The World Bank has revealed that the Nigeria National Petroleum Corporation Limited (NNPCL) lacks transparency on the financial benefits resulting from the withdrawal of gasoline subsidies.
The bank pointed out that this includes ongoing deductions for subsidy arrears as well as the effect of eliminating subsidies on federation income. In its Nigeria Development Update, December 2023 issue headlined “Turning The Corner (from reforms and renewed hope, to results),” the Washington-based organization made this plea.
Wale Edun, the Coordinating Minister of Economy and Minister of Finance, stated that the government was prepared to examine the NNPCL’s revenue flow. The World Bank claims that even if the exchange rate adjustments have increased income, additional information about oil revenues—including the fiscal advantages of the PMS subsidy—is still required.
It declared, “nominal oil revenue gains have been evident since June; these are mostly categorised as “exchange rate gains”, suggesting that they are due to the naira depreciation.
“Except for the exchange rate-related increases, however, there is a lack of transparency regarding oil revenues, especially the financial gains of the Nigeria National Petroleum Corporation from the subsidy removal, the subsidy arrears that are still being deducted, and the impact of this on Federation revenues. It is also unclear why retail petrol prices have not changed much since August, despite fluctuations in the exchange rate and global oil prices.”
The Bretton Woods institution further expanded that gains in net oil revenue of the federation were lower than what they should have been considering what the removal of fuel subsidy should have added to the accounts.
It stated that fuel subsidy cost the federation about N380bn a month, and once removed, the federation account should have recorded an increase in net oil revenues.
It said, “However, most of the gains in the oil revenues in H2 2023, as reported by OAGF, can be attributed to exchange rate gains. Without exchange rate gains, net oil revenue between January and August would have declined by 0.2 of a percentage point of full-year GDP yoy, all materialising in the July–August period.
“In August, additional revenue from 40 per cent profit of Production Sharing Contracts and the interim yearly dividend were reflected in the accounts. However, these were not as high as what the gains from removing the gasoline subsidy should have been. Given that petrol pump prices have not changed in line with market fundamentals (notably exchange rate movements and global oil prices), there is a risk that the implicit fuel subsidy has reemerged, potentially keeping net oil revenues lower than expected.”
The organization said that the fuel subsidy reform should assist the NNPCL in paying off its debt and beginning to cover the Federation’s portion of joint venture operations’ expenses, allowing oil output to progressively rise over time.
The Coordinating Minister of the Economy, Edun, also spoke at the report’s presentation and mentioned that the government’s finances were spared when the gasoline subsidy was eliminated.
He said that although the government was expecting the removal of subsidies to increase income, it was instead facing a large budget imbalance and debt financing.
He said, “In terms of the government’s finances, you have rightly pointed out that following the removal of subsidy, there is an expectation that there would be fiscal dividends and it’s fair to say that without it, government finances will be in total disarray now. However, there is debt funding, pressure on fiscal deficit, and on government finances, and borrowings which have been inherited.
“Our levels of borrowing are being reduced and there is a plan to reduce that fiscal deficit over time. On the revenue side, the first source is oil, and I expect that there will be serious scrutiny on oil revenue and production and insistence on raising oil production and similarly that the revenues are brought into the federation account following the constitution. I think there will be added scrutiny, and I am sure NNPC is getting ready for that.”
Edun further declared that there would be a robust rollout of measures to raise tax revenue soon. He, however, highlighted that tax rates would not be increased but a lot would be done regarding efficiency, digitalisation, and improved collection.
He added that waivers and tax incentives would be scrutinised to revamp it and save leakages, particularly among ministries, departments and agencies.
