Despite numerous political chants by President Bola Ahmed Tinubu that subsidy in petroleum products is gone, it has emerged Nigeria paid N169.4bn as subsidy in August to keep the pump price at N620 per litre.
There have been several reports suggesting that the current price stagnation despite the worsening exchange rate and international crude price crossing $95 a barrel suggests a return of subsidy.
However, a document of the Federal Accounts Allocation Committee (FAAC) suggests that somebody is not telling the whole truth about subsidy.
It is possible tthat in August 2023, the Nigerian Liquefied Natural Gas (NLNG) paid $275m as dividends to Nigeria via NNPC Limited. NNPC Limited used $220m (N169.4 billion at N770/$) out of the $275m to pay for the PMS subsidy. Then NNPC held back $55m, illegally.
The revelation by FAAC effectively indicates that the subsidy is back and NNPC is now taking NLNG dividends to pay the subsidy.
Ex-president Muhammadu Bihari ran the oil ministry, and President Bola Tinubu has not yet said who would manage the oil resources ministry.
Buhari left the country with the highest amount spent on subsidising petrol in Nigeria’s history.
According to oil and gas industry reports conducted by the Nigeria Extractive Industries Transparency Initiative (NEITI), the cost of petrol subsidy from 2015 to 2020 was N1.99 trillion.
Also reports by the Nigerian National Petroleum Corporation (NNPC) to the Federation Accounts Allocation Committee (FAAC), showed that petrol subsidy cost N1.57 trillion in 2021 alone and another N1.27 trillion from January to May 2022.
Government thereafter budgeted N3trn to cover petrol subsidy costs from June 2022 to June 2023. An aggregation of the entire costs showed that under President Buhari, the government spent N7.83 trillion on petrol subsidies.
Global oil market dynamics
Brent crude crossed the $95 per barrel threshold as the value of the naira versus the US dollar hit a record low at the black market creating greater doubt about Nigeria’s elimination of petrol subsidies.
At the time this post was being written, U.S. West Texas intermediate crude futures increased by more than 1% to $92.46 a barrel, while the international oil benchmark Brent crude futures crossed the $95 per barrel barrier.
The most recent increase in crude oil prices was expected to drive up the price of gasoline, but the FG’s decision to keep the energy product at N617/litre proved that the subsidy on Premium Motor Spirit had been quietly restored.
In addition to the rapid depreciation of the naira in Nigeria’s most accessible (black) FX market, the price cap on gasoline has made it difficult for marketers.
As of the last week of August, PMS was trading for $1,030.11 per metric tonne at the international market compared with the $859.25 it traded around July when NNPC increased the pump price to an average of N617 per litre. This shows an increase of 19.88 per cent.
The exchange rate in July was N820/$ but now N920/$, indicating a 12.19 per cent increase. The crude oil price in July was $78.50 per barrel, it traded for $88.50 per barrel in the last week of August. Yesterday, it hit the $95 mark.
Also, while the price per litre at the international market in July was $0.641, it stood at $0.792 in the last week of August. This means that the landing cost of PMS stands at about N728.64 per litre compared to the N529 it was in July.
Addition of freight costs, lightering costs (STS), distribution margin, ancillary costs by the Nigerian Midstream Downstream Regulatory Authority (NMDPRA), Nigerian Port Authority (NPA) and Nigerian Maritime Administration and Safety Agency (NIMASA) as well as marketers’ margin stands at about N90 to N105.