The state-owned oil and gas company, NNPC Limited, spent a whooping N5.3 trillion of its profit to subsidise petrol between 2017 and 2022.
Based on available public records of the annual financial statements published by the NNPC, in 2020, NNPC Limited declared a profit of N63 billion. However, the profit could have been as high as N165 billion if the company had not spent the difference on subsidising petrol. Similarly, in 2021, when NNPC posted a profit of N674 billion, the company could have posted a profit of N2.716 trillion without the subsidy albatross.
Although it is impossible to ascertain the profit figure for 2022 as the year is not over yet, the subsidy took N5.342 trillion of NNPC’s (limited) ‘profit’ between 2017 and July 2022.
The vast amount spent on subsidies has greatly impacted the remittances from crude, which is the government’s primary foreign exchange and revenue earner. This has resulted in a severe revenue shortfall and the inability of the government to finance large parts of its budget. The country has therefore relied on loans to meet its budget commitments.
In 2017, subsidy gulped N144.5 billion, N722.3 billion in 2018, N551.2 billion in 2019, N102 billion in 2020, N1.780 trillion in 2021 and N2.042 trillion between January to July 2022.
Although Nigeria is one of the world’s largest crude oil producers, the recent increase in the price of crude has yet to boost its revenue, as a substantial amount of its income is used for either subsidy payment or debt servicing.
A study of the Federal Account Allocation Committee (FAAC)’s document on NNPC between January to July shows that the oil company did not remit any money to the Nigerian government during this period.
The need for the former government corporation to become profit-generating was a key reason why NNPC became a commercial entity – NNPC limited on September 20, 2021. One of the key profit-drainers for the corporation is its subsidy payments recorded as under-recovery in its books.
Subsidy is paid to keep the petroleum price at an official rate. The current rate is N170, although, according to the National Bureau of Statistics, petroleum sells for an average of N195.29 per litre as of October 2022.
The subsidy regime costs Nigeria more as it imports refined petroleum due to the poor state of refineries in the country.
International finance organisations such International Monetary Fund at various times have asked the Nigerian government to remove fuel subsidies. In the latter part of 2021, the Nigerian government wanted to remove the fuel subsidy and replace it with transportation grants; it, however, backtracked following mixed reactions from different quarters.
Widespread oil theft and low production due to old facilities also affect oil revenues.
Nigeria’s New Plan to remove Subsidy by Mid-2023
Nigeria has announced new plans to remove subsidies by mid-2023. However, it remains to be seen how it hopes to achieve this, especially given its antecedent of making announcements without actually implementing the policy.
A new government is expected in office from the second quarter of the year. While opposition parties have vowed to remove subsidy on petrol if elected into office, it is unclear if the ruling party will remove subsidy if its candidate is elected next February.
Policy analysts Akintunde Babatunde and Ronke Onadeko told Dataphyte that the government could remove subsidies and re-invest the money into critical infrastructures and sectors for the country.
Oil marketers have said that petroleum will sell for N400 without subsidy, although a Dataphyte report raised questions on these claims’ authenticity.