FG’s Oil Subsidy Leakages Build Up to N3trn by Year End

Whatapp News




Minister of Petroleum, President Muhammadu Buhari

By Nse Anthony-Uko

(Sundiata Post) – Despite denying the existent of fuel subsidy, the President Muhammadu Buhari government would have spent no less than N3 trillion on it before this year is out going by the current N205 per litre landing cost Premium Motor Spirit (petrol) being imported into the country on the back of the recent increase in global oil prices.

The Nigerian National Petroleum Corporation (NNPC) in its Monthly Financial Operations Report as at May 2018 said the company paid N88.9 billion in under-recovery — nearly five times as much as the N16.7 billion recorded six months earlier in November. And the numbers appear to be climbing higher.

That approaches an estimate floated by the Minister of State for Emmanuel Ibe Kachikwu, who reportedly said in April that Nigeria was spending $321 million monthly — or $3.9 billion annually — on subsidy payments.

The Petroleum Products Pricing and Regulatory Agency, PPPRA, stated that the country’s expenditure on petroleum subsidy had gone up from N774 million in March 2018 to N2.4billion daily as at May 2018. The simple reason for this huge rise is the price of crude in the international market. While the average price of crude in March 2018 was $66 per barrel, it had hovered around $80 in May. At the new price, without subsidy, the pump price would have been N205 as against the N145 per litre. This leaves an “under recovery” an NNPC euphemism for subsidy of N60 per litre.

Officially, the NNPC in its monthly report admits it has spent N616.95 billion between June 2015 and May 2018.  However, the operations of the NNPC have been largely opaque, making it susceptible to graft.

Recall that in May 2016, the government increased the pump price of PMS from N86 per litre to N145 per litre. This was described as partial deregulation as against full deregulation as with Automative Gas Oil (AGO) popularly known as diesel.

However, crude oil prices had dropped to less than $30 per barrel as at early that year. Meanwhile, exchange rates were rising in the face of challenged inflows of foreign exchange. It was expected that subsidy would go down to zero.

While no subsidy was provided nor paid in 2016, NNPC admitted, through the Group Managing Director, Dr. Maikanti Baru that it in 2017, it spent a tidy N144.53b in subsidizing PMS.

Group Managing Director, Dr. Maikanti Baru

This works out at N336m per day. Because there was no provision for subsidy in the budget, the NNPC, technically warehoused that amount or better still, netted it off the payment to federation account, since it was the only body importing PMS at that time.

Beyond the rise in crude prices, which by the way is very good for the country, there is another major issue of the quantity of refined PMS that the country consumes. Before this time, our daily consumption was  between 30,000 and 35,000 liters. To the surprise of everyone this figure went up to 60,000 liters per day. What went wrong? According to a newspaper report, the NNPC, “had blamed the high value of the “under recovery” to rising fuel consumption which it attributed to massive smuggling of petroleum products to neighbouring countries.

Baru insisted that the activities of the smugglers had led to recent observed abnormal surge in the evacuation of petrol from less than 35 million litres per day to more than 60 million litres per day, which was in sharp contrast to established national consumption pattern.

He had also raised an alarm on the proliferation of fuel stations in communities with international land and coastal borders across the country, insisting that the development had energized unprecedented cross-border smuggling of petrol to neighbouring countries, making it difficult to sanitise the fuel supply and distribution matrix in the country.

He revealed that detailed study conducted by the NNPC indicated strong correlation between the presence of the frontier stations and the activities

Some oil and gas experts have called for full deregulation of price of petroleum products in view of the rising prices of crude oil at the international market.

They said that total deregulation would libralise the sector and enable them to sell at deregulated prices.

Mr Emmanuel Iheanacho, the Chairman, Integrated Oil and Gas Ltd., told the News Agency of Nigeria (NAN)  that full deregulation would curb the huge amount the government spent on subsidy which could be invested to develop other sectors.

Iheanacho urged government to embrace deregulation to allow marketers import petrol and sell at competitive prices.

“No marketer can buy petrol at N174 per litre at the international market and sell at government approved price of N145 without paying the differentials at the downstream sector.

“If deregulated, it would create free market and allow government to concentrate in developing other sectors like education, agriculture and ICT,’’ he said.

Alhaji Debo Ahmed, the Chairman of Western Zone of Independent Petroleum Marketers Association of Nigeria (IPMAN), said full deregulation would also curb incessant pipeline vandalism.

Ahmed said that if the downstream was fully deregulated, no marketers would allow products to be stolen by vandals.

The marketer said a deregulated petroleum sector would be driven by prices that would be determined by forces of demand and supply.

Mr Obafemi Olawore, a former Executive Secretary, Major Oil Marketers Association of Nigeria (MOMAN), also said full deregulation of the downstream sector remained the best option for economic growth.

Olawore said only deregulation would encourage the establishment of private refineries in the country.

“We have to be ready to accept the reality of total deregulation of the downstream sector. I am sure most of the people truly understand the concept of deregulation.

“If we embark on deregulation today, petrol prices will be different across the states; the price may be significantly high at the early stages, but it will reduce gradually as we move on,’’ he said.

In April, the Minister of State for Petroleum Resources, Dr, Ibe Kachikwu, said that the Federal Government’s annual expenditure on fuel subsidy had risen to over N1.4 trillion.

Specifically, a breakdown of the monthly under-recovery suffered by NNPC showed that the country incurred under-recovery of N45.782 billion in January 2018 alone.

Further analysis from NNPC’s Financial Report in January 2018, revealed that the country’s under-recovery stood at N37,263,846,591.

In January 2017/February, N6,297,594,169; March, N8,206,727,836; April, N8,206,727,836; May, N7,743,923,020; and June, N11,792,197,288.

Data from the NNPC showed that the country’s under-recovery was N10,250,012,947 in July; N7,938,985,582 in August; N7,521,590,052 in September; N6,848,622,525 in October; N16,785,193,827 in November; and N15,676,576,185 in December, 2017.

By January 2018, the amount paid for under-recovery more than tripled to N45.8 billion and to N59.5 billion, N34 billion, N77.9 billion and N88.9 billion in February, March, April and May 2018 respectively.

At the current Brent crude oil price of N78 per litre, the Expected Open Market Price of PMS rose to N205 per litre, while the regulated price remained N145.

This automatically translates to under-recovery of N60 per litre. Facts from the NBS disclosed that Nigeria’s average daily PMS consumption was 60 million during the first quarter of 2018.




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