Subsidy Payment: FG, States, LGs May Lose Over N1trn To NNPC

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Following the recent decision of the Federal Government to continue subsidising Premium Motor Spirit, popularly known petrol, there are indications that the Nigerian National Petroleum Company (NNPC) Limited might make a deduction of over N1trillion from the joint federal, state, and local government account.

The Federal Government on Tuesday announced the proposal of an 18-month timeframe to consider the removal of fuel subsidy. The government walked back on its initial decision to totally remove subsidy in 2022.

Minister of State for Petroleum Resources, Chief Timipre Sylva told State House Correspondents on Tuesday that subsidy removal was put on hold to enable the government put relief measures in place to mitigate the harsh effects.

Meanwhile, the decision of the FG is not in accordance with the provisions made available in the Petroleum Industry Act (PIA) signed by President Muhammadu Buhari on August 16, 2021.

In the PIA, price control of oil resources and products by the government ought to end in six months to give way to a free market regime.

The six months would lapse next month, as the FG begins process to amend the PIA by approaching the National Assembly.

With the decision of the government to continue subsidising the price of fuel, analysis of data obtained from NNPC shows that the FG, States and LGs monthly alloction may be affected.

In 2021, NNPC netted off at least N1.027 trillion from monies accruing to the three tiers of government in the country between February and October.

According to official figures, in February, the NNPC deducted a total from N24.3 billion in February; N60.3 billion in March; N61.9 billion in April; N126 billion in May; N164.3 billion in June; N103.2 billion in July; N173.1 billion in August; N149.28 billion in September and the October figure was N163.709 billion.

Figures obtained from the oil firm on its subsidy deductions in 2021 indicated that the amount deducted monthly from FAAC by the NNPC was higher during the periods of higher crude oil prices.

This, according to economists was as a result of soaring prices of crude oil in the international market. As the sole importer of PMS and supplier of last resort, the NNPC ensures adequate supply of refined petroleum products by importing the commodities.

Further analysis showed that in February, when NNPC deducted N24bn for subsidy payment, the average price of Brent crude stood at $62.28/barrel.

Meanwhile, in June of the same year when the price of Brent climbed to $73.16, the national oil firm reported that it spent N164.33bn on subsidy in that month.

The average cost of Brent crude is expected to be on the rise this year as the official price as at Tuesday stood at $88.01/barrel.

Also, the rising price of crude oil in the international market is not the only determinant for the amount spent on subsidy. The volume of petrol consumed in a particular month also plays a major role in the amount being spent as subsidy.

In 2021, Mele Kyari, group managing director of NNPC had said that Nigeria was losing about 42 million litres of petrol to the activities of smugglers across the country’s borders, increasing Nigeria’s estimated daily consumption of 60 million litres to over 100 million litres, thereby worsening the subsidy payment regime.

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