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Fuel Subsidy: How NNPC Incurred over N623bn cost in 2018

The Nigerian government incurred N623.17 billion on petroleum products supply under-recovery cost between January and November this year, a summary of the monthly estimates of the expenditure by the Nigerian National Petroleum Corporation (NNPC) has shown.

The document obtained by PREMIUM TIMES was part of details of NNPC financial operations submitted to the Federation Account Allocation Committee (FAAC) during its monthly funds’ allocation meeting in Abuja last week for November 2018.

Details of the costs included under-recovery under the direct sale-direct purchase (DSDP) refining arrangement between January and November as well as the local refining cost between January and September this year.

The document dated December 19, 2018, showed that cumulative outstanding under-recovery cost brought forward from 2017 stood at about N78.4 billion, with arrears of about N67.23 billion, while total reimbursement or FAAC deduction was about N676.49 billion for the period under review.

Of the N676.49 billion, about N599.7 billion was incurred as under-recovery under the DSDP arrangement, while about N23.4 billion was under-recovered from the operations of the four local refineries in Warri, Port Harcourt, and Kaduna.

Under-recovery is the name coined by the NNPC to represent the amount of subsidy the corporation incurs on behalf of the federal government for the importation and supply of petroleum products at a landing cost above the official retail pump price of N145 per litre of Premium Motor Spirit, popularly called petrol.

Similarly, the DSDP arrangement involves direct purchase by accredited oil marketers of a portion of the 445,000 barrels of crude oil usually allocated for domestic refining allocation. The volume purchased is meant to be refined abroad, while refined petroleum products are brought into the country for consumption.

The DSDP arrangement was introduced in 2016 to replace the controversial swap arrangement adopted by the previous government as a result of the poor refining capacity of the four local refineries.

A review of the document submitted to the FAAC showed that showed that about N51.3 billion was incurred as under-recovery cost in January, while February, March, and April recorded N58.7 billion, N36.1 billion, and N82.4 billion respectively.

In May, the document showed the cost under-recovery on PMS by NNPC dropped to about N36.9billion, before increasing to about N53.4 billion in June, N52.4 billion in July and N63.2 billion in August

Again, the amount incurred as under-recovery by the corporation rose to N71.8 billion in September before dropping to N51.2 billion and N65.9 billion in October and November respectively.

Further details from the document revealed that the cost of under-recovery incurred by the NNPC was deducted from its revenue every month before transferring the balance to the federation account for distribution among the three tiers of government.

Details showed, about N45.8 billion was deducted in January; N59.5 billion in February; March, N34.03 billion; April, N77.9 billion; May, N88.9 billion; June, N68.6 billion; July, N52.5 billion; August, N60.6 billion; September, N71.6 billion; October N51.2 billion and November N65.86 billion.

The issue of fuel subsidy and cost under-recovery by NNPC has remained contentious since the present administration announced at inception in 2015, the removal of subsidy from the pricing template petrol.

With the continuous rise of the crude oil price at the international market, there was a direct impact on retail prices for refined petroleum products, particularly petrol

The NNPC, which emerged the sole importer and supplier of petroleum products, reported increased cost of operation, in terms of the difference between landing cost for imported petroleum products and the government approved ceiling retail pump price of N145 per litre.