- Says Government Has Commenced Payment
By Kolawole Ojebisi
The Minister of Finance and Coordinating Minsiter for the Economy, Wale Edun, has explained why the Nigeria National Petroleum Company Limited (NNPCL) owes suppliers of Premium Motor Spirit (PMS) also known as petrol a sum of $6bn.
Edun explained that although the fuel subsidy was removed in May 2023, the company faced financial challenges due to foreign exchange costs.
He addressed concerns about the NNPCL’s financial situation, which had become stressed due to its outstanding obligations to suppliers.
“In terms of NNPC and their situation, the reality is that although the subsidy was removed on May 29, 2023, and is no longer on the government’s balance sheet, it did rear its head—not in terms of petrol subsidy, but foreign exchange subsidy, which was borne elsewhere, mainly by NNPC,” Edun said during a meeting with investors at the ongoing summit in Washington, D.C.
He, however, said the NNPCL has officially commenced the process of settling the $6 billion debt. Expressing optimism about the company’s future, Edun stated: “I think what I can say about their own situation is with where they are now, they have a route to paying down their payables and I’m sure that in no time at all, they will start.
“From what I understand, they have even commenced the process of paying down their payables.”
Last month, the NNPCL had admitted to owing the sum of $6 billion to suppliers of premium motor spirit (PMS), also known as petrol.
Speaking on the issue, chief corporate communications officer, Olufemi Soneye, had said the NNPCL is facing a serious financial strain due to the petrol supply costs — a development that is affecting the company’s ability to sustain PMS supply.
On Tuesday the World Bank said the Federal Government incurred a significant loss of N1.32tn in foregone revenue within three years. The International Bank ascribed this loss to the implementation of the country’s foreign exchange subsidy policy between 2021 and 2023,
Nigeria had maintained a subsidy regime on petrol and foreign exchange spending for decades, consistently allocating a significant portion of its revenue to cushion the economic effects, which were largely unknown.
But in the latest NDU report, the World Bank stressed that the country lost N13.2tn in revenue that benefitted certain groups at the expense of the entire country.
From the amount, N3.9tn was lost from the non-oil sector as tax revenue. The institution also highlighted that the government terminated the foreign exchange subsidy in February 2024, contrary to the policy announcement made by the Central Bank in July 2023.
The report read partly: “Quantifying the fiscal cost, through forgone revenue of multiple exchange rates: Prior to the full FX unification in February 2024, the presence of a parallel FX premium generated enormous fiscal costs, in the form of forgone revenues.
“This situation emerged because FX revenue inflows—such as oil and customs revenues, as well as a portion of domestic VAT and CIT which are paid in FX—were transferred to the treasury at the official exchange rate.
“However, due to the significant difference between the official and parallel market rates, the amount of naira-denominated revenue received by the Federation from FX-linked revenues was significantly reduced.
“The unification of the FX rate has therefore eliminated the forgone revenues that previously benefited certain groups at the expense of the entire nation.”
The report further explained that the implicit forgone revenue from the premium is the rate impacted five main revenue streams to the government, including Oil and gas revenue, import and excise duties, value-added Tax revenue, Company Income Tax, and revenue accrued from government-owned enterprises.
The listed GOEs include the Nigerian National Petroleum Company Ltd, the Federal Airports Authority of Nigeria, the Nigerian Ports Authority, and the Nigerian Maritime Administration and Safety Agency.
Giving further details, It said VAT on imported goods, which accounts for 44.3 per cent of net VAT revenue, was charged in foreign currency between 2021 and 2023, while 40 per cent of total CIT revenue collected by the federation was paid in FX within the same period.
The Bretton Woods institution added, “The estimated implicit forgone revenues from the FX premium were even larger than the PMS subsidy, underscoring the importance of maintaining a unified FX rate.
“In 2022, when the cost of the PMS subsidy reached N4.5tn, representing 2.2 per cent of the Gross Domestic Product, the revenues forgone that emerged due to the large parallel rate premium are estimated to have been N6.2tn, representing 3 per cent of GDP.
“N4.5tn of FX revenue was forgone from gross oil revenues and N1.7tn from the FX revenue forgone from non-oil tax revenues.
“These findings demonstrate that the FX unification reform not only addresses distortions in the FX market and the real economy but also has a substantial impact on restoring fiscal space.”
