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Analysis of data provided by oil marketers and the energy sector suggests that the Federal Government may allocate approximately 1.68 trillion Naira for Premium Motor Spirit (PMS) subsidy between September and December this year.

PMS dealers have indicated that, due to the depreciation of the Naira against the US Dollar and the surge in international crude oil prices, the ideal pump price for petrol should be in the range of 890 to 900 Naira per litre. Currently, petrol is selling at prices ranging from 598 to 617 Naira per litre, which has raised suspicions of government subsidies.

While President Bola Tinubu announced the end of the subsidy regime on May 29, neither the government nor the Nigerian National Petroleum Company Limited (NNPCL) has officially confirmed the reintroduction of petrol subsidy. NNPCL remains the sole importer of PMS as other marketers ceased imports due to difficulties in accessing foreign exchange.

The removal of subsidy resulted in a significant increase in petrol prices, from about 198 Naira per litre in May to the current rate of 617 Naira per litre. However, the depreciation of the Naira and the rising crude oil prices, with Brent crude reaching approximately $95 per barrel, have continued to exert pressure on the cost of PMS. This increase in crude oil prices has been substantial, as it started the year at around $82 per barrel, dipped to $70 per barrel in June, but has now risen above $94 per barrel in recent weeks.

Furthermore, The PUNCH reported on Thursday that the Nigerian Naira continued its decline against the US Dollar, reaching an exchange rate of 980 on the parallel market, compared to 950/$ just a week earlier.

However, on the FMDQ at the Investor & Exporter forex window, the Naira experienced a slight appreciation, closing at 770.71/$ on Wednesday, up from 776.76/$ on Tuesday.

Oil marketers argue that the ongoing forex crisis and the recent increase in crude oil prices have made it unsustainable for petrol to remain at the price of N617 per litre. They believe that the government has quietly reintroduced fuel subsidy.

According to a media report on Thursday, the Federal Government paid N169.4 billion in subsidy in August 2023. The report cited a Federal Account Allocation Committee document, revealing that the Nigerian Liquefied Natural Gas paid $275 million as dividends to Nigeria through NNPCL. Out of this, NNPCL reportedly used $220 million (equivalent to N169.4 billion at the rate of N770/$) to cover the PMS subsidy in the review month.

Chief Chinedu Ukadike, the National Public Relations Officer of the Independent Petroleum Marketers Association of Nigeria, emphasized the impact of the falling Naira, stating that the parallel market exchange rate was nearly N990 to the dollar. This has driven up the price of diesel to nearly N1,000 per litre. He suggested that the retail price of PMS should be around N890 to N900 per litre, making it essential for the government to provide subsidy support.

It was reported that the subsidised ex-depot price of petrol, as sold by NNPCL, ranged from N585 to N600 per litre. By subtracting this ex-depot cost from the projected unsubsidised rate of N890 per litre, it is estimated that the government may currently be providing a subsidy of about N290 per litre.

Data from the Nigerian Midstream and Downstream Petroleum Regulatory Authority in July indicated that during the post-deregulation period from June 1 to June 28, 2023, total petrol consumption in the country was 1.36 billion litres, with an average daily consumption of 48.43 million litres. With an estimated subsidy of N290 per litre and this consumption rate, the government could be incurring a daily subsidy cost of N14.04 billion, which could escalate to N421.3 billion monthly.

Should the Naira’s decline against the dollar persist and crude oil prices continue to rise, this subsidy cost could potentially reach as high as N1.68 trillion for the months of September, October, November, and December 2023.

Subsidy consumes trillions
Prior to Tinubu’s announcement of ending fuel subsidy in May, the scheme had already consumed substantial funds from the government’s coffers.

In October 2022, The PUNCH reported that the government under former President Muhammadu Buhari had expended approximately N6.88 trillion on subsidizing petrol at that time. This figure was based on data obtained from the Nigerian National Petroleum Company Limited (NNPCL) and the Nigeria Extractive Industries Transparency Initiative (NEITI).

According to NEITI reports, fuel subsidies accounted for the following amounts in previous years: N316.7 billion in 2015; N99 billion in 2016; N141.63 billion in 2017; N722.3 billion in 2018; N578.07 billion in 2019; and N134 billion in 2020.

Although the NEITI report did not specify the amounts spent in 2021 and 2022, figures from NNPCL indicated that fuel subsidy surged to N1.43 trillion in 2021. NNPCL data also revealed that petrol subsidy amounted to N2.565 trillion between January and August of the previous year. The oil company, however, referred to its subsidy spending as “under-recovery.”

The latest report indicating a subsidy expenditure of N169.4 billion in August suggests that additional billions of Naira may be allocated to subsidize petrol from September to December 2023.

An unnamed source suggested that despite the rise in international crude oil prices, the government has maintained petrol prices at the pump due to the political nature of the product. He also mentioned the possibility of other forms of government subsidies, such as converting local levies from dollars to Naira, which could reflect in reduced petrol prices. Additionally, the source noted that only NNPC is currently importing products due to difficulties in accessing forex at the CBN rate.

Brent international oil prices had reached $95 per barrel during the week, while Nigeria’s sweet crude was selling at approximately N100 per barrel.

A prominent source among oil marketers expressed the belief that subsidies had returned, given the consistent pricing at the pump.

Chinedu Okoronkwo, the President of IPMAN, emphasized that there was no need for speculation regarding the return of subsidies, as NNPC was still importing, and the Federal Government had assured them of refinery operations starting in December, ensuring sufficient stock.

According to reports from the Nigeria Extractive Industries Transparency Initiative, subsidies cost the country approximately N1.99 trillion from 2015 to 2020. Additionally, reports from the Nigerian National Petroleum Company Limited to the Federation Accounts Allocation Committee indicated that petrol subsidy expenses were N1.57 trillion in 2021 and N1.27 trillion from January to May 2022. An allocation of N3 trillion was also budgeted for subsidy from June 2022 to June 2023.

CSOs react
Debo Adeniran, Chairman of the Centre for Anti-corruption and Open Leadership, expressed skepticism about the government’s ability to maintain price stability for petroleum products in the hands of private sector individuals. He argued that it is practically impossible for the government to ensure a consistent pricing balance with businessmen and women running the cartel. He believed that such entities would create challenges for Nigerians, potentially leading to government concessions on subsidies. According to him, these individuals are not accustomed to honest business practices and might attempt to disrupt the supply of petroleum products or increase prices to pressure the government into granting subsidies.

Auwal Rafsanjani, Executive Director of the Civil Society Legislative Advocacy Centre, criticized the Federal Government for lacking transparency and accountability to the public trust. He emphasized the importance of transparency and accountability as crucial drivers of good governance. Rafsanjani called on citizens to hold the government accountable for the lack of transparency in the petroleum sector’s governance, which he believed has contributed to the impoverishment of Nigerians.

Rafsanjani argued that citizens would continue to feel the effects of the removal or reintroduction of petrol subsidies until the government demonstrates sincerity in both its intentions and actions. He pointed out the prevalence of misinformation and the need for clear, decisive actions based on sound policies, public acceptance, and administrative feasibility. Rafsanjani emphasized the importance of building a democracy centered on public trust and accountability.