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Business Last Updated: Sep 5, 2019 - 3:08:48 PM


NNPC Spends Estimated N33.60 per litre on Petrol Subsidy
By Proshare, September 03, 2019
Sep 4, 2019 - 11:48:07 AM

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Yesterday, news filtered into the mainstream media that the Federal government spent a whooping sum of N650.1bn (US$1.8bn) in subsidizing petrol consumption between April 2018 and March 2019. According to the media sources, the statistics were obtained from the Nigerian National Petroleum Corporation (NNPC). We recall that the NNPC became the sole importer of petrol into the country in 2017 following the successive devaluations suffered by the naira which pushed the landing cost of petrol significantly higher.

Several controversies have trailed the propriety of the decision to subsidise petrol costs. Nevertheless, the NNPC announced that it classifies the alleged subsidy payments as "under-recoveries" rather than making actual payments for subsidy. In our view, this amounts to the NNPC losing income that ought to be remitted to the Federal government. The landing cost of a litre of petrol according to marketers hovered between N170/litre and N200/litre in Q2 2019. With a fixed pump price of N145/litre, it implies the NNPC loses revenue of N25/litre - N55/litre on imported petrol. Based on our estimates, the NNPC loses about N33.60/litre on imported petrol- our estimate is based on 19.3bn litres of petrol between April 2018 and March 2019, according to data obtained from NBS.

To put into perspective, as at 20 Dec 2018 when the 2019 budget was presented, only N820.6bn was spent on capital expenditure, indicating that subsidy payments equaled 79.2% of Capex spending. Furthermore, data from the CBN's Q1 2019 statistical bullentin revealed the Federal government made an estimated N1.17trn in revenue, implying that subsidy spending by the NNPC in Q1 2019 equates to 20.3% of government revenue.

 

Proshare Nigeria Pvt. Ltd.
In our opinion, the removal of petrol subsidy may not be a politically popular opinion, nonetheless, we believe a complete elimination of the "under recoveries" made by the NNPC will help the federal government in liberating itself from the current fiscal struggles. Indeed, this would free up more funds that can be channeled to more productive sectors of the economy, helping to accelerate the growth of a struggling economy.


Source:Ocnus.net 2019

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