Nigerian govt reverses self on petrol ‘subsidy’, but denies it

Agency ReporterDecember 26, 2017

0 5 minutes read

Despite its own admission that the landing cost of imported petroleum products has exceeded approved retail pump price, the Nigerian National Petroleum Corporation, NNPC still claims the government has not been paying subsidy on petrol.

The government says it has been making for “extra cost” for months, but denies paying petrol “subsidy” which it stopped in 2016.

The Buhari administration announced the removal of petrol subsidy in 2016, and imposed a pump price increase to N145 a litre as the then new government tried to distance itself from the misdeeds of past governments.

The government said it would channel its resources instead into getting the refineries up, and save the trillions of naira past governments squandered on fuel subsidy payments.

But it seems the Buhari government, soon after persuading Nigerians to accept the petrol pump cost raise as the price for scraping subsidy, quietly went behind and continued with the same subsidy policy of its predecessors.

The NNPC has not given details how the cost is covered. But such cost would amount to billions of naira, and would imply the government redirected resources that would have gone into developmental projects into paying subsidy — the same policy it criticised other governments for.

It is not clear where the monies were sourced from, since budgets for 2016 and 2017 had no mention of subsidy appropriations.

Revealing

The NNPC Group Managing Director, Maikanti Baru, stirred controversy on Friday when he disclosed that the official landing cost of petrol has for months been about N171.40 per litre.

By implication, Mr. Baru, who was speaking at the end of his monitoring tour of filling stations in Abuja on Sunday, was admitting that the government was bearing an extra cost of about N26.40 for its decision to keep retail pump price of petrol intact at N145 per litre.

But, Nigerians have read insincerity into Mr. Baru’s disclosure, particularly about the government’s refusal to make official pronouncement on the issue of subsidy component in NNPC fuel supply cost, having declared at inception it was removed from the official petroleum products pricing template.

However, asked to confirm whether subsidy was restored in the country’s fuel pricing template without a formal announcement by government, NNPC spokesperson, Ndu Ughamadu, was emphatic in his denial, in a telephone chat with PREMIUM TIMES in Abuja.

“No! No!! No!!” Mr. Ughamadu said. “The GMD was very clear on the issue. He never talked about government subsidy. If you check the budgets for last year and this year, there was no appropriation for fuel subsidy. So, how can we be talking about subsidy? What we have is extra cost.

Asked to explain the N26.40 price differential between the fuel landing cost of N171.40 per litre and retail pump price of N145 per litre, the NNPC spokesperson said although the corporation has been subsidising the fuel price, “we cannot talk about it officially, because it is not the same thing as government subsidy, which is always appropriated in the budget by the National Assembly.”

“As I have always said, NNPC has a critical role to play in products distribution and supply in the country, not only as a commercial entity and importer of last resort, but also as ‘social supplier’, to ensure that the system gets wet all the time,” he said.

But, a senior official of one of the products marketing associations in the country, who requested anonymity because of the sensitive nature of the issue, was emphatic that subsidy had been back in fuel pricing lexicon for several months.

“There is subsidy,” the official told PREMIUM TIMES on Tuesday in a telephone interview. “For many months, products have been landing at costs higher than N145 per litre. So, subsidy has always been in the market place.

“But, there is no provision for subsidy in the budget. How the subsidy is recovered is government’s business, since the NNPC has been the only one that was importing. All that concerns us is that we buy at NNPC at N133.80 per litre and sell at N145 per litre.”

On how the current fuel supply crisis, which has given Nigerians one of the bleakest Christmas celebrations in recent times, the official traced its roots to October 2016, when NNPC products suppliers began to deliberately default on their contract deliveries.

He said during the winter months, which usually coincided with the Christmas period in Nigeria, European fuel suppliers consider producing diesel more profitable, because of their need for heating, than petrol, a situation that creates shortage of supply for petrol.

“Prior to the winter season, contracts for fuel supplies are given at ‘winter premium’, which consists of cost of product plus $6 profit. With that, the suppliers would make all the profits in the summer months, and in the winter, which they consider unprofitable, they will deliberately decide not to supply products, because the premium is very low,” he explained.

He said the refusal of the NNPC suppliers to meet their contracts resulted in a huge shortfall, despite assurances by the state oil company that it was building a healthy stock of products to take care of the usual increased demand by consumers in such festive seasons.

However, the official said the situation worsened in the run up to Christmas, because NNPC, for almost a year, remained the sole importer and supplier of petroleum products in the country.

“If there were other private importers, they would have imported to fill the gap. But, when the shock in supply shortfall came, there was no shock absorber, and everybody was exposed,” he said.

He expressed confidence that the situation was going to improve significantly in the next couple of days, as the NNPC has not only stepped up efforts to stock up products, but has also encouraged other marketers to join in importing fuel.

“The NNPC has now increased its premium from $6 to over $20, making it very attractive for other marketers to agree to jump in and import with NNPC. They have agreed to flood the market with products within 24 hours,” the official said.

The national president, Independent Petroleum Marketers Association of Nigeria, IPMAN, Chinedu Okoronkwo, said the differential in prices between landing cost and pump price “cannot be subsidy, but price modulation.”

“Whatever is the price differential between landing cost and retail pump price, government knows how to cushion it. That’s why we have government. Whether it is subsidy or price modulation, does not matter now.

“The important thing is the supply monopoly that has been broken, with government giving some marketers that have the facilities access to finance to begin to import,” Mr. Okoronkwo told PREMIUM TIMES in a telephone interview on Tuesday.

“Government is on course to solving the problem. The marketers have assured they can deliver within 24 hours. This will cushion the problem in the meantime, while government takes time to handle the long term solutions, of allowing the refineries to work continuously, other refinery operators allowed to come on board,” he added.

He dismissed insinuations that marketers were behind the current fuel crisis, by engaging in hoarding or smuggling, saying all attention should focus on making the new arrangement to work.

The national president, Petroleum and Natural Gas Senior Staff Association of Nigeria, PENGASSAN, Francis Johnson, said all that its members were interested in was for the government to ensure that four refineries were made to function optimally at all times.

“If the country’s refineries are functional at full capacity, they would augment what government gets from imports. Consequently, the huge foreign exchange spent on importation of petroleum products and payment of subsidy would be conserved. The refineries would provide jobs for our members and our economy will continue to grow,” Mr. Johnson told our correspondent in Abuja on Monday.