Fuel subsidy returns, as NNPC records N50bn shortage

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Fuel subsidy appears to have returned, as the Nigerian National Petroleum Corporation, NNPC, said it recorded ‘under recovery’ of N49.86 billion between January and March 2017.

Under-recovery in downstream petroleum marketing parlance, is when the expected open market price of PMS, which includes the cost of importation and distribution of the commodity, such as marketers’ margins, landing cost and freight cost, is below the approved official retail price at the pump. Giving a breakdown of the figures, the NNPC in its latest financials, the March 2017 Monthly Financial and Operations Report, stated that it recorded under-recoveries of N37.26 billion, N6.3 billion and N6.3 billion for January, February and March 2017 respectively. Though the NNPC did not state the amount per litre, the total amount was charged from proceeds of its domestic crude oil and gas sales. Today, with the retail price of Premium Motor Spirit, PMS, at N145 per litre, the NNPC is absorbing the extra cost and is paying the subsidy to itself. In an analysis of its total receipt for the months, the report disclosed that the NNPC recorded domestic crude oil and gas receipt of N132.202 billion in January 2017, rising to N171.786 billion in February, while in March, it recorded N134.96 billion. Of the total receipts, the NNPC, after appropriating for the under recovery, crude oil and product losses, and pipeline repairs and management cost, transferred N49.17 billion, N61.29 billion and N46.46 billion for January, February and March 2017 respectively, to Joint Venture Cash Calls, JVCC. The NNPC, the report also revealed, transferred a total of N89.36 billion, N116.83 billion and N94.83 billion to the Federation Account in January, February and March 2017 respectively, for onward distribution to the three tiers of government. In its financials over the last couple of months, the NNPC stopped appropriating for fuel subsidy in January 2016 up until December 2016. However, in January 2017, it returned, under a new heading — ‘Under Recovery.’ This might not be unconnected with the increase in the price of crude oil in the international market, from about $20 per barrel in 2015 to about $50 per barrel for most part of 2017. It can also be attributed to the declining value of the naira and scarcity of foreign exchange, especially the dollar. The increase in the price of crude oil, low value of the naira and difficulties in accessing foreign exchange, had forced many oil marketers to discontinue fuel importation. Kachikwu confirms under recovery Minister of State for Petroleum Resources, Mr. Ibe Kachikwu, had a few weeks ago, stated that the downstream and midstream sectors of the Nigerian petroleum industry continued to remain challenged, disclosing that the price of PMS was rising above the current pump price. He said:  “The environment has since changed after the review in May 2016. When we did all these, pricing for crude oil was more in the $25 to $30 per barrel; today, it is in excess of $54, which is fantastic because it means that our revenue stream is improving. “But, it is a twin window, whenever the price of crude oil goes up, obviously the price of refined petrol goes up and we begin to have systemic challenge in terms of the pricing on the local base. ‘’So that gap has begun to return and today, what you find is that the NNPC continues to import massively on behalf of the Federal Government. It has gone back to about 90-95 per cent for the whole country; therefore, its books are absorbing some of the cost implications of this. “The second is that once this happens the marketers begin to shift backwards. Participation by individual marketers to help us continue the normal business and marketing cycle that should be what you expect does no longer exist. Most of them are not importing.” OPEC CRUDE OIL PRODUCTION Nigeria emerges leading African oil producer Nigeria’s oil production has increased from 1.5 million barrels to 1.68 million barrels per day (bpd) between April and May, 2017, showing an increase of 12 per cent. According to the Organisation of Petroleum Exporting Countries, OPEC, report released yesterday, the nation beat Angola, its closest contender in Africa, which output dropped from 1. 66 million to 1.61 million bpd during the period to emerged Africa’s leading producer. Despite the increase, Nigeria’s output still showed 600,000 bpd below the 2.2 million bpd which the nation’s 2017 budget was based. This means that the nation has not been earning adequate foreign exchange for the implementation of its N7.44 trillion budget. OPEC said, yesterday, that a long-awaited rebalancing of the oil market was under way at a “slower pace” and reported that its own output in May jumped due to gains in nations exempt from a pact to reduce supply. In a monthly report, OPEC stated that its output rose by 336,000 barrels per day (bpd) in May to 32.14 million bpd, led by a rebound in Nigeria and Libya, which were exempted from supply cuts because unrest had curbed their output. The boost means OPEC is pumping more than its forecast of average global demand for its crude this year, hindering efforts to reduce a glut. But Libyan and Nigerian output remains volatile, meaning the gain may not last. OPEC said oil inventories in industrialised countries dropped in April and would fall further in the remaining part of the year, but a recovery in U.S. production was slowing efforts to get rid of excess supply. “The rebalancing of the market is under way, but at a slower pace, given the changes in fundamentals since December, especially the shift in U.S. supply from an expected contraction to positive growth,” OPEC said in the report. Oil prices gave up gains yesterday after the release of the report to trade towards $48 a barrel, below the $60 level that top OPEC producer Saudi Arabia would like to see and less than half the level of mid-2014.

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