In the month of March and April, the Nigerian government may have spent an estimate of N240billion as fuel subsidy on premium motor spirit (PMS) also known as petrol.
When the global oil price started rising in January above the 2021 budget benchmark of $40 per barrel set by the Nigeria government, the government returned to the payment of subsidy.
The increase in global crude oil prices had also led to a corresponding rise in the landing cost of imported petrol, which is currently N234 per litre according to petrol pricing template of Petroleum Products Pricing Regulatory Agency (PPPRA).
However, the pump price of the product had remained unchanged at an average of N162 per litre.
The government stalled on increasing pump price since February due to ongoing negotiations it entered with organised labour on the least painful strategy to manage the increase in the global price of crude oil, which has led to increase in petrol prices.
BizWatch Nigeria’s analyses of data from the Nigerian National Petroleum Corporation (NNPC) showed that the landing cost for petrol totalled N234 per litre in the month of April, the same price same landing cost in March.
At an average of N120 billion spent on subsidy monthly, the government paid N240 billion in the two months under review to cushion the effect of the rise in crude oil price.
BizWatch Nigerian had reported in March that the Group Managing Director of NNPC, Mele Kyari, stated that petrol is being subsidized at the cost between N100 billion and N120 billion monthly basis while speaking at special Ministerial Briefing in Abuja.
According to Kyari, NNPC absorbs the cost differential which is recorded in its financial books adding that while the actual cost of importation and handling charges amounts to N234 per litre.
He said in spite of this, the government is selling at N162 per litre to marketers, pointing out that market forces must be allowed to determine the pump price of petrol in the country.
He, however, added that government was being considerate of the actual impact of the price increase on Nigerians.
Since January the price of the international oil benchmark, Brent crude, has been on an upward trajectory, rising from $41.51 per barrel to close at $70 per barrel on March 8.
Fuel marketers had in December expected another upward adjustment of PMS prices to reflect the further rise in crude oil prices.
The NNPC GMD said the corporation could no longer bear the burden of the extra expenses on the product, currently being sold at N162 per litre.
The subsidy is consuming a larger part of NNPC revenue as stated in a letter the corporation wrote to the accountant-general of the federation and seen by journalists.
The NNPC informed the AuGF that its monthly remittance to the Federation Accounts Allocation committee (FAAC) for May will likely be zero.
The corporation said that N111.96 billion would be deducted from April 2021 oil and gas revenue that was meant to be remitted to the account in May.
The deduction, according to the regulator, become necessary to ensure the continuous supply of petroleum products to the nation and guarantee energy security.
“The Accountant General of the Federation is kindly invited to note that the average landing costs for Premium Motor Spirit for the month of March 2021 was N184 per litre against the subsisting ex-coastal price of N128 per litre, which has remained constant notwithstanding the changes in the macroeconomic variables affecting petroleum products pricing,” the letter read.
“As the discussions between government and the Labour are yet to be concluded, NNPC recorded a value shortfall of N111.966,456,903.74 in February 2021 as a result of the difference highlighted above.
“Accordingly, a projection of remittance to the federation for the next three months is presented in the attached schedule.”