...Economists say subsidy affecting govt revenue
President Bola Tinubu’s administration has spent N15. 096 trillion on petrol subsidy in the last 14 months, according to BusinessDay’s calculations.
The value of the subsidy expenditure under Tinubu was obtained from the National Bureau of Statistics (NBS) data and information from petroleum marketers.
According to the NBS, Nigeria imports between 1.4 billion litres and 2.5 billion litres per month, indicating an average of 1.95 billion litres per month. In 14 months (June 2023-July 2024), the country has consumed 27.3 billion litres.
On the other hand, independent marketers say the landing cost of petrol and other logistics costs stand at N1,203 per litre. The NNPC Retail sells petrol at N650 per litre at its stations, leading to a differential of N553 for each litre of petrol.
Read also: Tinubu approves use of NNPC dividends for petrol subsidy, halts 2024 interim payments
With the N553 differential and 27.3 billion litres consumed in 14 months, the amount likely to have been spent over the period by the Tinubu administration is N15.097 trillion.
Kelvin Ayebaefie Emmanuel, CEO of Dairy Hills, said Nigeria must first of all be honest with the number of litres of petrol consumed in the country.
“The first step to address the cost of under-recovery on the premium motor spirit (PMS) subsidy is finding the actual daily consumption.
“The other two major factors that have gone into the re-introduction of under-recovery is the price of crude oil and the exchange rate. The only way to achieve non-payment is to have the Naira to USD pair at 750 and Brent prices at $75 per barrel,” he said.
“This is the reason why the government needs to adjust the domestic crude oil supply obligations and guarantee domestic refineries the feedstock they require to backwardly integrate production.”
President Bola Tinubu in his inauguration speech on May 29, 2023, said petrol subsidy was gone. However, it has grown bigger than the amount being paid before he came to power.
Nigeria’s former President Muhammadu Buhari spent N10.7 trillion on petrol subsidies between 2016 and the first six months of 2023.
In one year, however, Tinubu’s petrol subsidy expenditure has eclipsed that. Analysts attribute this to the naira slump after the foreign exchange liberalisation in 2023.
Naira has lost more than 60 percent value since it was liberalised by the current administration, analysts say. A dollar exchanges for N1,592.06 on Tuesday as against N740 on June1, 2023.
A week before the 2023 presidential election, which led to the new administration, Mele Kyari, group CEO of Nigerian National Petroleum Company (NNPC) Limited, revealed that the country was spending more than N400 billion monthly on fuel subsidies.
But on Monday, in a viral video, Kyari told the press that the state-owned company was not paying fuel subsidies.
“I told you there is no subsidy whatsoever. We are recovering our full costs from the products that we import.
“We understand why the marketers are unable to import. We hope that they do this very quickly and these are some of the interventions the government is doing. There is no subsidy,” he said.
BusinessDay’s analysis, however, has revealed that while the retail price of petrol stands between N650 and N750 across the country, the landing cost of petrol per litre is over N1,200 as of Monday, August 19, 2024.
“The government has seen the analysis and has now recognised the subsidy is back and bigger,” said Jide Pratt, chief operating officer of AIONA and Country Manager of TradeGrid.
Pratt said that the subsidy levels before Tinubu’s government were circa N50/N60 naira per litre using the gasoline index and the exchange rate.
He said: “A few months ago it was in the N200 per litre range. The exchange rate has been all over the place and this affects the landing cost of the sole importer of PMS, which is the NNPC.
“It was hard to justify how NNPC Retail had an N42 price advantage over other marketers who buy from her. It was very odd to justify in a petroleum market with slim margins.
“But I guess the chicken has come home to roost. The queues we keep witnessing albeit now longer and more frequent are a testament to maybe struggles with payment as and when due.”
According to a recent report by The Cable, President Bola Tinubu has approved a request by the NNPC Ltd to utilise the 2023 final dividends due the federation to pay for petrol subsidy.
The report showed that the president also approved the suspension of the payment of 2024 interim dividends to the federation in order to augment NNPC’s cash flow, according to presidency sources.
In addition, the national oil company told the president it will be unable to remit taxes and royalties to the federation account for now because of the subsidy payments, which it termed ‘subsidy shortfall/FX differential’.
Despite the Petroleum Industry Act of 2021 and the deregulation of the downstream sector, which permits licensed private oil marketers to import petrol, the state-owned oil company remains the only importer in Nigeria.
However, private marketers have struggled to access the foreign currency needed for petrol imports, forcing them to rely on the state-owned oil company for supply.
Over 90 licensed petroleum marketers in Nigeria have been unable to import products due to unresolved price differences, leaving them inactive nearly nine months after President Bola Tinubu announced the deregulation of the downstream petroleum sector.
“If you look at the price of international crude, and you compare the refined products across Africa, how much is the landing price? Right now, every refined product you have is imported,” said Pedro Omontuemhen, partner & Africa oil and gas leader, PwC Nigeria.
“When you compare the international price, landing price, and the state of price (in the country), that means the difference is being borne by the government, either directly or through some of the government agents.”
According to Omontuemhen, it doesn’t matter what the government is saying as the reality of things in the country continues to show that someone is paying for the subsidy.
“One thing we should be aware of is that there are subsidies everywhere in the world. Another name for subsidy is a grant. They are all over the world.”
Negative impact on government revenue
Petrol scarcity has worsened across the country, with a litre selling at N900 and N1,000 at some filling stations in Lagos, Abuja, Port Harcourt, Kano and other parts of Nigeria. Petrol stations selling at N650-N750 often have long queues.
Muda Yusuf, chief executive officer of Centre for Promotion of Private Enterprise, said the current economic situation has necessitated the open acceptance of the subsidy payment, noting that the petrol product is already being subsidised.
“Obviously, this affects government revenues because remittances from NNPC is one of the major sources of revenue for the government. If that is removed, we will be left with just revenues from taxes and forex gains. And when you talk about the tax revenues, a lot of it has been taken off by tax credits being offered to some companies.”
Read also: Petrol subsidy return seen denting Nigeria’s credit rating
Yusuf said that the current price of fuel, which ranges from N617 to N1,000 across the country, is already being subsidised by the government.
He explained that the prices of fuel may remain high until Nigeria stops the importation of petroleum products.
“It is a dilemma for the government also as they are in a tight corner. Look at the recent nationwide protest, which was because of the sufferings occasioned by fuel subsidy removal.
“With the exchange rate, the amount we currently pay for fuel has a huge subsidy component – just that the government is not open to us. Until we stop fuel importation, we may not get any relief from the high price of petrol,” he further said.
Ken Ife, lead consultant on private sector development to the ECOWAS Commission, said that the government has always subsidised the price of petrol, which is why it could be sold for less than N1,200 per litre.
“The price of petrol should be at about N1,200, but we still get to buy at N600 plus, which means somebody is paying for subsidy somehow and I do not see the price of per litre dropping anytime soon.
“And if the price must drop, then some things must be done and they include ensuring that Dangote receives sufficient crude and it is allowed to pay in Naira. Also, the NNPC must also buy refined crude from Dangote.
“Another issue of concern is that the NNPC has almost securitised all of its crude. So, we do not know how much it has left, but it is important we ensure that Dangote Refinery gets sufficient crude in naira. Also, if the NNPC continues to import refined petrol with all the cost payable in dollars, this may cause the price of PMS to remain high” he added.
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