price of petrol rising in Benin Republic.
According to the financial consulting firm in the report “Removing Fuel Subsidies in Nigeria,” the cost of fuel rose to 800 CFA, almost double the previous price of 450 CFA.
The firm said the increase indicates that fuel in Nigeria is smuggled to neighbouring countries due to the inability of Nigeria to track PMS subsidy consumed by Nigerian consumers.
Nigeria spends around N400bn monthly and around N4.8trn yearly, a gesture which has been described as unstainable.
Tinubu during his inauguration on May 29 announced that the Federal Government will no longer pay subsidy on Premium Motor Spirit.
Consequently, the NNPC Ltd adjusted the prices upward from between N189 to N194 to N537 per litre in Abuja and other North-Central States such as Nasarawa, Plateau, Kwara, Kogi, Benue and Niger.
In Lagos and other South West States such as Oyo, Ogun, Ekiti, Ondo and Osun, the price of PMS was raised from between N184 and N189 per litre to between N488 and N500 per litre.
In the South-East with states: Abia, Imo, Anambra, Enugu and Ebonyi, the price was increased from between N184 and N189 per litre to N515 to N520.
Similarly, KPMG confirmed that Benin Republic has been impacted by the decision to remove the subsidy.
“A key challenge throughout the implementation of the PMS subsidy regime was tracking precisely how much-subsidized fuel was consumed by Nigerian consumers and how much leaked into the markets of neighboring countries that did not have such subsidies.
“Indeed, in response to the PMS subsidy removal by President Bola Tinubu, GCFR, pump prices in the Republic of Benin almost doubled from 450 CFA to 800 CFA, underscoring the widespread belief that significant quantities of subsidized PMS were smuggled out of Nigeria into neighboring countries,” KPMG wrote in the report.
It added, “It is well known fact that due to the subsidy, the price of petrol in Nigeria is lower than in neighbouring countries, which creates an arbitrage opportunity for traders to buy petrol in Nigeria and sell it in those countries at a higher price.
“This results in the diversion of subsidized petrol to neighbouring countries, where it is sold at market prices, while Nigerians face fuel scarcity and long queues at petrol stations. Compared to the estimated PMS pump price of NGN 189 per litre in Nigeria, PMS prices are N333, N365, N381 and N399 in Chad, Niger, Benin and Cameroon respectively.
“Indeed, in response to the PMS subsidy removal by President Bola Tinubu, GCFR, pump prices in the Republic of Benin almost doubled from 450 CFA to 800 CFA, underscoring the widespread belief that significant quantities of subsidised PMS were smuggled out of Nigeria into neighbouring countries.
“Truth be told, the PMS subsidies primarily benefit richer Nigerians, rent seekers, and those able to take advantage of arbitrage opportunities and engage in corrupt practices such as round-tripping by importing more refined PMS than they deliver to Nigerian consumers, then smuggling the residual supplies to neighbouring markets to sell at more market-determined prices.
There have been speculations that fuel is smuggled to neighbouring countries, with the Group Chief Executive Officer of NNPC, Mele Kyari, stating that four trucks of 60,000 litres of fuel cost N12 million to N17 million when smuggled out of Nigeria for sale at the border, but it cost N300,000 in Maiduguri when transported to Lagos.
KPMG further stated that: “The stark truth is that the PMS fuel subsidies have really benefited neighbouring counties, rent-seekers and the rich, as opposed to the poor. Furthermore, if Nigerians – rich, middle-class, or poor alike – wish to see accelerated levels of socio-economic development, the expensive and unaffordable PMS subsidy must go.
“Already, within days of the subsidy removal announcement and the adjustment of PMS prices in Nigeria, data from Global Petrol Prices, which tracks the retail prices of refined petroleum products reveals sharp increases in the petrol prices of neighbouring countries.”
It said the removal of subsidies on PMS in Nigeria is a complex issue that requires careful consideration of its potential economic, social, and political impacts.
While subsidies have provided some benefits, KPMG stated in the report that they have also been a significant drain on the country’s resources and have contributed to inefficiencies and corruption.
“While success at the PMS fuel subsidy removal will require political will and commitment by the Federal Government, this must be complemented by a robust coordination with the States.
“Coordination by the fiscal authorities and CBN in managing the monetary aspects of deregulation and subsidy removal are key. Without foreign exchange reforms, and an elimination of the gap between the official and parallel exchange rate, the reforms will not work.
“To minimize the negative impacts of subsidy removal, there is a need for a set of coordinated actions that considers the inflationary impact, potential social unrest, and the need for compensating measures to cushion the poor,” it added.
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