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Fuel subsidy report increases chances of reform- Fitch

27 April 2012, 15:04

Abuja - The fact that corruption in Nigeria's oil subsidy programme has been officially uncovered is encouraging, both politically and economically, Fitch Ratings says.

Politically it shows the government can clean up the system if there is political will. However, a key test will be the penalties suffered by perpetrators and what is done to make the system more transparent.

However, it does make it more likely that further steps will be taken to reduce or eliminate the fuel subsidy, though the timing of such a move remains uncertain. A parliamentary report published last week estimates that Nigeria lost $6.8bn due to corruption and mismanagement of its fuel subsidy programme between 2009 and 2011.

According to the report, the programme cost $16.5bn in 2011 a 10 fold increase since 2006. This is more than double the $7.5bn previously estimated by the government. Economically, the amounts uncovered are big enough to allow both increased spending on infrastructure and improve fiscal savings and foreign exchange reserves, all of which would be positive for creditworthiness.

When the government attempted to repeal the subsidy in January its intention was to spend the savings on improved public transport and other programmes to persuade the population of the benefits from removing the subsidy.

This recent report has clearly demonstrated the waste and potential savings to the electorate as well as the scale of corruption, all of which could help push the case for further reform.

The findings in the report regarding the state-owned Nigerian National Petroleum Company may also expedite the passing of the Petroleum Industry Bill (PIB). This is a key reform for Nigeria as certainty about the oil sector framework is needed to attract new deep water foreign investment.

It is also important in terms of increasing government revenues from existing production sharing contracts (PSCs) and implementing institutional reforms that would improve transparency and organise the oil and gas sector to meet international standards.

President Goodluck Jonathan has made passage of the PIB a key priority this year but the need to resubmit the legislation to the National Assembly means progress is likely to remain slow.

Together with reforms to the key electricity sector, following on from progress cleaning up the banking system after the 2009 crisis, reform momentum is gradually building but remains beset by political hurdles.

The Boko Haram insurgency also risks distracting politicians' efforts from the crucial economic reform process. 


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