There was an indication that the Nigerian National Petroleum Corporation, NNPC, has made good its threat to deduct the N111.966 billion it spent in subsidizing the pump price of petrol in March by withholding same amount from the Federation Account, making zero remittance to the Federation Account Allocation Committee, FAAC.
The latest deduction by NNPC brought the total amount so far spent on petrol subsidy out of FAAC to about N369.47 billion in the first four months of 2021.
Data contained in NNPC presentations to FAAC meetings this year showed that in January, shortfall was N25.37 billion while in February the shortfall rose to N60.4 billion.
The Corporation in a letter to FAAC also projected a shortfall of N171.74 billion for the month of April, bringing the total subsidy induced shortfall to N369.47 billion.
Subsidy dilemma
With the price of crude oil reaching its lowest level in decades last year, the President Muhammadu Buhari administration had quickly removed subsidy on petrol in March, 2020. This led to actual reduction in the pump price of petrol from N145 per litre to N125 per litre.
However, as crude oil price recovered, the cost of importing petrol increased with the government announcing monthly price adjustments.
But faced with protests by Labour unions and rising inflation, the government has found itself in a quandary on what to do about the petrol landing cost and pump price differentials which gave rise to subsidy. With no provision for subsidy in the 2021 Budget and no clear plan on how to exit subsidy payment, the NNPC, which became the sole importer of the product, had borne the burden of under-recovery in importation of petrol.
In February this year, the Minister of State, Petroleum Resources, Chief Timipre Sylva, had warned that with rising cost of crude oil, Nigerians must be ready to pay more for petrol, stressing that it was impossible for the NNPC to continue to bear the cost of petrol subsidy indefinitely.
He said: “Since we are optimizing everything, NNPC needs to also think about the optimization of product cost because as we all know oil prices are where they are today, $60.
“As desirable as this is, this has serious consequences as well on product prices. So we want to take the pleasure and we should as a country be ready to take the pain. Today the NNPC is taking a big hit from this. We all know that there is no provision in the budget for subsidy.
“So, somewhere down the line, I believe that the NNPC cannot continue to take this blow. There is no way because there is no provision for it. As a country, let us take the benefits of the higher crude oil prices and I hope we will also be ready to take a little pain on the side of higher product prices”, he stated.
Also, the Group Managing Director of the NNPC, Mallam Mele Kyari had in March stated that the Corporation was spending $263.248 million (N120 billion) monthly to subsidise the product.
Oil firms abandon imports
NNPC has, in the past few years become the sole importer of petrol as private sector operators in the petroleum downstream stayed away, largely due to difficulty in accessing foreign exchange at competitive rate as well as the continuing subsidy on the product pricing.
Speaking on the issue, the National President of the Independent Petroleum Marketers Association of Nigeria, IPMAN, Chinedu Okoronkwo, said marketers were ready to be involved in petrol importation if Forex is made available to them at the rate available to NNPC.
Okoronkwo noted that making foreign exchange available at the same rate would create a level playing field for marketers and also create healthy competition.
“It will no more be a one man show like it is right now. I believe government is thinking in that direction as a short term measure pending when most of the new refineries will be up and running. Which is not going to be far”, he stated.
Also speaking in a telephone interview, the Executive Secretary of Major Oil Marketers Association of Nigeria, MOMAN, Mr. Clement Isong, also blamed lack of foreign exchange for keeping away private sector operators.
“The major problem”, Isong noted, “is foreign exchange. There is no foreign exchange availability and even NNPC when they bring in products; they bring it through a facility called DSDP, Direct Sale Direct Purchase.
“It means they are swapping crude directly for refined products; so there is just no foreign exchange for people to import at the correct exchange rate.
“For instance, for fully deregulated products, foreign exchange is available, and diesel and kerosene are imported but it is available not at the CBN rate.
But for petrol the Petroleum Products Pricing Regulatory Agency, calculates foreign exchange at CBN rate and that window is illiquid. There is no foreign exchange there. It means if you bring in product based on that foreign exchange rate, you cannot sell the product in the market”, he explained.
Isong urged the Federal Government to implement full deregulation in the sector, saying the benefits go beyond product importation, as that would bring in investments into the downstream sector. According to him, “Full deregulation is not just good for my members, it is good for Nigeria, it is good for the country because when you do not deregulate, you go back to subsidy and subsidy is a very poor way of managing the country’s resources”.
FG accused of indecision On his part, the immediate past Chairman of the Society of Petroleum Engineers, SPE Council Nigeria, Engr. Joe Nwakwue, accused the Federal Government of lacking policy clarity in the deregulation of the downstream sector of the petroleum industry.
Nwakwue said Nigeria needs to urgently implement a full deregulation of the sector. According to him, “I will say there is one major challenge in the downstream presently and that is lack of policy clarity. It is not clear to me what the policy is.
I am yet to see a strategy or plan for subsidy removal. “I hope they commit to and deregulate the market. It is imperative for the survival and sustainable development of the downstream. We should pursue sector reforms without being distracted by politics,” he added.
SOURCE: VANGUARD