Govt unfolds plans against economic crisis
* Slashes exercise duty by five per cent
* Stops fuel subsidy
* Cancels refineries' funding
From Madu Onuorah, Abuja
THE Federal Government yesterday announced measures to stimulate the economy and mitigate the effects of the current global economic meltdown on the citizens.
Among the monetary and fiscal policies unfolded by the government was the immediate slash of five per cent duty on all locally-produced goods except cigarettes and alcohol.
The measures were contained in the report of the Presidential Steering Committee on the Global Economic Crisis, which the government adopted yesterday at a meeting at the Presidential Villa in Abuja.
The government also endorsed the full deregulation of the downstream sector of the oil industry and raised a panel headed by Bauchi State Governor, Isa Yuguda, to fine-tune strategies for its implementation.
Finance Minister, Dr. Mansur Muktar, who briefed journalists on the outcome of the meeting, said President Umaru Musa Yar'Adua had directed a drop of five per cent excise duty on all goods except alcohol and cigarettes.
The government however insisted that it would not directly intervene in the stock market crisis.
Muktar said based on the investigations by the government, the slide in the stock market did not pose any "apparent systemic risk to the banking system."
He said the meeting chaired by Yar'Adua noted that "there is no risk that will merit government's intervention in the stock market at the moment, nonetheless government stands ready and will continue to monitor the situation and will take measures as needed."
The minister also said the government was considering reducing by 25 per cent charges by the Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange (NSE) to boost the stock market.
Muktar, who addressed the media along with the Central Bank of Nigeria (CBN) Governor, Prof. Chukwuma Soludo, Bismark Rewane (representing the private sector), the Minister of Petroleum Resources, Rilwan Lukman and the Director-General, Budget Office, Bright Okogwu, said the deregulation of the downstream had ended months of speculations on the direction of government in the management of the oil sector.
The government, he noted, had in the past been subsidising inefficiencies, fraud, racketeering in the entire production chain which had resulted in its spending nearly N640 billion in the last one year and an estimated amount of N1.63 trillion on fuel subsidies.
The committee said it would evolve measures to check the activities of the Petroleum Product Pricing Regulatory Agency (PPPRA), which include open general licensing to give room for competition, offshore refining, boosting strategic reserve, competition bill and the privatisation of the country's four refineries.
A committee headed by Yuguda was raised to design the action plan and time frame for the commencement of the full deregulation process.
Other members of the panel are Governor of Edo State, Adams Oshiomhole, Attorney-General and Minister of Justice, Michael Aondoakaa, Minister of Petroleum Resources, Rilwan Lukman, Minister of Labour, Adetokunbo Kayode, Muhktar, Minister of National Planning, Shamsudeen Usman, Soludo, Chief Economic Adviser to the President, Tanimu Yakubu, representatives of labour and the private sector.
The committee was given the leverage to incorporate other members from the society whenever it deems fit.
He stated that the committee in designing the direction for the full deregulation of the sector would meet with all the stakeholders including labour before the full implementation of the recommendations on the deregulation of the oil sector.
"On petroleum sector, as you know there has been over the years discussions in relation to the supply, distribution and pricing of petroleum product. In this context, basically in the recent past, there has been concern about the huge amount of money being spent by government by subsidising inefficiencies in the fuel supply and distribution. The magnitude of this amount was very staggering, in the last year, we are talking about nearly N640 billion that has been spent on subsidies to petroleum products. Now to put this in context, this is about one and half times actual capital spending of the Federal Government in the year. That is what the Federal Government gets and when you consider that not all of these is being expended given that there was delay released, that it was still work in progress. Over the last three years, an estimated amount of N1.63 trillion has been spent in relation to this.
"Now, in the context where revenue position of government has deteriorated considerably, given the decline in oil prices, the difficulties we are facing in meeting our quotas, the huge infrastructure deficits that we face, clearly, we felt we had to look at this very carefully. The huge fiscal burden we cannot continue to meet. We have found out that we are really subsidising inefficiencies, fraud, racketeering in the whole production chain and in that context basically given the competing needs for scare resources, government felt we needed to do something. We are also subsidising other countries.
There have been substantial leakages to other countries in relations to these things and in that context basically, the conclusion was that the present arrangement, in relation to the present supply, marketing and pricing regime itself that has been characterised by inefficiency is clearly unsustainable. At the moment there is a reality we have to face, we have not made any budgetary provisions for subsidising these inefficiencies in the system. The fiscal situation is very tight and we need to move to a transparent and competitive efficient supply and pricing framework that will benefit the ordinary Nigerians.
He also said demurrage charges were unacceptable, "the way the system is organised it creates incentives for inefficiencies along the marketing chain, we are passed to the consumers and which are borne by the government. We are talking about cost of transportation from Europe to Lagos port that is lower than the cost of transportation from offshore to onshore. It is these kind of hidden charges and each time there is change in exchange rate the entire burden is shifted to the federal government. So the first aspect is to review the template and make sure we are dealing with the correct figures because really I think the whole system has been compromised. Secondly, we need to move towards market- determined pricing order that will ensure that all the inefficiencies characterised by the system are not passed onto the consumer."
Making his own contributions, Lukman noted that government was no longer prepared to spend any money on the rehabilitation of the refineries, stressing that so much money had been spent in the past which he lamented was mismanaged by those entrusted with the responsibilities of managing the refineries.
"We are not ready to put any money into the refineries again. No more. Our refineries have not been well run in the past. They have been mismanaged and the problem was compounded by the regulatory agencies and that is why we want to address the issue. If we have the correct ambience, people will come to build new refineries," he emphasised.
The minister said if the four refineries were still working at full capacities, Nigeria would not still be able to meet her domestic consumption of petroleum products.
Giving insight into the decisions taken at the meeting, the minister said: "Today's meeting basically endorsed decisions that had been taken earlier. And we got progress report in relation to the reversal of increases in the prices of diesel and LPF4, which has been earlier on announced by the NNPC.
The President had directed that this be reviewed and the NNPC has reported back that action has been duly taken in terms of the pricing that had increased. Also, we reported back at the decision taken in the last meeting to remove five per cent excise duty that was levied sometime in October."
He stated that the meeting focused on two major areas - the developments in the stock market and the banking sector.
"The development in the stock market has been a source of concern and we needed to make sure it didn't impact on the banking system especially given the frequent reports in the newspapers.
"The committee had asked for a comprehensive assessment of the situation and the presentation today along with the suitable recommendations on the way forward. Based on this, the economic management team had constituted a group comprising the CBN, Ministry of Finance, Debt Management Office, NDIC and the private sector representatives to look into this issue. And based on an assessment of the current situation including the existing data in comparison with the information available to various parties, it was clear that there was no apparent systemic risk to the banking system.
"We appreciated though that there is continuous concern about the lingering situation and the rising and lending rates, in that context government felt at the moment there is no case for intervention in terms of bail-out of stock markets. Given the present situation, we felt that we cannot remain complacent in relation to the banking and financial sector. The first point is there is no risk that will merit government's intervention in the stock market at the moment, nonetheless government stands ready and will continue to monitor the situation and will take measures as needed."
He added: "The principal issue has been to restore confidence in the system to ensure that we have a sound financial system and the CBN has been working on efforts in that front. Nonetheless the government will continue to strengthen those efforts."
Muktar noted that President Yar'Adua had also "endorsed the strengthening of mechanism for effective co-ordination and regulation of the financial sector. And in this regard, this will be anchored around the financial services regulation coordinating committee, which is being chaired by the CBN.
"We have also discussed that the CBN will consider making it mandatory for banks to use the IFRS reporting standard as soon as possible. This will of course be done in consultation with the Nigerian Accounting Standard Board and certainly other stakeholders. The Committee has also endorsed the earlier plan by the CBN and the Bankers Committee to adopt a common year end for banks in relation to financial reporting, so we expect this to take effect as quickly as possible. We are looking also at ways of strengthening an arrangement for auditing and the CBN will look at that."
Explaining that the Federal Government had zero tolerance for non-compliance with existing corporate governance code in the financial services industry, he stated that there would "be continuous monitoring of the banking system on an ongoing basis and tracking to see the evolution of the situation. In addition, the contingency plan that the CBN has been working on, the President has given an endorsement to bring this quickly to fruition. We hope to be discussing the draft sometimes next week and in that context also, consideration will be given to assets management co-operation. This has been contemplated in the context of the banking sector consolidation and we are basically revisiting that proposal. So, this is in relation to financial sector issues."
