The Nigeria National Petroleum Corporation Ltd. on Monday denied the government paid petrol subsidy despite the price control in place and the rising oil price internationally.
NNPC chief executive Mele Kyari told journalists in Abuja that with changing prices, the government had a way to “manage the market situation without creating any subsidy environment.”
“No subsidy whatsoever. We are recovering our full cost from the products that we import. We sell to the market. There is no subsidy,” he said.
The comments affirmed the government’s earlier claim about not paying subsidy as oil prices rose. But the position seems highly unlikely, according to marketers and trade figures.
A subsidy is typically incurred when a government or organization provides financial assistance or support to reduce the cost of a product or service for consumers. This assistance is given when the full market price of the product or service is not passed on to consumers.
Last week, fuel marketers said the landing cost of petrol in Nigeria was N720 a litre, implying the government covered the differential of more than a hundred naira over the current pump price.
No subsidy
The removal of fuel subsidies remains one of the most destabilizing economic decisions of the new government of President Bola Tinubu, primarily due to its impact on prices.
Like his predecessors, Mr Tinubu argues that fuel subsidy, which Nigerians hugely benefitted from, had become too costly. Before ending it on May 29, the NNPC said it spent N400 billion on subsidy monthly.
The removal drove the price of petrol from N185 to N537 a litre, and later N617. When oil prices and the dollar soared in August, the government announced it would not allow a further rise at the pumps, effectively reintroducing subsidy. Yet, it insisted no subsidy was paid.
“The market has been deregulated. It has been liberalized and we are moving forward in that direction without looking back,” presidential spokesperson Ajuri Ngelale said in August.
He said the government would swiftly address “inefficiencies within the midstream and downstream petroleum sub-sectors” that will allow it maintain prices without reversing its subsidy policy.
Not the first
The Petroleum and Natural Gas Senior Staff Association of Nigeria said the landing cost of petrol as of last week was N720/litre, according to Punch.
“They [government] are paying subsidy today. In reality, today, there is subsidy because, as of when the earlier price was determined, the price of crude in the international market was around $80 for a barrel,” PENGASSAN’s national president Festus Osifo said.
“But today, it has moved to about $93/94 per barrel for Brent crude. So, because it has moved, the price [of petroleum] also needed to move. The only reason the price will not move is when you can manage your exchange rate effectively and you can pump in supply and bring down the exchange rate.
“So, if the exchange rate comes down today, we will not be paying subsidy. But with the exchange rate value and the price of crude oil in the international market, we have introduced subsidy.”
But at the energy and labour summit organised by PENGASSAN in Abuja, NNPC boss Kyari said the corporation had a way of making the trick happen despite high oil prices and shortage of foreign currency.
“We are the only downstream company importing PMS into the country, none of them (marketers) can do it today. That means we can manage the market situation without creating any subsidy environment. But for them, access to foreign exchange is difficult. We have access to fx (forex). We create FX,” he said.
The government does not need to pay subsidy in cash. So long as the full cost of the product does not get to consumers, it means the government bore the cost and that is subsidy. That could be in cash, additional oil supply or forex reserves.
Strikingly, the NNPC is using the same language it used under former Buhari administration when the government secretly began paying subsidy while denying doing so. At the time, the NNPC claimed it was “under-recovery”, but ultimately admitted years latter to paying trillions of naira in subsidy.
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