Confusion As Subsidy Returns, NNPC Pays N5.4bn As Under Recovery In 2018

Posted by E.L.E.X on August 30 2020 under News

Amidst confusion in the downstream petroleum industry, concerning its deregulation, subsidy on Premium Motor Spirit, PMS, also known as petrol, has once again resurfaced, as the Nigerian National Petroleum Corporation, NNPC, weekend, said it incurred N5.35 billion as under recovery in June 2018.

Under-recovery, also known as subsidy, occurs when the pump price of petrol is lower than the actual cost price of the commodity. In this case, the NNPC, through its subsidiary, NNPC Retail or through oil marketers, sell the product to motorists at a particular price, which is lower than the cost of the product, and pay itself subsidy to cushion against the loss.

According to its Monthly Financial and Operation Reports for June 2020, released weekend, the NNPC said it had recorded zero subsidy payments in April and May 2020, after it had recorded under recovery of N43.31 billion, N20.68 billion and N37.66 billion in January, February and March 2020 respectively.

The confusion stemmed from the fact that the Minister of State for Petroleum Resources, Chief Timipre Sylva, had few weeks backs, stated that the Federal Government had deregulated the downstream petroleum sector since March 2020, thereby relieving the government of the burden of fuel subsidy and giving oil marketers the freedom to determine fuel price, with guidance from the Petroleum Products Pricing and Regulatory Agency, PPPRA.

Confirming this also, Group Managing Director of the NNPC, Mallam Mele Kyari, had in April 2020, declared that fuel subsidy was gone forever, and that going forward, market forces would be responsible for determining the price of the commodity.

When contacted, Group General Manager, Group Public Affairs Division of the NNPC, Dr. Kennie Obateru, promised to provide further update on the re-emergence of under-recovery on its financials.

The NNPC June 2020 report further stated that in the month under review, the corporation earned N58.3 billion from domestic crude oil sale, from which it spent N5.35 billion on under recovery, also known as fuel subsidy.

The NNPC also recorded petroleum products loss of N1.4 billion; and pipeline repairs and management cost of N6.24 billion.

The NNPC, according to the report, also received N10.12 billion from gas and other receipts; while it recorded total remittances of N81.4 billion; spent N48.95 billion on Joint Venture Cost Recovery and Government Priority Projects; before remitting N19.46 billion to the Federation Account.

The reappearance of subsidy, according to the NNPC, was as a result of a rise in the price of crude oil in the international market, which affected the price of PMS locally.

The NNPC said:-

“In June 2020, the average crude oil price further increased by $10.04, or 34.7 per cent, month-on-month, m-o-m, to $38.97 per barrel. Similarly, the OPEC Reference Basket (ORB) increased by $11.88, or 47.2 per cent m-o-m, to $37.05 per barrel, while ICE Brent and NYMEX WTI rose by $8.36, or 25.8 per cent and $9.79, or 34.3 per cent, to close at $40.77 per barrel and $38.31 per barrel respectively.
“As reported in the OPEC Monthly Oil Market Report (MOMR), spot crude oil prices continued to rise in June for the second consecutive month due to improvement in physical crude market fundamentals and the gradual reduction in supply overhang. This development suggests that the first half of 2020 was ending on a more positive note than expected.”

The report added that the NNPC downstream subsidiary, the Petroleum Products Marketing Company, PPMC, sold 1.35 billion litres of white petroleum products, comprising petrol, kerosene and diesel, in the month of June 2020, valued at N134.22 billion; compared with 950.67 million litres, valued at N92.58 billion recorded in May 2020.

However, the report disclosed that the NNPC recorded a trading surplus of N2.12 billion in the month under review, dropping by 20.9 per cent, compared to a surplus of N2.68 billion recorded in May.

The NNPC report further stated that the corporation’s operating revenue appreciated by 32.05 per cent, or N76.39 billion to N314.72 billion in June, compared to N238.33 billion recorded in May 2020; while its expenditure stood at N312.95 billion, rising by 32.8 per cent or N77.30 billion, from N235.65 billion recorded in May.

The NNPC said:-

“June 2020 indicates a lower trading surplus of N2.12 billion compared to the N2.68 billion surplus in May 2020, when the world began a fragile recovery from the COVID-19 effect. The 21 per cent net increase in performance is attributed primarily to the 166 per cent rise in surplus posted by NPDC; reflecting ongoing global rise in market fundamentals for the second consecutive month.
“In addition, PPMC continued to enjoy the drop in average product landing cost as profit increased by 22 per cent; while takings from Nigerian Gas Company, NGC; Nigerian Gas Marketing Company, NGMC; and Duke Oil Incorporated grew by 16 per cent, one per cent and 127 per cent respectively.
“All other Strategic Business Units, SBU, recorded further loss positions with Corporate Headquarter, CHQ, deficit increasing by 71 per cent compared to last month due to increased terminal benefits made to retired staff, thus reducing the group surplus for this month.”