N120b petrol subsidy to double as CBN adjusts exchange rate

Cars queue to buy petrol at the NNPC Mega petrol station in Abuja REUTERS/Afolabi Sotunde

By Femi Adekoya (Lagos) and Kingsley Jeremiah (Abuja)

 • Nigeria losing N73.6b monthly to high consumption claims despite work-from-home practice
• Subsidy difficult to police, poses major corruption risk, says LCCI
• Deregulation a hard choice amid inflation, pandemic, electricity tariff hike – Proshare

As the Central Bank of Nigeria (CBN) signals a subtle harmonisation of exchange rates with the removal of N379/$1 official rate from its website, all is set for labour unions to lock horns with the Federal Government on petrol subsidy removal.

The return of subsidy have posed new challenges for the country in terms of discrepancies in the volume of daily consumed fuel about to be worsened by the apex bank’s adoption of the Investors and Exporters (I&E) window rate, pushing subsidy claims above N120 billion every month.

While the Presidential Economic Advisory Council had last week asked President Muhammadu Buhari to remove subsidy on petrol and adopt a pricing regime that reflects the cost of the commodity, the Nigeria Labour Congress (NLC), in a swift reaction at the weekend, insisted that petrol subsidy must not be removed and that it would not shift grounds on this position until Nigeria’s refineries were fixed.

As oil prices near $70 a barrel, the adoption of the Nigerian Autonomous Foreign Exchange Rate (NAFEX) also called the Investors’ and Exporters’ Forex Window, in an apparent move to harmonise exchange rates, will further increase the landing cost of petrol, considering that rates have oscillated between N408 and N412 for months, a significant fall from the N379 quoted as the official rate.

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Activities at the NAFEX window showed the Naira trading as low as N426.67/$ at the weekend before closing at N411.67. At the parallel market, Naira also declined to N484.00. The policy shift also confirmed longtime speculation that the NAFEX is the default official rate.

The effect of this notably will be upward movement in energy prices, which includes subsidies and pricing frameworks in petrol/gas/power bills.

The move by the CBN raises concerns about the devaluation of the currency that has long struggled amid declining government revenue and foreign exchange. With the widened margin in exchange rate and rebound in crude prices, the landing price of petrol is expected to increase, same as the subsidy paid on the pump price of the commodity.

Also, governors, who are presently pressured by the fall in earnings both in their states and from the Federation Accounts Allocation Committee (FAAC), might be forced to take a position of petrol subsidy, having been silent on the issue.

The nation’s petrol consumption had reportedly skyrocketed to 93 million litres from a daily consumption of about 60 million litres per day, translating to about 33 million litres difference at a time when work-from-home practice due to COVID-19 restrictions still persists.

While poor electricity supply might push fuel consumption patterns, the trend over the years from abysmal power supply has defied the reasoning for a jump of about 33 million litres in daily consumption.

That 33 million litres differential, amounting to about N73.6 billion, going by the current N72 subsidy on every litre of petrol, implies that the country has lost the gains of its recent policy on land border closure targeted at reducing smuggling of petrol and other goods as government’s suspension of the deregulation of the downstream sector worsens smuggling of the product to other West African countries.

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The Federal Government, had through the Minister of State for Petroleum Resources, Timipre Sylva, at the joint Senate and House of Representatives Committees on Petroleum sitting, said that the closure of the land borders by the Nigeria Customs Service had cut down the consumption of Premium Motor Spirit, also known as petrol, to 52 million litres per day.

Data from the Nigerian Bureau of Statistics, which is usually verified and compared with data by the Petroleum Products Pricing Regulatory Agency (PPPRA) showed that by the end of 2019, Nigerians consumed 20.8 billion litres of petrol translating to about 57.2 million litres daily.

From December 2019 to December 2020, NNPC noted that consumption of petrol in the country stood at 18.325 billion litres. That translated to about 49.5 million litres daily. The low consumption was attributable to the pandemic-induced lockdown and sustained closure of borders during the period.

The monthly financial and operational record of the national oil company as of January this year, showed that the corporation supplied a total of 1.44 billion litres of petrol, translating to 46.30 million litres per day. Recall that the national oil company has been the sole importer of PMS for years, since the prevailing economic development and government regulation in the sector kept operators in their shells.

But immediately the country’s subsidy and deregulation arrangement went shoddy in the first quarter of the year, the figure of daily petrol consumption soared.

Group Managing Director of NNPC, Mele Kyari, had in March during a ministerial briefing, said the country’s consumption level stood at 60 million litre daily. The development showed that the daily consumption went up by over 10 million litre in less than two months.