N369.5bn petrol subsidy cost hits federation account
Written by freshadmin3 on June 1, 2021
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.
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.