Fuel Subsidy Returns as Nigerian Government Pays N169.4 Billion in August

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Despite assurances to the contrary by President Bola Ahmed Tinubu, it has been revealed that the Nigerian federal government paid a significant sum of N169.4 billion in August to maintain the pump price of petrol at N620 per litre, effectively resurrecting the controversial fuel subsidy.

Daily Trust’s investigative findings have exposed the resurgence of fuel subsidy payments, a practice that was thought to have been phased out. The revelation is based on documents from the Federal Account Allocation Committee (FAAC), which disclosed that the Nigerian Liquefied Natural Gas (NLNG) paid $275 million as dividends to Nigeria through NNPC Limited. Out of this sum, NNPC Limited allocated $220 million (equivalent to N169.4 billion at N770/$) for the payment of the Premium Motor Spirit (PMS) subsidy, retaining an unauthorized $55 million.

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This revelation effectively indicates that the subsidy, which was a contentious issue during the administration of former President Muhammadu Buhari, has made a comeback. During Buhari’s tenure, Nigeria spent an astronomical sum of N7.83 trillion on petrol subsidies. This included costs from 2015 to 2020, which amounted to N1.99 trillion, and N1.57 trillion in 2021 alone, with an additional N1.27 trillion from January to May 2022. The government had budgeted N3 trillion to cover petrol subsidy costs from June 2022 to June 2023.

The resurgence of the subsidy comes at a time when global oil market dynamics are putting pressure on Nigeria’s ability to maintain the N620 per litre pump price. The price of Brent crude oil recently exceeded $95 per barrel, and the value of the naira against the US dollar hit a record low on the black market, casting doubt on Nigeria’s commitment to eliminating petrol subsidies.

The international market’s gasoline price has surged to $1,030.11 per metric tonne, compared to $859.25 in July, when NNPC raised the pump price to N617 per litre. The exchange rate has also worsened, moving from N820/$ in July to N920/$, indicating a 12.19 percent increase. These factors, combined with rising crude oil prices, have significantly raised the landing cost of PMS to about N728.64 per litre, up from N529 in July.

Despite these challenges, the Federal Government has attempted to sustain the N620 per litre price through a $3 billion crude repayment loan from the African Export-Import (Afrexim) Bank. The loan was intended to boost dollar liquidity, which would, in turn, stabilize the naira and potentially reduce fuel costs. However, the loan appears to have stalled as other lenders originally part of the syndicated transaction backed out.

Daily Trust’s investigation also revealed that the decision to pay N169.4 billion as subsidy had the approval of senior government officials. A subtle deal was struck with oil marketers to maintain the current price until production issues with the Dangote refinery and loan agreements could be resolved.

Industry experts have weighed in on the situation, with some emphasizing the need for functional refineries and foreign exchange stability before considering the removal of subsidies. They argue that as long as the price of crude oil and the exchange rate remain volatile, petrol prices will inevitably rise, impacting the masses.

In the short term, stabilizing the naira is seen as crucial in achieving the government’s promise of maintaining the N620 per litre pump price.

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