NNPC and burden of ‘subsidy’

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Until last week when it experienced a slip, crude oil price enjoyed some form stability, peaking at $72.83 per barrel last June – the highest since May 20, 2019. Earlier in the week, oil prices rose more than five per cent as a weaker dollar and strong global equities markets boosted crude futures after seven days of declines. Brent crude climbed $3.64, or 5.6 per cent, to $68.82 a barrel.

For the country, the rising price crude represents a double-edged sword. While it guarantees increased revenue for the country, on the flip side, it constitutes a drain on the same revenue earned. This is because of the continued dependence on importation of petroleum products for domestic consumption, especially in subsidy payment to marketers.

Since March, this year, the Nigerian National Petroleum Corporation (NNPC) has held the brakes on fuel price increase as was the tradition prior to this period. This, therefore, presupposes that the corporation has been subsidising the product heavily. Last Monday, the landing cost Premium Motor Spirit (PMS) petrol, was put at N249/ litre.

Although the NNPC has not been able to give any official on domestic petrol consumption, the Group Managing Director, NNPC, Mele Kyari, said petroleum consumption wais not up to 60 million litres daily, but that the corporation supplied as much as that.

“We always plan with 60 million litres, because anytime we do below that, there is a crisis. When were shut last year, consumption fell to 52 to 53 million litres per day. And during the thick the COVID-19 lockdown in 2020, the number fell to about 42 million litres. If everything works well and consumption is limited to our country, we are dealing with about 42 million litres,” Kyari said on a national television station in June.

His position is in contrast with that the Major Oil Marketers Association of Nigeria (MOMAN), who in May, said the local consumption of petrol jumped to 72.72million liters daily from 57.44 million litres sold in April- blaming the surge in consumption to the “thriving activities of smugglers” in the nation’s petroleum industry.

In March, Kyari disclosed at a ministerial briefing that the Corporation pays between N100-120 billion monthly to keep the pump price PMS at the current level of N160- N165 per liter. This was at a he said the product price could have been anywhere between N211 and N234 to the litre. Recall that the Petroleum Products Pricing Regulatory Agency (PPPRA) had released a template increasing petrol price to N212 per litre, but the template was later deleted.

By implication, the NNPC’s subsidy burden in the last three months may have soared to as high as N500 billion, using the monthly N120 billion subsidy and N234 / litre land cost as benchmark.

Although the NNPC continues to be the burden bearer, Kyari had emphasised the NNPC can no longer bear the burden of underpriced sales of PMS, meaning that at some point the market price will have to be implemented. NNPC is the sole importer of petrol into the country for more than three years now. The NNPC has maintained an ex-depot price of N148/litre since February. Ex-depot price is the cost of petrol at depots, from where filling stations purchase the commodity before dispensing to final consumers.

Since last May, the corporation has continued bearing the burden of making up for the shortfall in the actual cost of the product. ”As we speak today, I will not say we are in a subsidy regime but we are in a situation where we are trying to exit this subsidy or underpriced sale of PMS until we get in terms with the full value of the product in the market. When that will happen, I do not know. But I know that engagements are going on. The government is very concerned about the natural impact of price increases on transportation and other consumer segments of our society and as soon as those engagements are taken to logical conclusion, I am sure that the market price of PMS will be allowed to play at the right time,” Kyari said at the Ministerial briefing at the Aso Villa in March. How long can the NNPC on to the brakes?