How NNPC Stabilized Price Of PMS For Nigerians With N864.07bn Subsidy

Between January and September this year, the Nigerian National Petroleum Corporation subsidized the price of Premium Motor Spirits for Nigerians with the sum of N864.07bn.

Details of how the amount was used to subsidize the product for Nigerians is contained in a Report which the Corporation submitted to members of the Federation Account Allocation Committee at its last meeting held on Wednesday.

The Committee, headed by the Minister of Finance, Mrs. Zainab Ahmed, is made up of Commissioners of Finance from the 36 states, representatives of revenue generating agencies such as NNPC, Federal Inland Revenue Service, Department of Petroleum Resources, Central Bank of Nigeria, Nigeria Customs Service among others.

The Federation Account is currently being managed on a legal framework that allows funds to be shared under three major components.

They are statutory allocation, Value Added Tax distribution; and allocation made under the 13 per cent derivation principle.

Under statutory allocation, the Federal Government gets 52.68 per cent of the revenue shared; State Governments, 26.72 per cent; and Local Governments 20.60 per cent.

The framework also provides that Value Added Tax revenue be shared thus: FG, 15 per cent; States, 50 per cent; and LGs, 35 per cent.

Similarly, extra allocation is given to the nine oil producing states based on the 13 per cent derivation principle.

A copy of the NNPC report which was obtained by THE WHISTLER showed that the NNPC incurred the sum of N25.37bn on subsidy in February. No amount was spent subsidizing the product in the month of January.

The amount moved up to N60.39bn and N61.96bn in March and April, before hitting N126.29bn and N164.33bn in the months of May and June.

For the month of July, the Corporation incurred the sum of N103.28bn as subsidy on PMS, while the figure went up to N173.13bn and N149.28bn in August and September respectively.

The Federal Government had in the 2021 budget abolished the payment of fuel subsidy as no provision was made for such expenditure.

THE WHISTLER had exclusively reported that as a result of the non-provision of fuel subsidy in the 2021 budget, the burden of the projected N1trn federation account remittance shortfall had been pushed to the NNPC in the form of under-recovery.

The under-recovery is expected to arise from the price differential between the landing cost and pump price of petrol.

With the deregulation of the downstream sector of the petroleum industry last year, the price of petrol had risen from N121.50 to N123.50 per liter in June, to N140.80-N143.80 in July, N148-N150 in August, N158-N162 in September and N163 per liter in November.

Since November last year, the price of Premium Motor Spirit popularly known as petrol had remained unchanged despite the increase in crude oil prices in the international market.

As of the time the fuel subsidy was removed in June last year, the price of crude oil was about $45 per barrel.

But as of Friday, the price of Brent Crude had risen to about $83.83 per barrel. This price is far higher than the 2021 Federal Government budget benchmark price of $40 per barrel.

What this means is that while expectations are high that there would be more revenue to be earned from crude oil sales by the NNPC for the government, the adverse effect would manifest on the imported price of crude oil.

And with the continuous push for subsidy by Organized Labour, it therefore means that the NNPC has been made to bear the burden of subsidy payment through the reintroduction of under-recovery.

The implication of this, is that with the PMS under-recovery element of cost being borne by NNPC with subsidy reintroduction, the amount that is being remitted by the Corporation into the Federation Account has been reduced.

The Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, had last month during the public consultation of the Medium-Term Expenditure Framework/Fiscal Strategy Paper for 2022-2024 described the amount spent on subsiding petrol as a drain on the economy.

She said that a whopping sum of N900bn will be spent next year in subsidizing the price of Premium Motor Spirit, adding that such would have been spent on more productive sectors of the economy such as health, education and infrastructure.

An analysis of the 2022 Federal Government spending showed that the projected subsidy budget of N900bn is higher than the N292.7bn for sinking fund, N750.03bn allocated for personnel cost for Government Owned Enterprises, and N335bn overheads cost.

It is also higher than the N261.2bn budgeted for overhead costs for Government Owned Enterprises; N567.02bn for pension, gratuities and retirees; and N366.13bn capital supplementation budget.

Ahmed said, “This (subsidy) is costing us big time. We are spending over N150bn on subsidy, that means NNPC has to use that amount of money to pay for PMS and distributing it. That is money that the federation account can share.

“This is money that could have been available for education, health and infrastructure. reduce our borrowing, increase the amounts that states and local governments are collecting.

“We are being penny wise pound foolish to think that by giving this subsidy, that citizens are benefitting. But by the end of the day, the citizens are actually the ones that are carrying the brunt of the wealthy.”

The finance minister lamented that while subsidy was supposed to be enjoyed by the poor, those that are actually benefiting from it are the rich people in the society.

She added, “Some (the rich) have two, three, four cars and they are the ones that we are subsidizing.
It is not helping the farmer who needs a bus from his farm to the market. But we need to get rid of subsidy completely, although it is not a popular view with labour.

“Right now, we are subsidizing consumption in Nigeria, we sell at N165 per liter when our neighbors are selling at N500 per liter. It is only the marketers that are benefiting by taking this product from Nigeria and selling it across borders. The common man is not benefiting.

“The transition is not an easy one if we have to remove the subsidy. What are the alternatives? What can we provide for Citizens? So, we are projecting we’ll be paying at least N900bn subsidy for next year.

“Imagine what we could have done with that amount. How many schools you can build, how many health centers. It is not wise; it is not wise because we are hurting our economy.”