Cost of petrol subsidy: What NNPC’s unremitted N4trn can do for Nigerians

The billion naira waste Nigeria incurs fixing its leaking pipelines and subsidising petrol is no longer news, but what is news is the opportunity cost forgone by this waste in a creaking economy.

The Nigeria National Petroleum Corporation (NNPC) is currently being scrutinised by the Wole Oke-led House of Representatives Committee on Public Accounts (PAC) over an alleged failure to remit N4 trillion into the federation account as contained in a report from the office of the Auditor-General for the Federation.

In response, a representative of the NNPC group managing director, Mele Kyari, justified the deductions by saying that it was in line with the law that established the corporation.

“What we do is backed by the provisions of the law. First, the NNPC Act is very clear that we should submit the net revenues of our cost,” the NNPC told lawmakers at the meeting Wednesday in Abuja.

Umar Ajiya, NNPC’s chief finance officer, who represented the GMD, conceded that “there is confusion within government circles at the moment for which a lot of consultations are ongoing on how to handle the implication of sustained subsidy.”

He was responding to a report by the Auditor-General of the Federation claiming the NNPC did not remit N4 trillion.

The corporation admitted that fuel subsidy and other costs accounted for the shortfall in remittance.

However, the issue has further raised concern about how urgently Nigeria plans to reform its alleged corrupt national oil company through a new oil bill yet to be passed after 20 years of first presentation.

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Financial experts have raised concern about the opaque system that is bleeding Nigeria’s economy considering the high level of life-threatening hunger in a country with over 95.9 million people living in extreme poverty.

Refineries:

For instance, Emerald Energy Institute at the University of Port Harcourt estimated the construction cost of a 100,000-barrels per day (bpd) refinery plant at $2 billion (N600bn). This means the unremitted N4 trillion could have helped the country construct at least six of such refineries, instead of importing light petroleum products estimated at $15 billion per annum.

Primary health centre, education

Using Freedom of Information requests and analysis by transparency campaign group Public Private Development Centre, it would cost an estimated N28 million to build primary healthcare centre and N17 million for a 3-classroom block. This means N4 trillion is capable of building 142,857 primary health centres or 235,000 blocks of classrooms needed across Nigeria’s 774 local governments.

Housing

The N4 trillion is capable of building at least 266,000 mortgage homes valued at N15 million each, a development that can play a big role in reducing Nigeria’s housing deficit projected at 20 million.

Water supply

N4 trillion can construct at least six million boreholes at N600,000 each across the country. This could have reduced the challenges of proper sanitation faced by acute water scarcity in communities, especially rural areas.

What experts say

According to Joe Nwakwue, chairman, Society of Petroleum Engineers (SPE), the cost of subsidy since inception is far higher than N4 trillion, however, recent events show Nigeria is still not learning.

“Every concerned Nigerians including labour unions need to understand the opportunity cost of the current lower price of petrol, which is cancerous to the economy,” Nwakwue told BusinessDay.

He said, “Of course, things will be tough with higher petrol prices, but the pain is less compared to the huge pain of paying for petrol subsidy.”

A professor of economics and former president of Nigerian Association for Energy Economics (NAEE), Wumi Iledare, said payments of subsidy is a gorilla that has swallowed Nigeria’s economy, despite benefiting the elites more than the populist.

“Beyond the removal of subsidy, the government need to be more decisive about the Petroleum Industry Bill (PIB) and act fast because time is running out,” Iledare said.

While it is important to pass the PIB speedily, Wale Ajayi, a partner, Tax, Regulatory and People Services at KPMG, recommends that both the government and industry operators should periodically engage an independent consulting firm to evaluate the issues and concerns raised by the operators.

“This will greatly help to narrow the differences and enhance transparency and trust between both parties,” Ajayi said.

How the PIB will make NNPC more efficient

The PIB is an omnibus Bill, which seeks to provide legal, governance, regulatory and fiscal framework for the Nigerian petroleum industry, the development of host communities and related matters.

The Bill provides for the registration of NNPC Limited within six months of the enactment of the enabling Act.

At incorporation, the Ministry of Finance will hold the shares of NNPC Limited on behalf of the Nigerian government. The shares of the company will only be transferable subject to government approval, and in an open, transparent and competitive bidding process.

The PIB provides for the appointment of two non-executive directors, though the President will appoint the entire members of the Board, while the company remains wholly owned by the government.

Thereafter, the composition of the Board shall be in accordance with the provisions of the Companies and Allied Matters Act and its Articles of Association. NNPC Limited will take ownership of rights to gas and petroleum production (including joint ventures) under the arrangements undertaken by NNPC prior to the effective date.

According to a report by KPMG, the mere incorporation of NNPC Limited will make it profitable and comparable to leading national companies such as Equinor, Petronas and Saudi Aramco.

“There needs to be a wholesale change of mindset, the establishment of strong performance culture and institutionalisation of good corporate governance and best practices. The earlier the government reduces its holding in the company, the quicker it will become profitable,” KPMG said in its report titled ‘The PIB: The panacea to the ills of Nigeria’s Oil Industry?’