February 25, 2024

Petrol subsidy to hit trillion by year end – Investigation


…as NNPC records N905.27bn in eight months
…It’s unfortunate we are at this position – Experts

Ediri Ejoh

Until the Federal Government addresses issues surrounding downstream deregulation in Nigeria, subsidy accruing from the sector is set to rise to trillions before the end of 2021, according to EnergyDay investigation.

This is coming at the period the Nigerian National Petroleum Corporation claimed it has spent a total of N905.27bn on petrol subsidy in eight months amid rising global oil prices.

The subsidy, which the NNPC prefers to call ‘value shortfall’ or ‘under-recovery’, resurfaced in January this year as the government left the pump price of petrol unchanged at N162-N165 per litre despite an increase in global oil prices.

Recall that the Federal Government had in March 2020 announced the removal of petrol subsidy after reducing the pump price of the product to N125 per litre from N145 following the sharp drop in crude oil prices.

The NNPC, which has been the sole importer of petrol into the country in recent years, has been bearing the subsidy cost since it resurfaced.
Data from the corporation showed that it incurred N25.37bn subsidy cost in January, N60.40bn in February, N111.97bn in March, and N126.30bn in April and N114.34bn in May.

The subsidy cost rose from N143.29bn in June to N175.32bn in July but fell to N149.28bn in August, according to the NNPC.

“The August 2021 value shortfall of N149,283,084,869.20 is to be deducted from the September 2021 proceeds due for sharing at the October, 2021 FAAC meeting.”
While marketers have continued to stress the need to allow market forces determine the pump price of petrol to escape payment of subsidy such fund could be channeled to other sector of the country’s economy, it remains uncertain whether the discussions between the Federal Government and the labour union will lead to the deregulation of petrol prices.

Meanwhile, the Federal Government has blamed the nonfunctional and moribund Nigerian refineries for subsidy which could have been used to revive it.

Minister of State for Petroleum Resources, Mr. Timipre Sylva, had said “Part of the reasons the refineries were not working is subsidy because a refinery that is producing something at a certain cost and selling at a loss cannot sustain itself. Over the years, the refineries couldn’t sustain themselves and all of them have collapsed.

” So, if you do not deregulate, you will find out that the refineries, even if you fix them today, cannot be commercially operated because the refineries need maintenance and they need to run. If you are producing something and they are selling at a certain subsidised price, it cannot work. That is why you see that the sector is not growing at all.”

Reacting to the subsidy crisis, Mr. Tunji Oyebanji, the immediate past Executive Chairman, Major Oil Marketers Association of Nigeria (MOMAN) who doubles as the Managing Director/ Chief Executive Officer of 11 PLC, formerly known as Mobil Oil Nigeria Plc., expresses dissatisfaction over the unending subsidy debacle.
His word, “Well, it is unfortunate that we find ourselves in this situation. It is a bit of a catch-22 situation. As you know the government through various agencies over the years claimed that there is no more fuel subsidy. But yet the fact remains that there is an element of subsidy. This is because the price at which PMS is being sold is significantly below the landing cost of the product to the country.

“So, it is obviously becoming a political hotcake which definitely is not good for Nigeria, and all the stakeholders need to agree that this is not sustainable for Nigeria. A situation where we have to continue to borrow at this level, yet it is almost as if we are borrowing to keep the price of PMS at less than economic level which is not sustainable.

“It is assumed that PMS subsidy for the year is between N1 trillion and N2 trillion. You can imagine what this can do for a country that is starved of revenues to fund its budget and fix its infrastructure? It looks as if we take revenues from crude oil on one hand and spend a good chunk on subsidy, on the other hand.

“Beside, we still go further to borrow from financial institutions to address the shortfalls in the budget. So our position is that this is not sustainable.

“We understand the sensitivities around the subsidy removal, but we believe there are other ways that government explore to ameliorate the subsidy impact on the people, rather than keeping subsidy in place. So, there is now hope that the Petroleum Industry Act is going to be effective which guarantees true deregulation of the entire sector, where prices are determined by market forces.

“But again, like everything, this would take a lot of time and we would obviously have a process where we can move on from where we are to a market-driven situation. Again, this would take time and there must be a process whereby we have to work out the final details which would be incorporated with the government’s effort to reach that goal.”

Similarly, Professor Wumi Iledare, Ghana National Petroleum Corporation, GNPC Professor & Chair in Petroleum Economics & Management, Institute for Oil and Gas Studies, Cape Coast, Ghana, maintaind that: “There can be no deregulation without the Petroleum Industry Bill, PIB, becoming an Act.
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