Oil Subsidy Rises As NNPC Imports Grow By 34%
The Nigerian National Petroleum Corporation has spent more on petrol subsidy this year than it did last year on the back of increased imports and the rally in crude oil prices.
The nation imported a total of 15.21 million litres of petrol in the first nine months of this year, up from the 11.33 million litres imported in the same period in 2017.
The NNPC has been the sole importer of petrol into the country for more than a year as private oil marketers stopped importation due to a shortage of foreign exchange and increase in crude oil prices, which made the landing cost of the product higher than the official pump price of N145 per litre.
PMS import, which averaged 56.5 million litres per day in January, jumped to a high of 86.4 million lpd in February, according to data obtained by our correspondent from the Pipelines and Product Marketing Company, a subsidiary of the NNPC.
It stood at 66.8 million lpd in March, 70.7 million lpd in April, 36.7 million lpd in May, and 34.5 million lpd in June. It was 36.5 million lpd in July, 58.4 million lpd in August, and 57.8 million lpd in September.
Analysis of the data obtained by our correspondent from the PPMC and the Department of Petroleum Resources showed that petrol import averaged 55.1 million litres per day in the first nine months of this year, compared to 48.5 million lpd in the same period of last year.
PMS import averaged 49.2 million lpd and 49.8 million lpd in 2015 and 2016 respectively, data from the DPR showed.
The increase in petrol import amid rising crude oil prices in the period under review meant that the NNPC spent more on subsidy.
The Group Managing Director, NNPC, Dr Maikanti Baru, on December 23, 2017 said the Federal Government had been resisting intense pressure to increase the pump price of petrol, noting that the landing cost of the commodity was N171.4 per litre as of December 22, when oil price was around $64 per barrel.
Crude oil price, which accounts for about 80 per cent of the final cost of petrol, rose to a four-year high of $86.74 per barrel early last month.
Using a baseline of N171.4 litre as the landing cost for the 15.21 million litres imported from January to September, it means the NNPC spent more than N395bn on subsidy in the period.
Last month, the Senate initiated a fresh investigation into an alleged illegal subsidy payment on PMS, but the NNPC denied “the insinuation that it has in its custody a $3.5bn subsidy fund.”
The Senate had set up an ad hoc committee to investigate an alleged $3.5bn account kept by the NNPC for petrol subsidy payment.
The corporation noted that it initiated the move to raise a revolving fund of $1.05bn, being the sole importer and supplier of white products in the country, adding that the fund had been domiciled in the Central Bank of Nigeria.
It said, “The fund, dubbed the National Fuel Support Fund, had been jointly managed by the NNPC, the Central Bank of Nigeria, the Federal Ministry of Finance and the Petroleum Products Pricing Regulatory Agency, Office of the Accountant General of the Federation, the Department of Petroleum Resources, and the Petroleum Equalisation Fund.”
The Managing Director, PPMC, Mr Umar Ajiya, in his presentation at an industry event in Lagos this month, said the existence of arbitrage opportunities in neighbouring countries had pushed daily national consumption from less than 35 million lpd to over 55 million lpd .
He said the price of petrol as of June 11, 2018 stood at an equivalent of N367 per litre in Niger; N363.02 in Chad; N328.87 in the Benin Republic; N311.95 in Togo; N378.49 in Ghana, and N401.24 in Cameroun, compared to N145 in Nigeria.
“The arbitrage in the current price of PMS compared to our neighbouring countries has incentivised cross-border smuggling of the product. This increase, together with the rising crude oil price, constitutes a significant drain on our national income,” he added.
The NNPC GMD said in March that the multiplication of filling stations had energised unprecedented cross-border smuggling of petrol to neighbouring countries, making it difficult to sanitise the fuel supply and distribution matrix in Nigeria.
He explained that because of the obvious differential in petrol price between Nigeria and other neighbouring countries, it had become lucrative for the smugglers to use the frontier stations as a veritable conduit for the smuggling of products across the border. He added that this had resulted in a thriving market for Nigerian petrol in Niger Republic, Benin Republic, Cameroon, Chad and Togo as well as Ghana, which has no direct borders with Nigeria.
“The NNPC is concerned that continued cross-border smuggling of petrol will deny Nigerians the benefit of the Federal Government’s benevolence of keeping a fix retail price of N145 per litre despite the increase in PMS open market price above N171 per litre,” he added.
The Federal Government had on May 11, 2016 announced a new petrol price band of N135 to N145 per litre, a move that signalled the end of fuel subsidy.
It was reported on January 15, 2017 that the Federal Government had resorted to subsidy regime following an increase in the landing cost of petrol, with the NNPC bearing the latest subsidy cost on behalf of the government.
The Director-General, Lagos Chamber of Commerce and Industry, Mr Muda Yusuf, said the government should encourage private sector players to take over the downstream sector of the petroleum business.
He said, “When this is done, most of the challenges we see as regards subsidy, refineries and others will be adequately addressed. The government should only play a regulatory and not an operational role.
“Government has no business refining petroleum products, retailing or distributing fuel as well as the marketing of these products. We cannot continue to carry that kind of burden in the oil sector.
“The government should desist from such business because there are more important things to do that have a social impact. Look at our educational system, the health sector, roads, and rail; those are areas the government should channel its attention.”