Business Oil Price Shock: FBN Capital Calls for Removal of Fuel Subsidy

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LequteMan

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Nigeria- Analysts from the FBN Capital at the weekend have lent their voices to the renewed call by the Lagos Chamber of Commerce and Industry for the removal of fuel subsidy in the interest of the 2015 budget, ThisDay reports.

The research firm noted that in the past, delays in subsidy payments have resulted in cash flow problems for petroleum marketers. However, relatively high diesel prices have compensated in part.

It believed the reduction at the pump will provide some comfort to the battered consumer, have a small positive impact on the January inflation report and probably feature in the current election campaign.

Analysts said “regardless of the election results, we would expect deregulation later this year. The FGN would do well to remove the subsidy while international prices remain low. The inevitable protest would be more subdued than otherwise and it would be saving itself from fiscal pain when the prices do recover. Our thinking is that Q2 will see the floor, and that UK Brent/Bonny Light will close 2015 at US$65/b.

“The FGN would be able to channel any fiscal savings from deregulation into capital expenditure including some measures to sugar the pill for the consumer for the loss of the subsidy. We would hope that such steps would be of a one-off capital nature, and not a further addition to the mountain of recurrent spending.”

Crude oil prices had continued to hover below $50 per barrel at the international market last week, prompting the cut in the pump price of premium motor spirit (PMS) from N97 to N87 per litre by the Federal Government.

#Nigeria #FBN #Subsidy


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