…NNPC May Bleed From Petrol Import Under-Recovery
The push for the reintroduction of fuel subsidy by some stakeholders in the Nigerian economy particularly the Nigerian Labour Congress may cost the federation account about N1trn before the end of this year, THE WHISTLER investigations have revealed..
The Federal Government had in the 2021 budget abolished the payment of fuel subsidy as no provision was made for such expenditure.
As a result of the non provision of fuel subsidy in the 2021 budget, it was gathered that the burden of the N1trn federation account remittance shortfall is being pushed to the Nigerian National Petroleum Corporation in the form of under recovery that would arise as a result of the price differential between landing cost and pump price of petrol.
Since the deregulation of the downstream sector of the petroleum industry last year, which led to the removal of fuel subsidy, there had been a push by the Nigerian Labour Congress and other stakeholders for the reintroduction of fuel subsidy.
With the deregulation of the downstream sector, the price of petrol had rose from N121.50 to N123.50 per litre in June, to N140.80-N143.80 in July, N148-N150 in August, N158-N162 in September and N163 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 Wednesday, the price of crude oil had hit a 13 month high of about $61 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 be on the imported price of crude oil.
And with the push for the reintroduction of subsidy, it therefore means that the NNPC would be made to bear the burden of subsidy payment through the reintroduction of under recovery.
The implication of this is that with the under recovery element of cost to be borne by NNPC if subsidy is reintroduced, the amount that would be remitted by the Corporation into the Federation Account would be significantly reduced.
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; states, 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.
Analysis of figures obtained by THE WHISTLER on revenue inflow into the coffers of government showed that as of November last year, the NNPC Generated N222.34bn as oil revenue and remitted N88.95bn into the federation account
For the month of December, the Corporation generated the sum of N183.72bn as oil revenue and remitted N72bn into the federation account.
With the mounting pressure for petrol subsidy and with devaluation of the naira to N411 per dollar at the Investors and Exporters segment of the foreign exchange market and crude oil price hovering at about $60 per barrel, it implies that the NNPC may be shouldering between N70bn and N100bn monthly as under recovery.
Further analysis revealed that at an under recovery of between N70bn and N100bn monthly, the NNPC would be bearing a total burden of between N700bn and N1trn for the remaining 10 months of this year if the government bows to pressure to reintroduce subsidy on petrol.
With the NNPC’s expected monthly remittance to FAAC of N120bn in the 2021 appropriation, the federation will barely get N50bn. Experts said if not compensated by taxes and customs revenues, there are fears that the Governors will find it hard to pay salaries
This development, according to findings would put the NNPC under financial stress and eventually lead to a situation where it would be difficult to further import products.
The implication of this, according to experts is that Nigeria may be plunged into an era of fuel scarcity and long queues at the filling stations.
This is because the scarcity of foreign exchange has made it difficult for the marketers to import products, thereby making NNPC the sole importer in keeping with its statutory role as marketer of last resort.
Also, due to the low PMS price of N165 per litre currently in Nigeria relative to its neighbours where a litre of the product sells for above N300, there is huge incentive for smuggling