World Bank says global oil prices won’t decline until 2023, as NNPC pays more for PMS subsidy

Oredola Adeola

With subsidy payment of over N800billion in the last seven months, the Nigerian National Petroleum Corporation (NNPC’s), is likely to spend more oil revenue on subsidising the cost of Petroleum Motor Spirit (PMS) for Nigerians.

This is just as the World Bank has predicted that sustained surge in energy prices, could weigh on growth in energy-importing countries.

World Bank chief economist Ayhan Kose on Thursday revealed that surge in energy prices poses significant near-term risks to global inflation and, if sustained, could also weigh on growth in energy-importing countries.

According to him , the increases have been “more pronounced than previously projected” and “may complicate policy choices as countries recover from last year’s global recession.”

Oil prices in recent weeks have surged above $80 a barrel, the highest point in years, as economies reopen following the pandemic shutdowns and amid shipping bottlenecks.

The World Bank uses an average of Brent, West Texas Intermediate, and Dubai which it said will “remain at high levels in 2022 but will start to decline in the second half of the year as supply constraints ease.

The 2022 average is projected to rise to $74 before falling to $65 in 2023, the World Bank said.

But the report warns that “additional price spikes may occur in the near-term amid very low inventories and persistent supply bottlenecks.

The NNPC ahead of its presentation to Federal Account Allocation Committee (FAAC) in the next few weeks is likely to have spent a total of N800 billion year-to-date to cater for the cost of petroleum shortfall, also known as under-recovery.

Subsidy or under-recovery is the underpriced sales of premium motor spirit (PMS), better known as petrol.

According to the Corporation’s presentation at the September 2021 Federation Account Allocation Committee (FAAC) meeting, NNPC claimed it paid N25.37 billion in February for the under-recovery of PMS/value shortfall. It also expended N60.39 billion in March, 61.99 billion in April, N126.29 billion in May and N164.33 billion in June for the same purpose.

The Corporation said between July and August, it paid N103.28 billion and 173.13 billion, respectively.

NNPC is the sole importer of PMS, has been deducting subsidy payments from oil and gas proceeds due since it was not catered for in the 2021 allocation.

In August, the NNPC made a gross revenue of N389.12 billion — from which it paid N173.13 billion to settle the subsidy payment for the month. In the same month, only a meagre N80 billion was available to the federation account after deductions of other costs.