States in more trouble as NNPC deducts N242.53bn from March allocation


Nigeria’s revenue problems appear not to be abating anytime soon as petroleum subsidy continues to take a toll on contributions of the Nigerian National Petroleum Corporation (NNPC) to the Federation Accounts Allocation Committee (FAAC), undermining accruable revenue from oil.

Despite recording N438.37 billion as subsidy payments for the first six months of 2021, the NNPC is continuing its regime of deduction from the federation account as it set to withhold N117.4 billion from the three tiers of government Business Hallmark has learnt.

But this situation may not subsist for long as the minister of state for Petroleum Mr. Timipre Silva said that government has finalized arrangement to remove subsidy to boost revenue and prevent financial collapse of government.

The implication is by the time the national oil company withdraws the full amount this month during its monthly FAAC meeting, the total subsidy retention on petrol since this year would have hit a total of N608.808 billion since the full return of what the government termed under-recovery in February this year.

According to the NNPC’s July presentation on its activities to the FAAC, the corporation was only able to contribute N47.1 billion during the month as against its projected remittances to the joint account at about N122 billion, leaving a deficit of about N75 billion.

In its latest funding performance, the NNPC recorded N281.97 billion as net revenue to FAAC between January and June 2021, leaving a deficit of N973.86 billion as against the projected revenue of N1.25 trillion for the period.

The statutory payments made by the NNPC to the Federation Account, a joint pool operated by the local, state and federal governments, declined by over 63 per cent in the first five months of 2021, documents from the corporation indicated.

An analysis of the data presented by the national oil company to the FAAC in the first five months of this year showed that of the total sum of N613.834 billion, the corporation was only able to remit N225.852 billion.

The documents obtained from one of the federal ministries showed that N387.982 billion remained unpaid during the period under consideration, representing about 63.21 per cent actual budgetary forecast.

According to the NNPC/ FAAC data, while the corporation was expected to pay a net amount of N122.767 billion monthly into the federation account, it was only able to remit N90.860 billion in January, N64.161 billion in February and N41.184 billion in March.

The national oil company was unable to make any payment into the federation account in April as was earlier announced, while a paltry N29.647 billion was remitted in May.

Among other ancillary issues leading to the inability of the corporation to meet its obligation to the three tiers of government, the NNPC has had to deal with the major challenge of shouldering the government’s petrol subsidy payments in the last couple of months.

The elimination of payments for under-recovery has been a controversial issue for decades, with attempts to alter the existing arrangement always met with stiff resistance from the labour unions, civil society organisations as well as a cross-section of Nigerians.

In March last year, at a time the international prices of crude oil took a downward spiral, the federal government had announced the total deregulation of the downstream petroleum sector. However, the gradual recovery of the price of the commodity in the international market, which has invariably affected the pump price of fuel in the country, has seen a rollback of that policy.

The Group General Manager, NNPC, Mallam Mele Kyari, in March, said the federal government was subsidising petrol with about N120 billion monthly, describing the development as unsustainable. According to him, while the actual cost of importation and handling charges amounted to N234 per litre, the government had been selling at N162 per litre, thereby bearing the cost burden.

He said the NNPC could no longer afford to bear the cost, saying Nigerians would have to pay the actual cost sooner or later. But the government has since then said it was in negotiations with organised labour on the matter.

On June 30, Mr. Kyari revealed that the price of the product had further skyrocketed and that without subsidy, petrol would be selling at N256 per litre at the filling stations. The NNPC boss spoke at a time crude oil was selling for $74.40 per barrel at the international market.

With oil prices experiencing a rebound, the federal government might continue to find it difficult to sustain subsidy payments, or even borrow to fund subsidies to avoid a backlash from households dealing with poverty and inflation. Subsidy payments have continued to rise, not just due to low production, but also as a result of the surge in consumption, especially smuggling.

Despite the new production allocation for 2022, Nigeria and other Organisation of the Petroleum Exporting Countries (OPEC) members are complaining about their low quota, stating that by late 2022, when OPEC+ expects to have fully unwound its 5.8 million b/d in collective production cuts, the five countries: Saudi Arabia, Russia, the UAE, Iraq and Kuwait, granted will have expanded their output considerably, while most, if not all, of the remaining members, will struggle to keep pace, ceding market share in the process.

The Minister of State for Petroleum Resources, Sylva, had called for synergy among agencies in the country to tackle the increasing smuggling of Premium Motor Spirit (PMS) across the nation’s borders, after he said the country’s daily petrol consumption stood at 102 million litres per day in the month of May.

According to Kyari, the current situation has kept the country in a state of bleeding, as it cannot sustain the payment of subsidy that accompanies the volume put at 102 million litres.

With the high volume of daily consumption, he said, the country cannot sustain subsidy payment, adding: “As long as we don’t regulate volume until we are able to exit this current level, which I know so much work is going on, then we have to manage the volume that we are exposed to between this price of N162 and N256.

“The difference comes back to as much as N140 billion to N150 billion monthly. As long as the volume goes up, that money continues to increase and we have two sets of stress to face, the stress of supply and the stress of foreign exchange for the NNPC. We may not see foreign exchange cheque taking place for importation,’’ he said.

In recent years, allocations to states have always dwindled amid slump in oil revenue and disruption in the global oil market, with FAAC meetings always ending in a stalemate. Since the coronavirus disrupted global economy and reduced oil revenues, the sharing of revenues among state and federal governments at FAAC has always been steeped in controversies.

In April,, Edo State governor, Godwin Obaseki, alleged that the government had to print an extra N60bn in March due to shortfall in FAAC allocation to states. The CBN and the Finance Ministry, however, dismissed the claim.

The payment of subsidy has been a controversial subject in the management of Nigeria’s oil resources in the last decade. While many Nigerians have called for its removal in order to enable the government invest the fund in other developmental projects, others have condemned such calls, calling it one of the few “benefits” the masses enjoy from the government.

Some pressure groups, such as the organized labour, have advised the government to fix the refineries before removing fuel subsidy. In March, a report claimed that the nation may be expending a whopping N102.5 billion monthly to reduce the retail cost of petrol, a projection the NNPC confirmed in a subsequent press statement.

“There is no how a county can make a headway by exporting a commodity for little or nothing only to import the finished product of that commodity at an exorbitant cost”, said Barr Fred Nzeako, a development economist and public affairs commentator.

“The day I got to know the amount of foreign exchange this country is wasting on petrol import, I shed tears. Do you know millions of jobs that Nigerians would have found from petroleum value chain or how strong the naira would have been or how fat the federation account would have been were the refineries in this country functional?”

Another analyst, Michael Adeyemi believes that the petrol subsidy is a scam. He said “the best for this country would have been a total removal of the so-called subsidy if only government will be sincere about it.

“The irony of the subsidy thing is that while it is favouring the elite, the poor are the ultimate losers.”

A study supported by the British government estimated that Nigeria spent N10 trillion on subsidies from 2006 to 2018, more than the budgets for health, education or defence.

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