• Sat. Sep 30th, 2023

Report projects Nigeria’s Subsidy on petrol to jump by almost 30% in July

ByBassey Udo

Jul 5, 2021


Expert monitoring report by Financial Derivatives Company (FDC) Limited says Nigeria’s  daily subsidy exposure on premium motor spirit (PMS), popularly called petrol, may rise by about 29.1 percent in July.
The report said the subsidy payment by the Federal Government through the Nigerian National Petroleum Corporation (NNPC) is projected to rise from about N5.5 billion spent in June to about N7. 1 billion in July.
Basing its projection on the decision of the Central Bank of Nigeria (CBN) to devalue the Naira exchange value from N379 to the dollar to N411, the report said government’s exposure to subsidy payment is bound to climb further in the new month.
The exchange rate of the Naira at the Investors and Exporters Foreign Exchange Window (IEFX) published on the CBN website on Friday, July 2, stood at about N410.16.
But an analysis by the Managing Director of Financial Derivatives Company (FDC) Limited, Bismarck Rewane, contained in the report said the landing cost of petrol has increased by 61.6 percent to N231.98 per litre, from an average of N143.6 per litre in December last year.
With domestic fuel consumption of petrol growing by about 60.9 percent, from 57.8 million last year to about 93 million litres, Rewane said estimated subsidy payment on petrol could rise to about N7.1 billion daily in July, from about N5.5 billion in June.
He said the increase is largely attributable to the continued rise in crude oil prices at the international market, which climbed above $76 per barrel at the end of last week.
Also, the increase in landing costs for imported refined petroleum products is said to be directly proportional to the adjustment in the exchange rate of the Naira at the Investors and Exporters Forex Window (IEFX) from the previous N379 to the dollar to an average of N410.16 and N411.
“Based on this new petroleum products pricing template, the expected price of Premium Motor Spirit (PMS) will increase to N254.90 per litre from N239 per litre estimated in April,” the report said.
Meanwhile, the NNPC has said that the price of petrol would remain at an average of N162 and N165/litre in July, a decision, analysts say, would impose a subsidy burden of between N89.90 and N92.90 per litre.
Rewane said the daily consumption of petrol previously at an average of 57.8 million in the first quarter of 2020 with N5.5 billion daily subsidy payment in June.
He warned that new subsidy regime target would also be worsened by the impact of smuggling of petroleum products to neigbhouring countries, as an increase in subsidy payments diverts funds from critical capital projects required to improve the quality of life of Nigerians.
“This will lead to a further increase in petrol prices,while higher energy costs, coupled with rising food prices, would continue to erode consumer disposable income,” Rewane said in the report.
With the passage of the petroleum industry bill (PIB) by the National Assembly, Rewane described it as a bold move expected to help recoup revenue losses, halt subsidy payments and encourage investments in the downstream petroleum sector.
On Nigeria’s crude oil output, Rewane said it fell by 2.82 percent to 1.38million barrels per per day in May, from 1.46mbpd recorded in April, despite the easing in the Organisation of Petroleum Exporting Countries (OPEC) output cut agreement.
“The fall in the local crude oil production can be attributed to disruptions as a result of pipeline vandalism and force majeure imposed by the international oil companies. 
“But the good news is that OPEC and its allies are looking to further in- crease supply as from August.
“This implies a further increase in Nigeria’s production quota from 1.58mbpd in the near term,” he said.
A rise in production, coupled with higher crude oil prices, he noted, would boost government revenue and increase the government’s ability to meet its obligations.
Besides, he said it could also lead to an increase in the monthly Federation Accounts Allocation Committee (FAAC) statutory allocations, which fell by 1.8 percent in June, to about N605.96 billion.

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