Government’s U-Turn: N169.4 billion paid in subsidies contradicts promises
Despite repeated assurances by President Bola Ahmed Tinubu that the fuel subsidy has been eliminated, Daily Trust’s investigation reveals that the federal government disbursed N169.4 billion as a subsidy in August to maintain the pump price at N620 per liter.
Multiple reports have hinted at the return of the subsidy, given the stagnation of fuel prices despite the worsening exchange rate and international crude oil prices surging past $95 a barrel.
A document from the Federal Account Allocation Committee (FAAC), which our reporter obtained, discloses that in August 2023, the Nigerian Liquefied Natural Gas (NLNG) paid $275 million in dividends to Nigeria through NNPC Limited. NNPC Limited utilized $220 million (equivalent to N169.4 billion at N770/$) from this amount to cover the PMS subsidy, holding back $55 million illegally.
READ ALSO: President Tinubu defends fuel subsidy removal as best for Nigeria’s future
FAAC’s revelation effectively confirms the return of the subsidy, with NNPC now utilizing NLNG dividends to fund it.
Subsidy Payment Under Former President Buhari
Former President Buhari’s tenure witnessed the highest spending on petrol subsidies in Nigeria’s history. Reports from the Nigeria Extractive Industries Transparency Initiative (NEITI) show that the cost of petrol subsidies from 2015 to 2020 amounted to N1.99 trillion.
Additionally, NNPC reports to the Federation Accounts Allocation Committee (FAAC) indicate that petrol subsidy cost N1.57 trillion in 2021 alone and another N1.27 trillion from January to May 2022.
The government subsequently budgeted N3 trillion to cover petrol subsidy costs from June 2022 to June 2023. When totaled, the government spent a staggering N7.83 trillion on petrol subsidies during President Buhari’s tenure.
Global Oil Market Dynamics
As Brent crude exceeded $95 per barrel and the value of the naira plummeted against the US dollar in the black market, doubts arose about Nigeria’s commitment to eliminating petrol subsidies.
During the writing of this post, U.S. West Texas Intermediate crude futures increased by over 1% to $92.46 a barrel, while the international oil benchmark Brent crude futures breached the $95 per barrel threshold.
Despite the recent surge in crude oil prices, the Federal Government’s decision to maintain the petrol price at N617/liter suggests that the subsidy on Premium Motor Spirit has quietly returned.
In addition to the rapid depreciation of the naira in Nigeria’s black market, the price cap on gasoline has created challenges for marketers. Towards the end of August, PMS was trading at $1,030.11 per metric tonne in the international market, compared to $859.25 in July when NNPC increased the pump price to an average of N617 per liter, representing a 19.88% increase.
The exchange rate in July stood at N820/$, but it has now risen to N920/$, marking a 12.19% increase. Crude oil prices also rose from $78.50 per barrel in July to $88.50 per barrel in late August, eventually reaching $95.
Furthermore, while the price per liter at the international market was $0.641 in July, it climbed to $0.792 in late August.
Consequently, the landing cost of PMS now stands at approximately N728.64 per liter, compared to N529 in July. When considering freight costs, lightering costs, distribution margin, ancillary costs by regulatory authorities, and marketers’ margin, the total cost adds up to approximately N90 to N105.
MOMAN, which had regularly provided pricing updates, suspended them due to the government’s assurance of no price increases.
The Government’s Plan to Sustain N620 per Liter
The $3 billion crude repayment loan announced by the Nigerian National Petroleum Corporation (NNPC) Limited in partnership with the African Export-Import (Afrexim) Bank was intended to provide the federal government with the necessary dollar liquidity to stabilize the Naira.
According to Otegra Ogra, SSA to President Tinubu, the loan was designed to assist NNPC Ltd. in settling taxes and royalties in advance. “A strengthened Naira resulting from this initiative will lead to a reduction in fuel costs. If the Naira appreciates in value, fuel prices will drop, and further increases will be halted. However, the loan has reportedly stalled as other lenders that were supposed to be part of the syndicated transaction backed out.
Daily Trust’s findings reveal that the Central Bank of Nigeria (CBN) gross reserves have not seen an increase to suggest that the $3 billion has been received. FX reserves have decreased by 0.2% to $33.68 billion since the announcement was made on August 16.
Intrigue Behind Closed Doors
Daily Trust’s investigation unveiled that the decision to disburse N169.4 billion had the approval of high-ranking government officials, as disclosed by a senior government official to our reporter.
“If that payment wasn’t approved, the country would have faced a serious crisis because it was evident that the public could not bear further pump price depreciation, so something had to be done.”
Furthermore, our investigation revealed that a discreet agreement was reached with oil marketers to maintain the current price. “Everything has been done to maintain market stability until we can resolve production issues with Dangote refinery and the loans. Once these are settled, we should see some stability,” the source stated.
Experts’ Reactions
Benneth Korie, the National President of the Natural Oil and Gas Suppliers Association of Nigeria (NOGASA), who expressed concern about the prevailing situation in the sector, stated, “Certainly, the price of PMS will rise as the dollar price increases. If you are exchanging $1 for N950, the price of petrol will go up.”
Dr. Wisdom O. Mogbolu, another expert, emphasized, “I have said this repeatedly: we can’t remove the subsidy without a functional refinery and a stable FX situation. For instance, if the crude oil price goes up, our petrol price must also increase, especially with our volatile FX. We must fix our system rather than burden the masses.”
Akin Akinrinade, Chairman of the Independent Petroleum Marketers Association of Nigeria (IPMAN), Ejigbo Satellite Depot, stressed the importance of stabilizing the Naira in the short term to fulfill the government’s promise. “There are two things the government can do immediately: stabilize the Naira because as the dollar price rises, the price of petrol will follow suit. The government should intervene to ensure Naira stability,” he suggested.