The Nigeria National Petroleum Corporation (NNPC) is about to see a considerable spike in the subsidies it is paying on imported petroleum products following a sharp rise in crude oil prices in the international markets. Crude oil prices crossed US$85 per barrel yesterday, which will boost the country’s oil dependent revenues but would also raise the cost of subsidies. The NNPC usually classifies subsidies in its books as under-recovery.
Under-recovery is a term used in the 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.
Oil price hit a four-year-high of $85 on Tuesday but this may not necessarily mean a windfall for Nigeria. BusinessDay analysis of the latest financial records of Nigerian National Petroleum Corporation (NNPC) released on Tuesday showed that from January 2018 to May 2018, the government has paid N304 billion for under recovery. In the month of May, amount of under recovery stood at N88 billion.
“There is lots of secrecy with NNPC; also despite doing so much under recovery how come a loss making organization have not gone bankrupt,” Luqmon Agboola, head of energy and infrastructure at Sofidam Capital told BusinessDay.
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In January when oil prices averaged at $69 the NNPC incurred N45 billion in under-recovery; in February when oil prices increased to $65 there was a corresponding increase in under recovery to N59 billion.
In March when oil prices was $70, the amount incurred in under recovery decreased to N34 billion, however in the month of April it sky rocked to N77 billion as oil prices averaged at $75.Also in May, under recovery expenses increased to N88 billion.
The amount was the highest under-recovery since January 2017, and represented a 14.2 per cent appreciation compared to N77 billion recorded in April 2017.
“The amount of money spent on subsidy or under recovery can provide lots of infrastructure for the teaming population,” Agboola told BusinessDay by Phone.
Further analysis of NNPC report showed products theft and vandalism have continued to destroy value and put NNPC at a disadvantaged competitive position as a total of 1, 621 vandalized points have been recorded between May 2017 to May2018 which increased compared to the total of 1, 484 vandalized points have been recorded between April 2017 to April 2018.
BusinessDay investigations into the latest report of NNPC showed gains of N180.7 million made by NNPCs upstream and gas processing subsidiaries such as the Nigerian Petroleum Development Company (NPDC), RETAIL and Nigerian Gas Processing Transportation Company Limited and Pipelines and Product Marketing Company (PPMC), were wiped off largely by its downstream subsidiary operations which recorded deficits north of N118.7 million according to figures from the organization’s operations and financial report for 2018 actual.
The combined value of output by the three refineries (at import parity price) for the month of May 2018 amounted to N58.28 billion while the associated Crude plus freight costs and operational expenses were N64.86billion and N13.5 billion respectively; resulting to an operating deficit of N20.09billion.
Agboola added, “Nobody is even asking question surrounding the revenue for the 450,000 barrels they get daily.”
Despite higher oil prices in May of $75, Group operating revenue for the month of May 2018 stood at N482.55 Billion which is N37.85Billion lower than the previous month performance following declining revenues from PPMC and PHRC. Similarly, operating expenditure in the month stood at N464.44Billion surpassing the budget by 46.21 percent owing to increased production and consequent higher revenue.
During the period under review, refineries combined capacity utilization was just 10.89 percent.
For the month of May 2018, the three Refineries produced 214,328 MT of finished Petroleum Products and 131,810MT of intermediate products out of the 378,634 MT of Crude processed at a combined capacity utilization of 20.12percent compared to 7percent combined capacity utilization achieved in the month of April 2018.
“The increase in operational performance recorded is attributable to the ongoing revamping of the refineries which will further enhance capacity utilization once completed,” NNPC said in its report.
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 billion annually as subsidy under the disguised of “undercover” on petrol alone to oil contractors and their cronies in the NNPC.
STEPHEN ONYEKWELU & DIPO OLADEHINDE
