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Petrol Subsidy Rises as NNPC Increases Imports by 34%

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  • Petrol Subsidy Rises as NNPC Increases Imports by 34%

The Nigerian National Petroleum Corporation has spent more on petrol subsidy this year than it did last year on the back of increased imports and the rally in crude oil prices, ’FEMI ASU writes

The nation imported a total of 15.21 million litres of petrol in the first nine months of this year, up from the 11.33 million litres imported in the same period in 2017.

The NNPC has been the sole importer of petrol into the country for more than a year as private oil marketers stopped importation due to a shortage of foreign exchange and increase in crude oil prices, which made the landing cost of the product higher than the official pump price of N145 per litre.

PMS import, which averaged 56.5 million litres per day in January, jumped to a high of 86.4 million lpd in February, according to data obtained by our correspondent from the Pipelines and Product Marketing Company, a subsidiary of the NNPC.

It stood at 66.8 million lpd in March, 70.7 million lpd in April, 36.7 million lpd in May, and 34.5 million lpd in June. It was 36.5 million lpd in July, 58.4 million lpd in August, and 57.8 million lpd in September.

Analysis of the data obtained by our correspondent from the PPMC and the Department of Petroleum Resources showed that petrol import averaged 55.1 million litres per day in the first nine months of this year, compared to 48.5 million lpd in the same period of last year.

PMS import averaged 49.2 million lpd and 49.8 million lpd in 2015 and 2016 respectively, data from the DPR showed.

The increase in petrol import amid rising crude oil prices in the period under review meant that the NNPC spent more on subsidy.

The Group Managing Director, NNPC, Dr Maikanti Baru, on December 23, 2017 said the Federal Government had been resisting intense pressure to increase the pump price of petrol, noting that the landing cost of the commodity was N171.4 per litre as of December 22, when oil price was around $64 per barrel.

Crude oil price, which accounts for about 80 per cent of the final cost of petrol, rose to a four-year high of $86.74 per barrel early last month.

Using a baseline of N171.4 litre as the landing cost for the 15.21 million litres imported from January to September, it means the NNPC spent more than N395bn on subsidy in the period.

Last month, the Senate initiated a fresh investigation into an alleged illegal subsidy payment on PMS, but the NNPC denied “the insinuation that it has in its custody a $3.5bn subsidy fund.”

The Senate had set up an ad hoc committee to investigate an alleged $3.5bn account kept by the NNPC for petrol subsidy payment.

The corporation noted that it initiated the move to raise a revolving fund of $1.05bn, being the sole importer and supplier of white products in the country, adding that the fund had been domiciled in the Central Bank of Nigeria.

It said, “The fund, dubbed the National Fuel Support Fund, had been jointly managed by the NNPC, the Central Bank of Nigeria, the Federal Ministry of Finance and the Petroleum Products Pricing Regulatory Agency, Office of the Accountant General of the Federation, the Department of Petroleum Resources, and the Petroleum Equalisation Fund.”

The Managing Director, PPMC, Mr Umar Ajiya, in his presentation at an industry event in Lagos this month, said the existence of arbitrage opportunities in neighbouring countries had pushed daily national consumption from less than 35 million lpd to over 55 million lpd .

He said the price of petrol as of June 11, 2018 stood at an equivalent of N367 per litre in Niger; N363.02 in Chad; N328.87 in the Benin Republic; N311.95 in Togo; N378.49 in Ghana, and N401.24 in Cameroun, compared to N145 in Nigeria.

“The arbitrage in the current price of PMS compared to our neighbouring countries has incentivised cross-border smuggling of the product. This increase, together with the rising crude oil price, constitutes a significant drain on our national income,” he added.

The NNPC GMD said in March that the multiplication of filling stations had energised unprecedented cross-border smuggling of petrol to neighbouring countries, making it difficult to sanitise the fuel supply and distribution matrix in Nigeria.

He explained that because of the obvious differential in petrol price between Nigeria and other neighbouring countries, it had become lucrative for the smugglers to use the frontier stations as a veritable conduit for the smuggling of products across the border. He added that this had resulted in a thriving market for Nigerian petrol in Niger Republic, Benin Republic, Cameroon, Chad and Togo as well as Ghana, which has no direct borders with Nigeria.

“The NNPC is concerned that continued cross-border smuggling of petrol will deny Nigerians the benefit of the Federal Government’s benevolence of keeping a fix retail price of N145 per litre despite the increase in PMS open market price above N171 per litre,” he added.

The Federal Government had on May 11, 2016 announced a new petrol price band of N135 to N145 per litre, a move that signalled the end of fuel subsidy.

The media reported on January 15, 2017 that the Federal Government had resorted to subsidy regime following an increase in the landing cost of petrol, with the NNPC bearing the latest subsidy cost on behalf of the government.

The Director-General, Lagos Chamber of Commerce and Industry, Mr Muda Yusuf, said the government should encourage private sector players to take over the downstream sector of the petroleum business.

He said, “When this is done, most of the challenges we see as regards subsidy, refineries and others will be adequately addressed. The government should only play a regulatory and not an operational role.

“Government has no business refining petroleum products, retailing or distributing fuel as well as the marketing of these products. We cannot continue to carry that kind of burden in the oil sector.

“The government should desist from such business because there are more important things to do that have a social impact. Look at our educational system, the health sector, roads, and rail; those are areas the government should channel its attention.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Economy

Nigeria, Morocco sign MOUs on Hydrocarbons, Others

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The Federal Government and the Kingdom of Morocco have signed five strategic Memoranda of Understanding that will foster Nigerian-Morocco bilateral collaboration and promote the development of hydrocarbons, agriculture, and commerce in both countries.

The Minister of State for Petroleum Resources, Chief Timipre Sylva, led the Nigerian delegation to the agreement signing ceremony on Tuesday at Marrakech, Morocco, while the Chief Executive Officer of OCP Africa, Mr Anouar Jamali, signed for the Kingdom of Morocco, according to a statement by the Nigerian Content Development and Monitoring Board.

Under the agreement between OCP, NSIA and the Nigerian National Petroleum Corporation, Nigeria will import phosphate from the Kingdom of Morocco and use it to produce blended fertiliser for the local market and export.

The statement said Nigeria would also produce ammonia and export to Morocco.

“As part of the project, the Nigerian Government plans to establish an ammonia plant at Akwa Ibom State,” it said.

The Executive Secretary of NCDMB, Mr Simbi Wabote, and the Group Managing Director of NNPC, Mallam Mele Kyari, were part of the delegation and they confirmed that their organisations would take equity in the ammonia plant when the Final Investment Decision would be taken, the statement said.

Sylva said the project would broaden economic opportunities for the two nations and improve the wellbeing of the people.

He added that the project would also positively impact agriculture, stimulate the growth of gas-based industries and lead to massive job creation.

He said the President, Major General Muhammadu Buhari (retd.), had mandated the Ministry of Petroleum Resources and it agencies and other government agencies to give maximum support for the project.

“He mandated me to ensure that at least the first phase of this project is commissioned before the expiration of his second term in office in 2023,” he added.

According to the statement, the MOUs were for the support of the second phase of the Presidential Fertiliser Initiative; Shareholders Agreement for the creation of the joint venture company to develop the multipurpose industrial platform and MOU for equity investment by the NNPC in the joint venture and support of the gas.

Other agreements are term sheet for gas sales and aggregation agreement and MOU for land acquisition and administrative facilitation to the establishment of the multipurpose industrial platform for gas sales and aggregation agreement.

The NCDMB boss described the bilateral agreement as significant to the Nigerian economy as it would accelerate Nigeria’s gas monetisation programme through establishment of the ammonia plant in the country.

The agreement would also improve Nigeria’s per capita fertiliser application through importation of phosphate derivatives from Morocco, he added.

Wabote challenged the relevant parties to focus on accelerating the FID, assuring them that the NCDMB would take equity investment for long-term sustainability of the project.

He canvassed for the setting up of a project management oversight structure to ensure project requirements and timelines are met.

“There is also need to determine manpower needs for construction and operations phase of the project and develop training programmes that will create the workforce pool from Nigeria and Morocco and design collaboration framework between research centres in Nigeria and Morocco to develop technology solutions for maintaining the ISBL and OSBL units of the Ammonia complex,” he said.

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Economy

Dangote Fertiliser Plant to Commence Shipment of Urea in March 2021

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Dangote to Sells Petrol in Naira, Plans to Commence Urea Shipment in March 2021

The Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele, has said Dangote Fertiliser Plant will commence shipment of Urea in March 2021.

The CBN governor disclosed this during an inspection tour of the sites of Dangote Refinery, Petrochemicals Complex Fertiliser Plant and Subsea Gas Pipeline at Ibeju Lekki, Lagos on Saturday.

Emefiele further stated that Dangote Refinery would sell refined petroleum products in Naira when it starts production.

This he said would save the country from spending 41 percent of the nation’s foreign exchange on importation of petroleum products yearly.

Based on agreement and discussions with the Nigerian National Petroleum Corporation and the oil companies, the Dangote Refinery can buy its crude in naira, refine it, and produce it for Nigerians’ use in naira,” Mr Emefiele said.

That is the element where foreign exchange is saved for the country becomes very clear. We are also very optimistic that by refining this product here in Nigeria, all those costs associated with either demurrage from import, costs associated with freight will be totally eliminated.

Emefiele explained that this will make the price of Nigeria’s petroleum products affordable and cheaper in naira.

If we are lucky that what the refinery produces is more than we need locally you will see Nigerian businessmen buying small vessels to take them to our West African neighbours to sell to them in naira.

“This will increase our volume in naira and help to push it into the Economic Community of West African States as a currency,” Mr Emefiele said.

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Economy

UK Budget 2021: Will Sunak’s Budget Run Into Unintended Consequences?

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Rishi Sunak’s Budget will encourage higher earners to consider their “international financial options” and will drive businesses away from the UK, warns the CEO of one of the world’s largest independent financial advisory and fintech organizations.

The warning from Nigel Green, chief executive and founder of deVere Group, comes as the Chancellor delivered his 2021 Budget in the House of Commons, his second since he took on the role.

Mr Green says: “The Chancellor has got an extraordinarily difficult hand to play as he tries to stem the economic damage caused by the pandemic, support jobs and businesses and, crucially, rebuild the public finances.

“Whilst Mr Sunak is being hailed a hero for the continued and unprecedented levels of support, it should also be remembered that he is – in a stealth move – dragging more people firmly into the tax net.

“He is raising taxes under the radar.

“Yes, there is no income tax rise. However, he is freezing personal tax thresholds, meaning as incomes rise and thresholds don’t, he is able to raise money by fiscal drag.”

Earlier this week, the deVere CEO noted: “Those most impacted by this stealth move will be looking at the financial planning options available to them, including international options, in order to grow and protect their wealth.”

Rishi Sunak also confirmed that corporation tax will increase to 25% from 2023, up from the current level of 19%.

Of this tax hike, Mr Green goes on to say: “Lower corporation tax helps job and wealth-creating business to survive and thrive. It also helps attract business to move and invest in the country.

“Instead of increasing taxes, Mr Sunak should have relentlessly focussed on growth and stimulus policies for businesses.  This would have been of greater help to firms, the economy, jobs and, ultimately, the Treasury’s coffers.”

He adds: “Again, this corporation tax hike is likely to serve as a prompt for businesses to consider their overseas financial options.”

The deVere CEO concludes: “The Chancellor had to perform a tough juggling act.  But stealthily dragging more people into the tax net and raising corporation tax might have negative, unintended consequences for the Treasury’s bottom line.”

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