The Federal Government may incur N3.55trillion in petrol under-recovery cost, better known as subsidy, in 2022, according to a report by Cordros Securities issued at the weekend.
The price of Brent crude, which is Nigeria’s variant, was put at $116.40 per barrel on Friday, with the likelihood of a further escalation in price, a development that analysts believe will raise under-recovery costs over the short-to-medium term.
Relying on the recently released data from the Nigerian National Petroleum Corporation (NNPC), Cordros Securities analysts, in the report, said the upward swing in the price of crude oil will increase the burden of bridging the gap between the actual cost of petrol and the subsidised rate at which the product is sold to the Nigerian public.
“We expect under-recovery costs to increase significantly over the short-to-medium term, given the rise in crude oil prices compared to the 2021FY levels. Consequently, we estimate petrol under-recovery cost to settle at N3.55 trillion (or 56.8% of our estimated FGN’s retained revenue) in 2022 (vs 2021 N1.61 trillion, or 34.3% of FGN’s retained revenue)”, the report said.
The report further said the corporation incurred N245.77 billion as petrol under-recovery cost in March (February: N219.79 bn). It further explained that the under-recovery cost for the review month consists of the previous months’ outstanding and part of the February 2022 value shortfall.
The report noted that apart from the impact of the under-recovery activities on the economy, another cause of concern is the sustained decline in oil production in Nigeria.
