Explainer: How NNPC’s ‘under-recovery ‘short-changes Nigeria’s economic development

Despite impressive oil prices in half year 2018 it’s worrisome that state owned Nigerian National Petroleum Corporation (NNPC) still continues to underperform, which was one of the basis 75 year old President Muhammadu Buhari’s won his 2015 election campaign with the view of modernising a company that’s been a byword for inefficiency and opacity since its creation in the 1970s.
The Buhari-led government campaigned in 2015 on the bases of stopping all forms of subsidy payments on petroleum products however it has been secretly doling out billions annually as subsidy under the disguise of “Under-recovery” on petrol alone to oil contractors and their cronies in the NNPC.
What is Under Recovery?
According to online sources Arthapedia.com, Under-recovery is a term used in the Indian petroleum sector to denote the notional losses that oil companies incur due to the difference between the subsidised price at which the oil marketing companies sell certain products like diesel, fuel and kerosene and the price which they should have received for meeting their cost of production.
For under-recovery to legally take place, it must be supported by existing legal provisions, inappropriately for now, under-recovery is not recognised in Nigeria’s constitutional jurisprudence and any provision in any law purporting to grant such power to the executive cannot stand the test of constitutionalism.
Cost to Nigeria’s economy
BusinessDay analysis of the latest financial records of NNPC showed that from January 2018 to March 2018, the government has paid N139.334 billion for under recovery alone which is far higher than the capital allocation to majority of its key ministries and parastatals in the 2018 approved budget.
For example, the amount spent from January till March of N 139.334 billion is 43.5 times higher than the total 2018 combined capital allocation of the country’s top 10 universities of N3.2 billion which include University of Ibadan N79million;University of Lagos N49 Million, University of Nigeria N1.3 billion; Ahmadu Bello University N439 million; Obafemi Awolowo University N44million; University of Benin N69Million; University of Jos N250million; University of Calabar N74 million; University of Ilorin of N6.7 million; and University of Abuja of N952 million.
Also, the Under recovery deduction is 139 times more than the capital allocations to National Health Insurance Scheme (NHIS) of N 999 million, the agency responsible for the health insurance of its over 190 million people.
It’s also 5.9 times more than the capital allocation of N23.3 billion allocated to National Primary Health care Development Agency (NPHCDA) in 2018, the agency responsible for primary health care development in Nigeria.
The under recovery money of N139.334 billion is also 1.35 times higher than the N102.901 billion capital allocation for the Federal Ministry of Education in the 2018 budget and 1.61 times higher than the N86.485 billion allocated to the Federal Ministry of Health for capital expenditure.
Under recovery deduction is 0.93 times and 0.95 times the N149.198 billion and N147.2 billion capital allocations for the Federal Ministry of Agriculture and Rural Development and the Federal Ministry of Water Resources respectively in the 2018 budget.
Solution
The need to make NNPC curtail losses, improve transparency, attract investors, stimulate growth and increase government revenues have led to agitations for enactment of the reforms stipulated in the Petroleum Industry Bill (PIB) for the oil and gas sector.

Africa’s largest oil producer has been on a perpetual voyage with PIB which is one of its most important bills ever to be contemplated in Nigeria’s history in a journey that began sixteen years ago with a lot of anticipation and promise.

The bill is still stuttering through legislation after passing through four presidents, five presidential terms and five legislative tenures however the governance aspect of the bill which is Petroleum Industry Governance Bill (PIGB) is currently awaiting President Buhari (who is also the Minister of Petroleum) signature before it becomes a law.