Despite President Bola Ahmed Tinubu’s assurances that the subsidy had been removed, Daily Trust’s investigation reveals that in August, the federal government disbursed ₦169.4 billion as a subsidy to maintain the pump price at ₦620 per liter.
Various reports have suggested that the continued price stability, despite the deteriorating exchange rate and international crude oil prices exceeding $95 per barrel, indicates the return of the subsidy.
A document from the Federal Account Allocation Committee (FAAC) reveals that in August 2023, the Nigerian Liquefied Natural Gas (NLNG) paid $275 million in dividends to Nigeria through NNPC Limited. NNPC Limited utilized $220 million (equivalent to ₦169.4 billion at ₦770/$) of the $275 million to cover the PMS subsidy. The remaining $55 million was retained by NNPC, reportedly unlawfully.
This disclosure by FAAC implies that the subsidy has been reinstated, with NNPC utilizing NLNG dividends to fund it.
Former President Buhari’s tenure saw the highest spending on petrol subsidies in Nigeria’s history. According to reports by the Nigeria Extractive Industries Transparency Initiative (NEITI), the cost of petrol subsidies from 2015 to 2020 amounted to ₦1.99 trillion. Additionally, NNPC reported to the Federation Accounts Allocation Committee (FAAC) that petrol subsidies cost ₦1.57 trillion in 2021 and an additional ₦1.27 trillion from January to May 2022. The government subsequently budgeted ₦3 trillion to cover petrol subsidy costs from June 2022 to June 2023. In total, during President Buhari’s administration, the government spent ₦7.83 trillion on petrol subsidies.
Global oil market dynamics have played a role in the resurgence of subsidies. As Brent crude oil surpassed $95 per barrel, coupled with the devaluation of the Nigerian naira against the US dollar in the black market, doubts arose about Nigeria’s elimination of petrol subsidies.
Furthermore, the price cap on gasoline has made it challenging for marketers. In August, the price per liter of PMS at the international market was $0.792, compared to $0.641 in July. This resulted in an increase in the landing cost of PMS, from ₦529 in July to approximately ₦728.64 per liter. Additional costs, such as freight, lightering, distribution margin, and others, ranged from ₦90 to ₦105.
The $3 billion crude repayment loan announced by the Nigerian National Petroleum Corporation (NNPC) Limited with the African Export-Import (Afrexim) Bank was intended to provide the federal government with the necessary dollar liquidity to stabilize the naira. However, the loan’s progress appears to have stalled as other lenders that were expected to participate in the syndicated transaction have reportedly backed out.
Industry experts believe that without a functional refinery and exchange rate stability, removing the subsidy is impractical. The Chairman of the Independent Petroleum Marketers Association of Nigeria (IPMAN) emphasized the importance of stabilizing the naira to achieve the government’s promise of stable petrol prices.