NNPC To deduct subsidy fees from Federation Account, Lack of Policy Clarity by the Federal Government.

to FAAC, Lack of policy clarity by the federal Government on how they plan to clear and exitNNPC to deduct subsidy fees from federation account with zero remittance  subsidy payments.

Indications point that the Nigerian National Petroleum Corporation, NNPC, has made implemented its threat to deduct the N111.966 billion spent in subsidizing the pump price of petrol in March by withholding the 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 shows that in January, the 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 April, bringing the total subsidy induced shortfall to N369.47 billion.

 With the price of crude oil coming down to its lowest level in decades in the last year,2020, President Muhammadu Buhari administration had removed subsidies on petrol in March 2020. This led to an actual reduction in the pump price of petrol from N145 per litre to N125 per litre.

However, as crude oil prices recovered, the cost of importing petrol increased with the government announcing monthly price adjustments.

This was confronted by Labor Unions and Rising inflations; the government has found itself in a stifle or better yet a chokehold on what they can do about the petrol landing cost and pump price differentials which gave rise to the subsidy. With no plans for subsidy in the 2021 Budget and no precise plan or idea on how to clear up subsidy payments, the NNPC, which became the sole importer of the product, had borne the burden of under-recovery in the importation of petrol.

In February 2021, the Minister of State Petroleum Resources, Chief Timipre Sylva, had warned that with the rising cost of crude oil, Nigerians must be ready to pay more for petrol, stressing that the NNPC couldn’t continue to bear the cost of petrol subsidy indefinitely.

In the statement made available to the public, he stated that

 “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.

 Oil Firms all over the country, have been abandoning the importation of crude oil, NNPC has, in the past few years become the sole importer of petrol as private sector operators in the petroleum downstream stayed away, largely due to difficulty in accessing foreign exchange at a competitive rate as well as the consistent subsidy on the product pricing.

Speaking on the issue, the National President of the Independent Petroleum Marketers Association of Nigeria, IPMAN, Chinedu Okoronkwo, said marketers were ready to be involved in petrol importation if Forex is made available to them at the rate available to NNPC.

Okoronkwo noted that making foreign exchange available at the same rate would create a level playing field for marketers and also create healthy competition.

“It will no more be a one-man show like it is right now. I believe the government is thinking in that direction as a short-term measure pending when most of the new refineries will be up and running. Which is not going to be far”, he stated.

Also speaking in a telephone interview, the Executive Secretary of Major Oil Marketers Association of Nigeria, MOMAN, Mr Clement Isong, also blamed the lack of foreign exchange for keeping away private sector operators.

“The major problem”, Isong noted, “is foreign exchange. There is no foreign exchange availability and even NNPC when they bring in products; they bring it through a facility called DSDP, Direct Sale Direct Purchase.

“It means they are swapping crude directly for refined products; so, there is just no foreign exchange for people to import at the correct exchange rate.

“For instance, for fully deregulated products, foreign exchange is available, and diesel and kerosene are imported but it is available not at the CBN rate. But for petrol the Petroleum Products Pricing Regulatory Agency calculates foreign exchange at CBN rate and that window is illiquid. There is no foreign exchange there. It means if you bring in product based on that foreign exchange rate, you cannot sell the product in the market”, he explained.

Isong urged the Federal Government to implement full deregulation in the sector, saying the benefits go beyond product importation, as that would bring in investments into the downstream sector from private sectors.

According to him, “Full deregulation is not just good for my members, it is good for Nigeria, it is good for the country because when you do not deregulate, you go back to subsidy and subsidy is a very poor way of managing the country’s resources”.

 The Federal Government has been blamed for indecision in their policy creation whereas it concerns the regulation and the deregulation of downstream and private sectors.

One of such people who accuse the Federal Government of this indecision is the immediate past Chairman of the Society of Petroleum Engineers, SPE Council Nigeria, Engr. Joe Nwakwue had accused the Federal Government of lacking policy clarity in the deregulation of the downstream sector of the petroleum industry.

Nwakwue stated that

 Nigeria needs to urgently implement full deregulation of the sector.

According to him, “I will say there is one major challenge in the downstream presently and that is lack of policy clarity. It is not clear to me what the policy is. I am yet to see a strategy or plan for subsidy removal.

“I hope they commit to and deregulate the market. It is imperative for the survival and sustainable development of the downstream. We should pursue sector reforms without being distracted by politics,” he added.