The Federal Government may have to cough up about N1.68 trillion as subsidy on Premium Motor Spirit (PMS), also known as petrol, from September to December 2023, as speculations arise that the government has secretly resumed the subsidy regime that President Bola Tinubu abolished on May 29, 2023.
Newsflash Nigeria reports that the government had paid N169.4 billion as subsidy for August 2023, to keep the pump price at N620 per litre, despite the fall of the naira and the rise of crude oil prices in the global market.
The subsidy payment was sourced from the dividends paid by the Nigerian Liquefied Natural Gas (NLNG) for the same month, according to a document by the Federal Account Allocation Committee (FAAC).
However, the subsidy payment may increase in the remaining months of 2023, as the forex crisis and the oil price surge continue to affect the cost of petrol importation.
The government and the Nigerian National Petroleum Corporation Limited (NNPCL) have not officially confirmed that they have reintroduced subsidy on petrol, but fuel marketers have said that the pump price of petrol should be between N890 to N900/litre, based on the current market realities.
The NNPCL sells petrol to marketers at a subsidised ex-depot price of between N585 and N600/litre, depending on the location.
This means that the government may be spending about N290/litre as subsidy currently. Data from the Nigerian Midstream and Downstream Petroleum Regulatory Authority in July showed that the average daily consumption of petrol in Nigeria was 48.43 million litres. This implies that the government may be spending about N14.04 billion as daily subsidy, which could amount to N421.3 billion monthly.
By this calculation, the government may spend about N1.68 trillion for the months of September, October, November and December 2023, if nothing is done to address the forex crisis and stabilise the oil prices. This would be a huge burden on the nation’s finances, as the government had earlier removed subsidy on petrol in May 2023, as part of its reforms to deregulate the downstream sector and save costs.
The Chief Public Relations Officer of the Independent Petroleum Marketers Association of Nigeria (IPMAN), Chief Chinedu Ukadike, told The Punch on Thursday that there was no way that the government could sustain the price of petrol at N620/litre without paying subsidy, given the continuous depreciation of the naira.
He said that it was better for the government to assist the masses by paying subsidy, but also urged for more transparency and accountability in the process.
“I told you earlier that there is no way that the government will sustain the price of petrol at N617/litre without paying subsidy on it, going by the continued fall of the naira.
“The dollar is almost N990 at the parallel market currently, and you can see the effect of this on the pump price of diesel. Diesel is close to N1,000/litre, so the retail price of PMS should be around N890 to N900/litre.
“Therefore, it is better the government assists the masses by paying subsidy. From our records, in the United States, the super product or petrol is sold around $3.9, which is close to about N3,000/litre.
“The premium product is sold at about $2.89, which is over N2,000/litre. And if you check in other African countries, you will find out that the product is being sold at between N1,200 and N1,500. But going by the forex rate in Nigeria, it should be around N900/litre.”
The Central Bank of Nigeria (CBN) had introduced reforms on June 14, 2023, to unify the forex market and ease the pressure on the naira.
The reforms included the removal of the official exchange rate of 379/$ and the adoption of the NAFEX rate of about 410/$ as the benchmark. The CBN also increased the allocation of forex to banks and Bureau De Change operators to meet the needs of customers.
However, these reforms have not been able to solve the forex crisis, as the naira has continued to lose value against the dollar at both the official and parallel markets.
At the official window, the naira closed at 770.71/$ on Wednesday, slightly appreciating from 776.76/$ on Thursday. This is still far from the NAFEX rate of 410/$ that the CBN had adopted.
The forex crisis has implications for the cost of petrol importation, as Nigeria relies heavily on imported refined products to meet its domestic demand. The CBN has assured that it is working to stabilise the forex market and restore confidence in the naira.
However, some experts have called for more structural reforms and diversification of the economy to reduce dependence on oil and forex.
