The Nigeria National Petroleum Corporation Limited is not transparent about the financial gains from fuel subsidy removal, the World Bank has disclosed.
This extends to subsidy arrears that are still being deducted and the impact of subsidy removal on federation revenues, the bank noted. The Washington-based made this call in its Nigeria Development Update, December 2023 edition titled, ‘Turning The Corner (from reforms and renewed hope, to results).
This is as the Minister of Finance and Coordinating Minister of Economy, Wale Edun, revealed that the government was ready to scrutinise the revenue flow from the NNPCL.
According to the World Bank, while revenue gains from the exchange rate reforms are visible, more clarity is needed on oil revenues, including the fiscal benefits from the PMS subsidy reforms.
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It declared, “nominal oil revenue gains have been evident since June; these are mostly categorised as “exchange rate gains”, suggesting that they are due to the naira depreciation.
“Except for the exchange rate-related increases, however, there is a lack of transparency regarding oil revenues, especially the financial gains of the Nigeria National Petroleum Corporation from the subsidy removal, the subsidy arrears that are still being deducted, and the impact of this on Federation revenues. It is also unclear why retail petrol prices have not changed much since August, despite fluctuations in the exchange rate and global oil prices.”
The Bretton Woods institution further expanded that gains in net oil revenue of the federation were lower than what they should have been considering what the removal of fuel subsidy should have added to the accounts.
It stated that fuel subsidy cost the federation about N380bn a month, and once removed, the federation account should have recorded an increase in net oil revenues.
It said, “However, most of the gains in the oil revenues in H2 2023, as reported by OAGF, can be attributed to exchange rate gains. Without exchange rate gains, net oil revenue between January and August would have declined by 0.2 of a percentage point of full-year GDP yoy, all materialising in the July–August period.
“In August, additional revenue from 40 per cent profit of Production Sharing Contracts and the interim yearly dividend were reflected in the accounts. However, these were not as high as what the gains from removing the gasoline subsidy should have been. Given that petrol pump prices have not changed in line with market fundamentals (notably exchange rate movements and global oil prices), there is a risk that the implicit fuel subsidy has reemerged, potentially keeping net oil revenues lower than expected.”
The institution further noted that the reform of fuel subsidy should help the NNPCL to settle its arrears and start paying fully for the Federation’s share of costs in joint venture operations, thereby allowing oil production to gradually increase over time.
Also speaking at the presentation of the report, the Coordinating Minister of the Economy, Edun noted that the removal of fuel subsidy saved the government’s finances.
He stated that while expectations that subsidy removal should boost the government’s revenue, it was faced with debt funding and a high fiscal deficit.
He said, “In terms of the government’s finances, you have rightly pointed out that following the removal of subsidy, there is an expectation that there would be fiscal dividends and it’s fair to say that without it, government finances will be in total disarray now. However, there is debt funding, pressure on fiscal deficit, and on government finances, and borrowings which have been inherited.
“Our levels of borrowing are being reduced and there is a plan to reduce that fiscal deficit over time. On the revenue side, the first source is oil, and I expect that there will be serious scrutiny on oil revenue and production and insistence on raising oil production and similarly that the revenues are brought into the federation account following the constitution. I think there will be added scrutiny, and I am sure NNPC is getting ready for that.”
Edun further declared that there would be a robust rollout of measures to raise tax revenue soon. He, however, highlighted that tax rates would not be increased but a lot would be done regarding efficiency, digitalisation, and improved collection.
He added that waivers and tax incentives would be scrutinised to revamp it and save leakages, particularly among ministries, departments and agencies.
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