Nigerian Government Finally Admits Paying Petrol Subsidy, Says Can't Continue

25 MARCH 2021

Premium Times (Abuja)

By Oladeinde Olawoyin

The announcement the government pays up to N120 billion monthly sets the stage for a likely hike in the retail price of petrol.

The federal government on Thursday admitted paying as much as N120 billion to subsidise the price of petrol monthly.

The Minister of State for Petroleum Resources, Timipre Sylva, said this at the fifth edition of the special ministerial briefings coordinated by the presidential communications team.

He said the cost was covered by the Nigerian National Petroleum Corporation (NNPC).

The Group General Manager of the NNPC, Mele Kyari, said while the actual cost of importation and handling charges amounts to N234 per litre, the government is selling at N162 per liter.

He said sooner or later Nigerians would have to pay the actual cost for the commodity.

Even with the clear situation, Mr Kyari did not refer to the cost as "subsidy". He merely said the NNPC pays between N100 and 120 billion a month to keep the pump price at the current levels.

The figures tally with a PREMIUM TIMES estimates of the amount paid by the government monthly to subsidise petrol.

This newspaper reported last week that as it had become clear the Nigerian government continued to subsidise the price of petrol, the nation may be expending a whopping N102.5 billion monthly to reduce the retail cost of petrol.

The sum is higher than the N70 billion the government budgeted for the provision of Universal Basic Education (UBEC) in the 2021 budget, as well as the N45.19 billion allocated for immunization.

PREMIUM TIMES analysis followed details released by the controversial price template released by the Petroleum Products Pricing Regulatory Agency (PPPRA) last week.

The agency came under attacks weeks ago when it released a template indicating a huge jump in the retail price of petrol from about N160 to N212.

The decision contradicted earlier assurances by the NNPC that there will be no increment in March, prompting the government to disown it and apologise.

New Revelation

The PPPRA revealed details of the subsidy the Nigerian government effectively incurs.

In its pricing guide for March, the PPPRA put the wholesale margin at N4.03 per litre, administration charge at N1.23 per litre, transporters' allowance (NTA) at N3.89 per litre, Bridging Fund cost at N7.51 per litre, and Marine transport average (MTA) at N0.15 per litre.

The agency said the expected ex-depot price for wholesale products marketers would be N206.42 per litre.

Further review of the pricing template showed the average price per ton of the commodity was put at $561.96, or N169.22 per litre, while the average freight rate coat (North-West Europe to West Africa) is $21.63 per ton, or N6.51 per litre.

With a retailers' margin of N6.19, the new guide showed that the expected retail price would be N209.61 on the lower band and N212.61 on the upper band.

PREMIUM TIMES' analysis showed that the difference between the N206.42/litre ex-depot price announced by the PPPRA and the N148/litre price petrol is sold to marketers by NNPC reveals a subsidy of N57.82/litre.

For the volume of petrol consumed in the country daily, PREMIUM TIMES adopted the National Bureau of Statistics' conservative figure of 57.2 million litres, spread across a 31-day period. This newspaper found that the government through the NNPC will be spending about N102.5bn as petrol subsidy monthly.

Years of denial

For years, the government denied it paid subsidy on petrol, yet it did so through the NNPC, which described the cost as "under recovery".

Nigeria's petrol prices had been kept artificially low at N145, with subsidy eating into a huge chunk of government revenues.

But by June 2020, the NNPC recorded a N5.34 billion ($14 million) cost for fuel, raising suspicion that subsidy had not returned to the government's books.

Until recently, the government has not come out clean on how much it injects into subsidy payment, even as the item is not contained in recent budgets.

Some Nigerians have called for the removal of subsidy, in order to enable the government invest the fund into other developmental projects. Others have however condemned calls for its removal, citing it as perhaps one of the most significant "benefits" the masses enjoy from the government. Those in the later category, such as the organised labour, have advised the government to fix the refineries before removing fuel subsidy.

Many have also expressed worry over the government's sincerity, and wondered whether the government would indeed commit funds generated from subsidy removal into actual developmental projects.

Nigerians typically use petrol to power their vehicles, tricycles, and motorcycles, and in a country with poor electricity supply, other Nigerians in their millions power their generators with petrol.

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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