NNPC may not remit N1tr in six months
Jeph Ajobaju, Chief Copy Editor
Up to N1.02 trillion may not be remitted to the Federation Accounts Allocation Committee (FAAC) by the Nigerian National Petroleum Company (NNPC) in the next six months because of fuel subsidy extension.
That means there will less money to share from the Federation Account between the three tiers of government – federal, state, and council.
There was delay in the payment of December 2021 of federal workers, despite assurances by President Muhammadu Buhari.
Only Lagos and a few other states make enough internally generated revenue (IGR) to survive without federal handout. Nearly all the Northern states depend on Abuja to meet their expenditure commitments.
Finance Minister says the extension of subsidy by 18 months to mid 2023 will cost N3 trillion but Abuja is in talks with Governors on how to reduce the amount.
NNPC data shows that subsidy deduction from its remittance to FACC in 2021 was greater during periods of higher oil prices.
This is corroborated by economists who explained that the higher the international price of crude, the higher the amount to be deducted by the NNPC from FAAC.
They said the volume of fuel consumed in any month determines the level of subsidy but the major factor is global oil price per barrel (bp).
Petrol is not deregulated and its subsidised pump price of between N162 and N165 per litre is far lower than the actual cost.
NNPC Group Managing Director Mele Kyari argued in June 2021 that the price should be more than N280 per litre.
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Subsidy deductions
The NNPC is the sole importer of refined petroleum products as other marketers stopped importing due to their inability to access dollars.
Per The PUNCH reporting, NNPC figures below show the correlation between oil price, subsidy payment, and FAAC deductions in 2021:
- February – N25.37 billion (Brent sold at $62.28 pb).
- June – N164.33 billion (Brent $73.16 pb)
In the six months between June and November, the NNPC deducted N888.13 billion fuel subsidy from FAAC remittance, an average of N148 billion per month.
Data compiled by Statistica.com shows that the average price of Brent crude in the six months was $76.4 pb.
The price of Brent has been rising in 2022 following efforts by the Organisation of Petroleum Exporting Countries (OPEC) and its partners to raise price.
The price averaged $88.01 pb in the last week of January, which means the NPPC would spend more on subsidy this month and subsequent ones if the global price keeps on rising in 2022.
Experts calculate that if the price remains above $80 pb the NNPC may incur an average N170 billion subsidy per month, totalling N1.02 trillion in six months.
Their views are published below as report by The PUNCH.
Muda Yusuf (Centre for the Promotion of Private Enterprise Chief Executive Officer)
“Of course, the NNPC will spend more on subsidy this year because crude oil price has been increasing and the higher the price of crude, the higher the amount to be spent on subsidy.
“In fact, about N2.5 trillion might be spent on subsidy this year, meaning that about half of that amount could be spent in six months and this means hard times for states because the funds will be deducted from FAAC as usual.”
Yusuf described subsidy removal as a policy U-turn by the government which is not good for the oil sector.
“This is another instance of policy somersault. It also reflects the absence of political will to reform the oil and gas sector. This has been a struggle over the past few decades. Perhaps there are entrenched and powerful interests working against the Petroleum Industry Act [PIA].
“These forces have succeeded in upturning a major economic reform programme. It is a sad development. This would further aggravate the political and policy risk of investing in Nigeria.
“The oil and gas sector is one sector that has been starved of investment for several decades because of policy and regulatory issues.
“Regrettably, at a time when we thought we had turned the corner, we are now faced with the stark reality of a complete suspension of a major instrument of reform.
“It is certainly not good for our perception by investors as an investment destination. It will affect our country risk rating. It also implies that the implementation of the [PI] Act will not commence in the life of the present administration.
“It is difficult to predict what the succeeding administration will do. Meanwhile, attracting investment into the oil and gas space will be extremely difficult going forward.”
“Petroleum products smugglers, beneficiaries of the fiscal leakages in the fuel subsidy ecosystem, and their collaborators will continue to smile to the bank for the next one and half years.
“Some states would struggle to pay salaries, especially states that are heavily dependent on federal allocation. Some may have to lay off some of their work force. Many will struggle to meet their financial obligations as sub-nationals.
“Macroeconomic risks would become elevated as fiscal deficit and borrowing significantly surpasse projections in the 2022 budget.
“The CBN may have to continue to cover financing gaps through ways and means. This of course has serious inflationary implications. The macroeconomic outcomes would adversely impact on the exchange rate, leading to further depreciation of the currency.”
NESG
Private sector stakeholders under the umbrella of the Nigerian Economic Summit Group (NESG) said fuel subsidy is not sustainable.
The group made the point at the launch of NESG 2022 Macro Economic Outlook report in Abuja titled, “The last Mile: Reforms towards significant improvement in national economic outcomes.”
The report highlights reforms that will sustain economic recovery and improve social inclusion.
Laoye Jaiyeola (CEO of NESG)
“When the fuel subsidy was introduced it was supposed to be a short-term palliative, but is has gone beyond intended purposes.
“The truth of the matter is that this nation can’t afford a continuation of this subsidy, because of the implications. Nigeria has a revenue challenge and how we use our revenue matters a lot.”
Asue Ighodalo (NESG Chairman)
“The World Bank estimates that an additional one million people were pushed into poverty in Nigeria between June and November 2021, resulting in a total of about eight million people being relinquished to poverty in 2021 and bringing our nation’s poverty headcount to about 91 million.
“With campaign for the 2023 general election already underway, there will be increased spending this year.
“This could lead to tightening of monetary policy by the government, relegate focus on the economy, and result in the stagnation of recovery.”