Petrol landing cost at N1,117 pressures NNPC’s ‘secret’ subsidy

Rising landing costs for petrol are set to send the Nigerian National Petroleum Company (NNPC) ‘secret’ subsidy bill rocketing, threatening to exacerbate the already precarious economic situation of Africa’s largest oil producer, BusinessDay’s findings have revealed.

At the black-market rate of N1,610 per dollar, findings showed the landing cost of petrol, which includes the product’s international price, shipping, insurance, and other charges, increased to N1,117/litre from N720/litre in October 2023.

This means that the bill for subsidies, which has been kept under wraps, will jump, piling pressure on the national oil company’s finances.

The Nigerian government projects N5.4 trillion in 2024 for petrol subsidies as against N3.6 trillion budgeted for the same intervention in 2023, Wale Edun, finance minister, said recently.

But with the landing cost rising to N1,117/ litre, the subsidy payment could further rise, gnawing Nigeria’s finances via the NNPC.

“Lack of transparency in the pricing and importation process has led to significant revenue leakages and potential hidden subsidies,” Bello Rabiu, independent consultant and former NNPC’s chief operating officer for upstream, said at a virtual event.

He noted that the market lacks a clear, competitive framework, resulting in inefficiencies and high costs.

Rabiu emphasised that PMS is the only regulated product, stressing that the regulation is essential due to its significant role in the downstream sector.

According to Rabiu, “To achieve an efficient oil and gas sector across upstream, midstream, and downstream systems, the market must be liberalised, with all refineries and pipeline works operational.”

He noted that the NNPC is running a monopoly as the only supplier, a dominant player in the sector.

Rabiu lamented that the country is still bleeding because the exact amount paid as a subsidy remains unknown.

He said, “We are yet to see the supposedly gone subsidy.”

Wumi Iledare, professor of energy economics and a senior expert in Nigeria’s oil and gas sector, said the cost of PMS in Nigeria is far below the international price, considering the price of diesel.

“The gap between the cost of diesel and petrol in Nigeria is much. It is never like that all over the world. That means something is wrong.

“I don’t know if the NNPC is paying subsidies or not, but somebody is absorbing the difference. You can call it under-recovery or subsidy, but the price of petrol today does not reflect the market cost of producing a litre of petrol,” he noted.

BusinessDay checks on Thursday showed that parallel foreign exchange market operators quoted a buy price above N1,600/$1 for holders of naira looking to buy dollars.

Platforms such as Trove, Remitly, Bamboo, and PiggyVest were selling the dollar above N1,630 as of Thursday, July 18, 2024.

Labour stalls petrol price hike

An authoritative source told BusinessDay that the fear of nationwide agitations and prolonged mass protests by the organised labour is keeping the Federal Government from allowing further increases in the pump price of PMS.

Sources said the inability of President Bola Tinubu-led government to fulfil all its promises, including the provision of CNG buses to ease transportation challenges facing Nigerians, is forcing the government to continue subsidy payment despite its famous ‘subsidy is gone’ pronouncement on May 29, 2023.

The source told BusinessDay that during last week’s meeting with members of the organised labour at the Presidential Villa, Abuja, President Tinubu pointedly told the labour delegation led by Joe Ajaero that they were ‘tying his hands’ from further petrol price increase.

The source noted that Tinubu also told the delegation that he could not yield to their N250,000 minimum wage demand because labour wouldn’t allow further pump price increase to free funds going into subsidy.

On Wednesday, Femi Soneye, chief corporate communications officer of NNPC Limited, said the NNPC Ltd has not looked back in its transparency journey, publishing every information that the public should know.

“In the face of various allegations of financial malfeasance, NNPC Ltd has always made itself available for probes or opportunities for reconciliation of figures with other agencies of government as the case may be; and, it has always been vindicated,” Soneye said in his article published on BusinessDay.

Subsidy isn’t gone

President Bola Tinubu, during his inaugural speech on May 29, 2023, declared that subsidy on petrol was gone, a declaration that was effectively implemented the next day by the NNPC.

Before Tinubu’s declaration, the pump price of petrol was below N190/litre. However, it jumped to over N500/litre after the president’s statement and moved up again to over N600/litre a few weeks later.

While the Federal Government has repeatedly denied the payment of any subsidy on petrol, a report recently submitted to President Tinubu by the finance minister, Edun, and seen by BusinessDay, showed that the government’s N5.4 trillion subsidy projection in 2024 is true.

Edun also told reporters that subsidy removal is an ongoing process, suggesting that a complete removal is not yet achieved.

“It is an ongoing conversation, it is an ongoing process of ensuring that fuel subsidy that fuel subsidy is eliminated from the Nigerian economy, that is what Mr. President intent is and that is what is being worked towards,” Edun said in an interview May.

Credit: Business Day