Last week, some government workers were gripped by fear when the news that the Nigerian National Petroleum Corporation (NNPC) has notified the Federal Government of its inability to remit revenue to the federation account in the month of May, filtered the air.
In a leaked letter to the Federal and State governments, through the Accountant General of the Federation (AGF), the national oil company stated that it recorded a shortfall of N111, 966,456,903.74 in February 2021, because of the differential in the ex -coastal prices of petrol, and plans to recover the money in the month of May, 2021. What this means is that the Corporation would make zero remittance into the federation account in May.
It also implies that there may not be enough revenue to share among the three tiers of governments (Federal, States and Local Governments), which could result in delay in payment of salaries, especially among the states that depend on federal allocation for survival. NNPC is one of the biggest revenue earners for the Federal Government, which is why this letter calls for concern.
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According to the letter dated April 26, 2021, with reference no GED/CFO/FA/19, the NNPC noted that the average landing cost of petrol for the month of March 2021 was Nl84 per litre as against the subsisting ex-coastal price of Nl28 per litre.
“Further to our previous correspondences on the above subject, we wish to advise on the projected remittance to the Federation Account for the months of April (May FAAC) to June, 2021 (July, 2021 FAAC).
“The Accountant General of the Federation is kindly invited to note that the average landing cost of Premium Motor Spirit (PMS) for the month of March 2021 was Nl84 per litre as against the subsisting ex-coastal price of Nl28 per litre, which has remained constant notwithstanding the changes in the macroeconomics variables affecting petroleum products pricing,” the Corporation stated.
“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”.
As at May 2, 2021, Brent crude, which is the global crude oil benchmark was selling at $66.76, while Nigerian Bonny Light was selling at $64.99, according to Oilprice.com price chart. Crude prices have been on the rise in the last couple of months, as more countries ease lockdowns and as a result of the positive impacts the rollout of Covid-19 vaccines are having in various countries.
It is rather unfortunate that the higher the prices of crude in the international market, the higher the financial burden the country would have to bear, because of petrol subsidy. And NNPC, which is responsible for the importation of virtually all the refined petrol used in the country is not finding it funny.
In March, the Group Managing Director of NNPC, Mele Kyari, had disclosed that the Corporation can no longer bear the burden of petrol subsidy.
“The price could have been anywhere between N211 and N234 to the litre. The meaning of this is that consumers are not paying for the full value of the PMS that we are consuming and therefore someone is paying that cost,” he had said.
“As we speak today, the difference is being carried in the books of NNPC and I can confirm to you that NNPC may no longer be in a position to carry that burden.”
It must be noted, however, that removal of fuel subsidy at this time will be disastrous. The Federal Government and NNPC should not claim ignorance of the huge role fuel plays in our economy. Most small businesses, including homes, run on fuel powered-generators. Also, because of poor transportation system, movement of people, goods and service across the country is 90 percent by land. And most of the vehicles used are fuel-powered. Removal of fuel subsidy directly impacts on businesses, transportation fare and prices of goods and services.
This is why I strongly disagree with the Minister of State for Petroleum Resources, Timpre Sylva, who while speaking at a graduation and awards ceremony organised by Offshore Technology Institute, University of Port Harcourt, Rivers State, on Friday, April 30, 2021, said that petrol subsidy is not directly benefiting Nigerians. He, however, indirectly acknowledged that removal of petrol subsidy would have an impact on the marketplace.
“Subsidy is not directly benefitting Nigerians; the biggest contact with Nigerians is kerosene consumption used by local persons for cooking; as for diesel, it is used to transport food items and so on. But these have been deregulated for a long time now,” Sylva said.
“It is very unfortunate that if (there is) an increment in fuel pump price, (it) would have an impact on the marketplace and we are not happy about that. The President especially does not want to do it, but the economic realities are staring us in the face.
“Can we continue to support the subsidy, which is not necessarily benefiting the ordinary person, but is benefiting certain individuals who are businessmen in the country? I don’t want to identify the people that are benefiting.”
According to the Consumer Price Index report, released in April by the National Bureau of Statistics (NBS), the country’s inflation rate for the month of March 2020, rose to 18.17 percent from 17.33 percent recorded in February 2021. This represents 0.82 percent points higher than the February figures.
We are already facing economic downturns, and the removal of petrol subsidy will worsen the current situation. In my view, the removal of petrol subsidy will not get the country out of the woods. What will deliver us from this economic quagmire is diversification. The country’s over-reliance on crude oil is a big issue that must be addressed.
Nigerians already have a lot to chew, and adding a high cost of fuel to it will be the worst mistake President Muhammadu Buhari’s administration would make.
Going forward, the Nigerian government has to continue to bear the burden of petrol subsidy. Secondly, it must make deliberate policies towards diversifying into communication and digital economy, maritime, solid mineral resources and agricultural sectors. These sectors have the potentials to take the country to the top 20 economies in the world within a decade.
Also, the government needs to address issues around illegal export of refined petrol to neighbouring countries by some unscrupulous petrol marketers, which adds to the financial burden the country bears. This way, the country will not be subsidizing petrol for other countries, and will save money for other developmental projects.
Furthermore, the government should also resuscitate the three refineries in Kaduna, Port Harcourt and Warri. These refineries have a combined capacity of 445,000 barrels. With this number and further effort to build new refineries, the country will not have to important, thereby creating jobs, and saving foreign exchange.