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why nnpc is charging nigerians higher for fuel fg

Juliana Taiwo-Obalonye, Abuja

The Federal Government on Wednesday explained why the Nigeria National Petroleum Corporation (NNPC) is charging Nigerians higher than the official N143 per litre to fund the importation of petrol.

Minister of Finance, Kemi Adeosun gave the explanation at of the four-and-half hours Federal Executive Council (FEC) meeting, presided over by President Muhammadu Buhari.

Adeosun, briefing State House Correspondents at the Council’s briefing room of the Presidential Villa, explained that though technically there is no more subsidy paid to oil marketers, the NNPC was currently under-recovering as the sole importer of product and selling at less than cost price, thereby losing huge sums of money to defray the extra costs of importation of fuel products.

She explained that the effect of this was being borne by all tiers of government, including ordinary Nigerians, which reflects in the low returns into the Federation account.

The NNPC had on Monday in Abuja revealed that the federal government was indebted to it to the tune of N170.6 billion in outstanding subsidy payments due from January 2006 to December, 2015.

Group Managing Director of the Corporation, Dr. Maikanti Baru, had at the ongoing Investigative hearing on N5 trillion subsidy payments from 2006 to 2016, said the figure was arrived at after deduction of N4.950.80 trillion received as payments from the N5.121.40 trillion approved subsidy claims of the corporation from January 2006 to December 2015.

The 36 governors of the Federation on the platform Nigeria Governors Forum (NGF) had last week accused NNPC of failure to remit to the Federation Account the Joint Venture Cash Call for five years.

According to them, this took place when the Cash Call Joint Venture was high as the oil price was about $110 per barrel.

Adeosun, while responding to question on who pays the differentials between N171 Lansing cost for petroleum and N145 pump price, said:
“On the question of subsidy, the price of oil for Nigeria today is a double-edged sword. So every dollar that goes up we get more revenue, but also because we are importing refined petroleum increases the landing cost of fuel.

“So for every time we get excited that the oil price is going up, there is also a knock-on effect on the price of imported PMS and that is a function of us not having refining capacity; it is one of the unfortunate impacts of that.

“Now, when there is talk of payment of subsidy, technically today there is no subsidy but there is under-recovery. Why that is is because NNPC are currently doing all the importing. They are importing at a higher price than they are selling, which means they are losing money; which means effectively that loss is being borne by everybody and effectively it is reflected in the federation account.

“So, there is no subsidy payment in the way the old subsidy scheme used to work where they were paying the oil marketers; but there is an under-recovery, a loss on the importation of PMS being borne by NNPC and, therefore, indirectly being borne by everyone one of us.”

On the budget benchmark and excess crude, the minister said:
“Let me explain how the price is structured. The budget is a function of price and quantity. Excess crude kicks in when both price and quantity are exceeded. Now if you look at the oil price for last year and most of this year and quantity, the quantity has frequently been below the target and so you don’t necessarily get the straight credit into excees crude as a result of oil price.

“Having said that, with the oil price consistently higher now, we should begin to start seeing some accruals into our excees crude going forward because we are starting to see some recovery in quantity. But remember that the quantity estimate is 2.5 million barrels per day and it must be consistent every day and the price above the benchmark before you get automatic credit into excess crude.

“Having said that, what we do expect this year will begin to accumulate funds into the excess crude.”

On why there is budget deficit despite increase in remittances by government agencies, Adeosun said:
“On funding of the budget, Customs will report that they made a trillion, FiRS and so on; that is absolutely correct. But if you also follow those who cover the FAAC accounts, you will know that that money is shared every month among the three tiers of government. That is what makes up the FAAC.

The FAAC is made up of Customs revenue, FIRS revenue and NNPC revenues. So that money is not just for federal budget; it is all for the three tiers of government – that’s all they all live on.

“So Customs has improved its revenue significantly and will continue to do so, but you do need to remember that there are three tiers of government sharing that money.

“It is also the function of the size of the budget. This administration is running a significantly larger [budget] than… previous administrations.

That was deliberate because, as my colleagues have said, we are in a recession. And when you are in a recession the way you get out of it is to spend money.

So we increased the size of our budget deliberately, so we will need to borrow the difference and that is why you have the debt deficit which is what really translates to the massive spending on infrastructure that helped us out of recession in five quarters when many oil producing countries stayed in recession for two, three years.

That was a deliberate strategy of this government, because we needed to spend our way out of recession. We spent specifically on infrastructure which we felt will create jobs and drive growth.

“And it is quite interesting listening to my two colleagues say how the linkages between the money we released, the programmes and projects they are doing and the grassroots, are all being implemented and there is a trickle-down effect of what has been done.”

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