The Nigerian National Petroleum Company (NNPC) Limited says Wednesday’s sudden decision to adjust upwards the pump price of premium motor spirit (PMS), popularly called petrol, was informed by the excessive pressure on its fiscal operations by fuel subsidy payments.
Barely 24 hours after Monday’s pronouncement by the new President, Bola Tinubu, that the era of fuel subsidy was gone, the NNPC announced a new template, which raised fuel prices from an average of N184 and N199 per litre to an average of N488 and N557 per litre.
The rollout of the new price regime generated a huge furor among a cross-section of Nigerians who accused the NNPC of jumping the gun with the announcement, ahead of the June 30 deadline set by the Buhari administration as the terminal date for the removal of fuel subsidy.
But, speaking as a guest on the Arise TV Morning Show on Thursday, the Group Chief Executive Officer of NNPC, Mele Kyari said the decision was taken to save the company from the pressure on its operations.
“The Petroleum Industry Act (PIA) indicated that fuel subsidy payment would terminate by February 17, 2022. But the government, in line with its commitment to continue to provide subsidies in the supply of certain essential commodities (including petrol), decided that in the 2022 Fiscal Budget, irrespective of the fact that the law, money would continue to be provided for the payment of subsidy till June 2023,” Kyari said.
“Although the NNPC agreed with the government on that arrangement, and a provision was made in the 2022 Budget for subsidy payment to enable NNPC to continue to supply petroleum products, the complication was that provision was made in the budget without actually financing it.
“There was a provision for N6 trillion in the 2022 Budget, and N3.7 trillion in 2023.
Since that provision was made for subsidy, not a single Naira was paid to NNPC to fund the payment. The NNPC had to fall back on the cash flow from its operations to fund the subsidy provision in the budget, to continue to supply petroleum products in the country. It is becoming a daunting task, making it almost impossible for NNPC to continue to discharge its fiscal functions.
“The misalignment of the law and the reality that the government had no money to fund the provision in the budget for subsidy made the NNPC take up the responsibility to supply fuel and recover the cost later,” he explained.
By law, he said the NNPC is obliged to pay taxes and royalties, like any other company, and declare profits to its shareholders.
Although the company has now broken even, with a profit of N687 billion in 2021, he said the NNPC has not been able to make that dividend available to its shareholders because of the burden of its exposure to fuel subsidy.
“The law says government will write a cheque for the NNPC at the end of every month for the supply of petroleum products to the country. But that has not happened. We have held back our fiscal obligations for 2022 and half of 2023. There is nothing we can do. But there is still an outstanding of N2.8 trillion the government has to pay NNPC.
“There is a provision for subsidy up to June 2023 in the Appropriation Act, but there is no cash backing, and therefore no money to fund it. Because it is not funded does not mean that NNPC has to wait until it is done, as the consumers of petroleum products do not expect that the supply of petrol should wait.
On claims by critics that the new price was introduced based on the old stock of petroleum products for which subsidy was paid, Kyari described it as technical practice in a normal market situation.
He said any time there was a price adjustment in the market, it was normal practice for marketers to sell the old stock of goods at the new price till the market dynamics automatically adjust to reality.
Despite the over 195 percent increase in the new fuel price, Kyari was confident that there would be price moderation to a lower level according to the prevailing market dynamics.
The latest fuel price announced by the NNPC, the GCEO said, was the current market of fuel in the international oil market, which can potentially go down at any time as the market adjusts itself.
With the removal of fuel subsidy, he said new players, who were reluctant to enter the market because the subsidy regime did not guarantee full recovery of their costs, would come into the market
“Now that subsidy has been removed, independent fuel marketers can now import products, (or procure them locally) and take them into the market and sell at a commercial price. There will be competition and the market will regulate itself and efficiency will come in, as NNPC, by law, cannot control more than 30% of the market going forward,” he said
To encourage the new entrants in the market, Kyari said with the directive by Tinubu to the CBN to bridge the gap between official and parallel market rates, there would be a single official foreign exchange rate for every market player.
On refineries, Kyari said the turnaround maintenance (TAM) on Port Harcourt Refinery, which has been delayed as a result of global supply chain issues, would be delivered before the end of the year, with work currently ongoing in Warri, while the contract has already been awarded for Kaduna Refinery repairs.
He said when the repairs on the four refineries are completed, coupled with ongoing construction work on a few other private sector initiatives, the country would have a surplus supply of products next year to become a regional hub for fuel supply.
“Dangote Refinery has been commissioned. It will go into commercial production in July or August this year. There are other small private sector interventions that are going on in modular refineries, which will make the country the hub of petroleum products for countries in West Africa and other regions. This will happen in the near future,” he said.
On the current queues at filling stations across the country, the NNPC boss described it as panic buying not induced by a supply gap as was always the case in the past, but one determined by an anticipated price increase.
The queues will go away in two or three days as the uncertainty around price has been resolved and supply is available,” he said.