According to a special report by Daily Trust, Investigations reveals that in August, the federal government disbursed N169.4 billion as subsidy claim to maintain the fuel pump price at N620 per liter.
This revelation has raised concerns and sparked speculation that the subsidy, once thought to be eliminated, might be making a comeback, particularly as the exchange rate deteriorates and international crude oil prices exceed $95 per barrel.
According to documents from the Federal Account Allocation Committee (FAAC), in August 2023, the Nigerian Liquefied Natural Gas (NLNG) paid $275 million in dividends to Nigeria through NNPC Limited.
NNPC Limited used $220 million (equivalent to N169.4 billion at an exchange rate of N770/$) from the $275 million to cover the PMS subsidy. The remaining $55 million was retained by NNPC, a move deemed illegal.
This development, as disclosed by FAAC, strongly suggests that the fuel subsidy is back, with NNPC now utilizing NLNG dividends to cover the subsidy costs.
NNPC’s use of NLNG dividends for PMS subsidy
Former President Buhari left a substantial subsidy bill in Nigeria’s history, with reports from the Nigeria Extractive Industries Transparency Initiative (NEITI) indicating that from 2015 to 2020, the cost of petrol subsidy amounted to N1.99 trillion.
NNPC reports to the Federation Accounts Allocation Committee (FAAC) further revealed that in 2021 alone, the petrol subsidy cost N1.57 trillion, and an additional N1.27 trillion was spent from January to May 2022.
The government subsequently allocated N3 trillion to cover petrol subsidy expenses from June 2022 to June 2023.
During President Buhari’s tenure, the government expended a staggering N7.83 trillion on petrol subsidies.
The resurgence of international crude oil prices, with Brent crude surpassing $95 per barrel and the worsening exchange rate, has cast doubt on Nigeria’s subsidy elimination efforts.
While the recent surge in crude oil prices would normally result in an increase in gasoline prices, the federal government’s decision to maintain the price at N617 per liter indicates the quiet reinstatement of the Premium Motor Spirit (PMS) subsidy.
Moreover, the rapid depreciation of the naira in Nigeria’s black market, combined with the price cap on gasoline, has posed challenges for marketers.
The cost of PMS in the international market has risen by 19.88 percent since July, reaching $1,030.11 per metric tonne at the end of August.
The exchange rate has also increased by 12.19 percent since July, from N820/$ to N920/$. Crude oil prices have surged from $78.50 per barrel in July to $88.50 per barrel at the end of August, with a recent spike to $95.
The landing cost of PMS has consequently risen to approximately N728.64 per liter, compared to N529 in July.
After factoring in additional costs such as freight, lightering, distribution margins, and ancillary expenses by regulatory authorities and agencies, the total cost ranges from N90 to N105.
The Major Oil Marketers Association of Nigeria (MOMAN), which previously provided pricing updates, has suspended such updates due to the government’s assurance of no price hikes.
The Nigerian National Petroleum Corporation (NNPC) had announced a $3 billion crude repayment loan with the African Export-Import (Afrexim) Bank to stabilize the naira.
This loan was intended to provide the federal government with the necessary dollar liquidity to achieve this stability and reduce fuel costs. However, the loan’s progress has reportedly stalled, with other lenders backing out.
Despite these challenges, President Tinubu’s Senior Special Assistant, Otegra Ogra, has expressed hope that a strengthened naira resulting from the loan would lead to lower fuel costs.
The delay in the loan’s disbursement has contributed to the subsidy’s continuation.
Daily Trust’s investigation suggests that the federal government approved the payment of N169.4 billion to avoid further depreciation of the pump price, which the public could not bear.
A deal appears to have been reached with oil marketers to maintain the current price until production issues with Dangote refinery and outstanding loans are resolved.
