In the build up to the 2015 elections a Youtube video (https://www.youtube.com/watch?v=y7nNWw_lXDk) that caught the attention of voters was of President Muhammadu Buhari calling subsidy on petrol a fraud. He asked the question ‘who is subsidising who?’. Two and half years later, the video is coming back to haunt President Buhari and his team as petrol subsidies begin to mount under his watch.
Both Vice President Yemi Osinbajo and now Finance Minister, Kemi Adeosun have been quoted in the media attempting to explain the current subsidy regime for petrol. This is after Maikanti Baru, the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC) in December 2017, admitted that the landing cost of petrol at N171 per litre is now above the pump price of petrol at N145 per litre, which simply means that government is effectively having to pick up the difference in cost of importation of N26 per litre.
In ordinary English language, this difference would be called subsidy. But calling it subsidy, would be ‘misleading’ because that means you would effectively be saying that the current government is perpetuating fraud if the opinion of President Buhari in the Youtube video is to be believed. There is no indication that he has changed his views.
First, it was Vice President Yemi Osinbajo, who in December tried to explain away the new “subsidy” regime by claiming that it was a cost borne by the NNPC and not the Federal Government. This left Nigerians wondering if the NNPC is now owned by a foreign government or the government had already sold its stakes in the corporation. Current records show NNPC is 100 percent owned by the Nigerian Government which also means that if it runs into a loss, it is the government that bears the brunt.
The Minister of Finance, Kemi Adeosun is the latest government official that has attempted to dodge the word ‘subsidy.’ Speaking to the media, after the federal executive council meeting on 31 January, she told the media that ‘technically’ speaking, the federal government was not paying subsidies. However, like the Vice President, she also admitted that the price differential or ‘subsidy’ is appearing on NNPC books as ‘under-recovery.’
However, she was kind enough to explain that this ‘under-recovery’ represents money that should have come to the federation account and shared among the federal government and states. So non-technically speaking, Adeosun was saying that subsidy is now a first line charge on NNPC revenues. It is being spent but not appropriated. It would not be found in the government’s budget at the state and federal level but on NNPC books. Interestingly, the NNPC books are not audited by any external audit firm, so basically it is what the NNPC gives as subsidy figures that the country will accept as subsidy figures.
Already, a peep into NNPC’s books gives some idea of how much this new subsidy is costing the country. The November 2017 monthly report of the NNPC shows the three refineries incurred a loss of N11.14 billion in November 2017. Since July 2017, when crude oil prices started rising steeply, the cumulative losses incurred by the three refineries stand at N36 billion. This is expected to get higher as crude oil prices have even risen higher since then. The losses from the refineries make up about half of NNPC’s N76 billion cumulative operating loss incurred as at November 2017. The NNPC is bleeding primarily because of under recoveries from selling petrol below the landing cost.
But besides losses made from refineries operations due to subsidy, the country is also engaged in a form of dollar subsidy. Crude for domestic consumption is given to NNPC at the official exchange rate of N304 to the US$, which is lower than the investors and exporters window average exchange rate of N360 to the US$ used for commercial transactions in the country.
Using this I&E market determined rate, the naira equivalent of the dollar subsidy incurred in October 2017 alone stands at N30 billion. Basically, the country is incurring both a naira and dollar subsidy on petroleum products running into several billions of naira monthly which is not being appropriated because it is being absorbed by the NNPC and the Central Bank of Nigeria in terms of naira and dollar subsidies.
The fact that there has been no public outcry over these hidden subsidies is only because ‘technically speaking’ they are hidden in the balance sheets of the NNPC and the CBN. Yet the cost of the subsidies are mounting as crude oil prices continue to rise. We are virtually back in the pre-2012 subsidy crisis, when subsidy figures ran into trillions which attracted public outcry because they looked unsustainable and fraudulent.
Already, the wide difference in the pump price of petrol between the country and its neighbours has led to a spike in smuggling of the product across the border. The NNPC GMD disclosed on January 24 that average daily consumption of petroleum products have shot up from 35 million litres per day to 55 million litres per day since December 1, 2017. This an average consumption of 20 million litres of fuel daily in excess of the country’s normal average daily consumption. There is no evidence to show that the number of cars or generators in our homes have suddenly gone up by 75 percent. The only likely explanation for this sudden sharp rise in daily average consumption can be attributed to the massive smuggling of the products across the country’s borders.
Like 2011 and 2012, we are virtually subsidising West Africa currently with our cheap petrol at a heavy cost to the NNPC. Baru also has admitted that the NNPC is already being over burdened with the huge cost of having to meet this significant demand every day and it already affecting its capacity to meet even its Joint Venture cash call obligations. These costs will definitely come back to haunt us someday.
But for now, the Federal Government can ‘technically’ pretend that there is no subsidy as long as it is NNPC that is bearing the cost directly while the nation bears it indirectly. What the government has really succeeded in doing with the denial is to bury subsidy in the opacity of the NNPC accounting system, which has not been externally audited for years. Someday, the real cost of the current subsidy regime will be exposed and fact would not be pleasant to the ears of Nigerians. For now, we all can ‘technically speaking’ pretend that there is no subsidy. Call it anything but subsidy.