By Obas Esiedesa
There was an indication that the Nigerian National Petroleum Corporation, NNPC, followed through on its threat to deduct the N111.966 billion it spent to subsidize the pump price of gasoline in March by withholding the same amount. of the Federation’s account, making no payment to the Federation’s Accounts Allocation Committee, FAAC.
The latest deduction from the NNPC brought the total amount spent so far on FAAC’s gasoline subsidies to around 369.47 billion naira in the first four months of 2021.
Data from NNPC presentations at FAAC meetings this year showed that in January the deficit was 25.37 billion naira, while in February the deficit rose to 60.4 billion naira. nairas.
In a letter to FAAC, the company also projected a deficit of 171.74 billion naira for the month of April, bringing the total deficit induced by the subsidy to 369.47 billion naira.
With the price of crude oil hitting its lowest level in decades last year, President Muhammadu Buhari’s administration swiftly removed gasoline subsidies in March 2020. This led to a real reduction in the price at home. pump gasoline from 145 N per liter to 125 N per liter. .
However, as the price of crude oil recovered, the cost of importing gasoline rose, with the government announcing monthly price adjustments.
But in the face of union protests and rising inflation, the government found itself in a dilemma over what to do with the landing and pump price differentials that gave rise to the grants. With no subsidy provision in the 2021 budget and no clear plan on how to exit subsidy payments, NNPC, which became the sole importer of the product, had borne the burden of undervaluing imports of ‘gasoline.
In February this year, the Minister of State for Petroleum Resources, Chief Timipre Sylva, warned that with the rising cost of crude oil, Nigerians should be prepared to pay more for gasoline, stressing that he It was impossible for the NNPC to continue to bear the cost of the gasoline subsidy indefinitely.
He said, “Since we are optimizing everything, NNPC also needs to think about optimizing the cost of products because as we all know oil prices are where they are today, $ 60.
“As desirable as it is, it also has serious consequences on product prices. So we want to take the pleasure and we as a country have to be prepared to endure the pain. Today, the NNPC is taking a big hit. We all know there are no grants in the budget.
“So somewhere down the line I believe the NNPC cannot continue to take this hit. There is no way because there is no provision for it. As a country, let’s take advantage of the rising crude oil prices and I hope we are also willing to accept a little pain on the side of rising commodity prices, ”he said.
Additionally, NNPC group chief executive Mallam Mele Kyari said in March that the company was spending $ 263.248 million (120 billion naira) per month to subsidize the product.
Oil companies abandon imports
NNPC has become in recent years the sole importer of oil, with private sector operators in the downstream oil sector having remained on the sidelines, largely due to the difficulty of accessing foreign exchange at competitive rates as well as continued subsidy on product prices.
Speaking on the matter, National President of the Independent Association of Petroleum Traders of Nigeria, IPMAN, Chinedu Okoronkwo, said marketers are ready to be involved in importing oil if Forex is put to them. available at the rate available for NNPC.
Okoronkwo noted that making currencies available at the same rate would create a level playing field for traders and also create healthy competition.
“It will no longer be a one man show as it is now. I believe the government is thinking in this direction as a short-term measure pending when most of the new refineries are operational. Which is not going to be far, ”he said.
Also speaking in a telephone interview, the executive secretary of the Association of Major Petroleum Traders of Nigeria, MOMAN, Mr. Clement Isong, also accused the lack of foreign exchange of having driven private sector operators away.
“The major problem,” Isong noted, “is currency exchange. There is no availability of currency and even NNPC when bringing in products; they bring it in through a facility called DSDP, direct buying from direct selling.
“This means that they directly trade crude for refined products; so there are simply no currencies to import at the correct exchange rate.
“For example, for fully deregulated products, foreign exchange is available, and diesel and kerosene are imported, but they are not available at the CBN rate. But for petroleum, the Petroleum Product Price Regulatory Agency calculates the exchange rate to the CBN rate and that window is illiquid. There are no currencies there. This means that if you import a product according to this exchange rate, you cannot sell the product in the market, ”he explained.
Isong urged the federal government to implement full deregulation in the sector, saying the benefits go beyond importing products, as it would entail investment in the downstream sector.
According to him, “Total deregulation is not only good for my members, it is good for Nigeria, it is good for the country because when you don’t deregulate you come back to subsidies and subsidies are a very big thing. wrong way to run the country. Resources”.
FG accused of indecision
For his part, the outgoing president of the Society of Petroleum Engineers, SPE Council Nigeria, Engr. Joe Nwakwue accused the federal government of lacking political clarity in deregulating the downstream sector of the petroleum industry.
Nwakwue said Nigeria urgently needs to implement full deregulation of the sector.
According to him, “I will say that there is currently a major challenge downstream, namely the lack of clarity of policies. I don’t know what the policy is. I have yet to see a subsidy elimination strategy or plan.
“I hope they get involved and deregulate the market. It is imperative for the survival and sustainable development of the downstream. We need to continue reforming the sector without being distracted by politics, ”he added.