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UPDATE 1-Nigeria spent half 2012 fuel subsidy budget on arrears
May 30, 2012 / 8:03 PM / 5 years ago

UPDATE 1-Nigeria spent half 2012 fuel subsidy budget on arrears

* Fuel subsidy overspend will deplete oil savings
    * Central bank, economists say subsidy unsustainable
    * Earlier attempt to remove subsidy caused mass protests

 (Adds state oil firm on subsidy, penultimate three paragraphs)	
    By Joe Brock	
    ABUJA, May 30 (Reuters) - Nigeria has already spent half its
2012 fuel subsidy budget on arrears from last year, the finance
ministry said on Wednesday, risking Africa's second-largest
economy racking up further debt or running out of money to
sustain huge subsidy payments.	
    Nigeria tried to remove gasoline import subsidies in
January, but the move more than doubled the petrol price to 150
naira ($0.94) per litre, from 65 naira per litre previously,
prompting more than a week of strikes and street protests. 	
    The government backed down and partially reinstated the
subsidy, bringing the price down to 97 naira per litre.	
    A parliamentary probe that followed uncovered a $6.8 billion
fraud in the subsidy regime and said Nigeria spent 2.58 trillion
naira last year on subsidy payments, more than 900 percent the
budgeted amount for the year.	
    President Goodluck Jonathan, the state-owned oil company
NNPC and the finance ministry pledged to clean up any
inefficiencies, but the latest data shows spending remains out
of control.	
    Nigeria budgeted 888 billion naira for fuel subsidies this
year but it has already spent 451 billion naira on back payments
for 2011, the state oil company and finance ministry said, more
than double what it had expected to pay in arrears.	
    "This is clearly not sustainable and the ministry has a
responsibility to ensure that the lapses that may have led to
this unhealthy situation are not repeated," a statement from the
finance ministry said on Wednesday.	
    Africa's biggest crude exporter will need to dip into its
oil savings once the budgeted amount runs dry and with only
around $3.5 billion in the excess crude account (ECA) it could
be wiped out by the end of the year, economist have warned.	
      The NNPC also owes about $3.5 billion to oil traders,
including Trafigura, according to the parliamentary probe. If
that is the case, the excess crude account is essentially empty
anyway, so government finances could quickly go into the red. 	
    The ECA, which is supposed to cushion the economy against
sudden oil price falls, contained more than $20 billion in 2007
but has been depleted by continual raiding despite a period of
record oil prices.	
    "The subsidy has prolonged a vicious cycle: Nigeria is the
top African oil producer, but the country is forced to import
large volumes of refined fuel," Samir Gadio, economist at
Standard Bank said in a research note on Wednesday.	
    "From a macroeconomic standpoint, the cost associated with
this distortion is becoming unbearable."	
    Decades of corruption and mismanagement mean Nigeria sells
almost all its 2 million barrels per day of crude oil production
rather than refining it for domestic use.	
    At a parliamentary oil committee hearing on Wednesday,
Austin Oniwon, the head of the state oil firm -- which seen as
one of the main beneficiaries of the lavish subsidy handouts --
admitted it needed to be scrapped.	
    "It's my suggestion that we should fully de-regulate the
petroleum products market so that the market can stabilize and
market forces can determine the prices," Oniwon said.	
    "In the interim, people may suffer but in the long run ...
Nigerians will enjoy price stability."	
    Nigeria's central bank governor, Lamido Sanusi, told Reuters
in April the subsidy money would run out well before the end of
the year. Sanusi wants the subsidy scrapped but this would be a
big risk for Jonathan, given the public reaction in January.	
 ($1 = 159.1250 naira)  	
 (Additional reporting by Camillus Eboh; Editing by Tim Cocks,
Helen Massy-Beresford and Sofina Mirza-Reid)

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