The Nigerian National Petroleum Corporation (NNPC) plans to pay N270 billion per month to subsidize fuel consumption by Nigerians in 2022, raising its total subsidy payment to N3 trillion for the year.
This is significantly higher than the N1.43 trillion spent by the Nigerian oil corporation in 2021, when it remitted only 17.4 percent of its N2.99 trillion revenue of eleven months, having spent N2.47 trillion.
NNPC submitted the proposed fuel subsidy payment to the FEC meeting presided over by President Muhammadu Buhari following the administration’s decision to suspend its planned removal of subsidy.
Why NNPC is paying N270 billion per month
According to the Minister of Finance, Budget and National Planning, Zainab Ahmed, who revealed the NNPC proposal to the press on Wednesday after the FEC meeting, there are various factors fuelling the rise in subsidy payment.
Oil price: Ahmed said skyrocketing oil prices have driven subsidy cost up. Ripples Nigeria understands that since the crude oil price hit an upward trend, Nigeria has continued to sell fuel at a low rate of N162-N171 per litre, a price it reached when crude oil was trading below $50.
However, crude oil is now sold at about $89.91 per barrel, which means fuel price should be well above N212.6 per litre, which it tried to set last year Q1, but was resisted by the labour force.
Hardship among Nigerians: The finance minister admitted that Nigerians were suffering. This comes almost two months after Ahmed said in 2022, about 11 million Nigerians would be pushed into the poverty rank.
It was gathered that the realities on ground compel the NNPC to increase its expected funding meant to subsidize fuel consumption among Nigerians.
Lack of structure: During her interaction with the press, Ahmed disclosed that the structure needed to support removal of fuel subsidy was not available. This is despite Dangote refinery targeting this year as commencement for its fuel refining operation.
In her words, she stated, “Having taken into account the current realities; increased hardship in the population, heightened inflation, and also that the measures that needed to be taken to enable a smoother exit from the fuel subsidy are not yet in place, it was agreed by Council that it is desirable to exit fuel subsidy.
“The Nigerian National Petroleum Company (NNPC) has presented to the ministry a request for N3 trillion as fuel subsidy for 2022. What this means is that we have to make an incremental provision of N2.557 trillion to be able to meet the subsidy requirement, which is averaging about N270 billion per month.
“In 2021, the actual under-recovery that has been charged to the Federation was N1.2 trillion, which means an average of N100 billion, but in 2022, because of the increased crude oil price per barrel in the global market, now at $80 per barrel, and also because an NNPC’s assessment is that the country is consuming 65.7 million litres per day, now we’ll end up with the incremental cost of N3 trillion in 2022.
“So, this has been considered by Council and we’ve also been asked to approach the National Assembly for an amendment to the fiscal framework as well as the Budget, to also further discuss with NNPC on how to make provisions for this and also how to rationalize this expenditure.
“The PIA had required that all petroleum products should be deregulated within six months of signing the PIB into law. And the six months would have meant from August to February.
“But when we were doing the budget we stretched that to June. So it means technically that from September, there will be a new fuel subsidy.
“But having to step back and take into account the realities of today, what it means is we have to go back and amend the PIA, so the ministry of petroleum resources will be leading on that. “They had indicated that they will be asking for an amendment to extend it to 18 months from six months. And then it means we can now also amend the budget. So the two processes will go side by side.
“In the case of the budget, we’re looking at extending to December in the first instance, because this budget year is January to December and we’re going to engage NNPC to further interrogate the request that they presented with a view of trying to see how we can scale it down so that the country is not incurring N3 trillion for a fuel subsidy.”
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