The World Bank has said the Nigeria National Petroleum Corporation Limited (NNPCL) is not transparent about the financial gains from fuel subsidy removal, disclosed.
The Washington-based made this call in its Nigeria Development Update, December 2023 edition, titled, ‘Turning the Corner (from reforms and renewed hope, to results)”. This extends to subsidy arrears that are still being deducted and the impact of subsidy removal on federation revenues, the bank noted.
Recall that the Minister of Finance and Coordinating Minister of Economy, Wale Edun, recently revealed that the Government was ready to scrutinise the revenue flow from the NNPCL.
According to the World Bank, while revenue gains from the exchange rate reforms are visible, more clarity is needed on oil revenues, including the fiscal benefits from the PMS subsidy reforms.
It declared that: “Nominal oil revenue gains have been evident since June; these are mostly categorised as “exchange rate gains”, suggesting that they are due to the naira depreciation.
“Except for the exchange rate-related increases, however, there is a lack of transparency regarding oil revenues, especially the financial gains of the Nigeria National Petroleum Corporation from the subsidy removal, the subsidy arrears that are still being deducted, and the impact of this on Federation revenues. It is also unclear why retail petrol prices have not changed much since August, despite fluctuations in the exchange rate and global oil prices”.
The Bretton-Woods institution further expanded that gains in net oil revenue of the federation were lower than what they should have been considering what the removal of fuel subsidy should have added to the accounts.
It stated that fuel subsidies cost the federation about N380bn a month, and once removed, the federation account should have recorded an increase in net oil revenues. The institution further noted that the reform of fuel subsidy should help the NNPCL to settle its arrears and start paying fully for the Federation’s share of costs in joint venture operations, thereby allowing oil production to gradually increase over time.
Recall also, that on May 29, President Bola Tinubu announced the removal of fuel subsidy with: “Subsidy is gone”, to free up foreign exchange earnings. In his August 1 national address, Tinubu disclosed that the Federal Government had saved about N1tn in two months after the removal of the petrol subsidy freeing up funds for other things in the economy.
However, there have been concerns that the dividend of subsidy removal has not trickled down to the average Nigerian.
Also, recently, a former Governor of the Central Bank of Nigeria, (CBN), Sanusi Lamido Sanusi, alleged that the NNPCL might not be remitting enough dollars to the Federation Account despite subsidy’s removal. Speaking during the Bank Directors Summit, organised by the Bank Directors Association of Nigeria recently, Sanusi, said, “The exchange rate needs to be stabilised and we have to address the fundamental question, why is there no money coming in? He noted that the NNPCL was opaque about its dealings, shrouding many of its dealings in secrecy.
Defending the oil company’s finances, the NNPCL’s Chief Financial Officer, (CFO) Umar Ajiya, who was representing the Group Managing Director, Mele Kyari, disclosed that since the inflow of dollars into the country is tied to oil revenues, the country is facing the consequence of falling oil production, insecurity, and lack of investments in the sector.
He also said the NNPCL had been using its revenue to import refined PMS and service debt. He said, “Just to clarify and let the audience go with a well-balanced information. The inflows of dollars into the country are tied to oil revenues; and the oil revenues are driven from oil production”.
According to the CFO, adequate forex inflow can also happen if insecurity is addressed, and such development will attract partners to bring in fresh dollars in the form of investment to oil operations.
In its report, the global bank noted that there is a risk that Federal Government may still be paying for fuel subsidy, which is why net oil revenues are lower than expected.
During his presentation at the unveiling of the report, the bank’s Lead Economist for Nigeria, Alex Sienaert, noted that fuel processes are currently not cost-reflective in the country. He disclosed that the market price of petrol should be around N750/litre.
The global bank further stated that in the medium-term, the economy will begin to benefit from increasing fiscal space for development spending, while noting that inflation will begin to fall in 2024.
