THE Federal Government of Nigeria paid approximately N3.57 trillion in subsidy on petroleum products in 2023, despite the initial declaration by President Bola Tinubu that there’s no more subsidy.
An analysis by The ICIR on the Nigerian National Petroleum Company Limited’s (NNPCL) recently released audited financial statements revealed the government paid subsidies and the figure keeps rising.
At the inauguration of his administration on May 29, 2023, the ICIR reported that Nigerian President Bola Tinubu announced that the petrol subsidy regime was gone.
Since then, his government, including the state-owned oil company, kept insisting on not paying subsidies. However, not many Nigerians and industry anaĺysts believe the government, as the latter has secretly been paying petrol subsidies.
In the analysis of the NNPCL 2023 audited financial statements, The ICIR’s findings showed that the Nigerian government has been liable for paying under-recovery expenses, which is the difference between the landing cost of petroleum product and the regulated price at which it mandates NNPCL to sell the product.
The chief finance officer of NNPCL, Umar Ajiya’s, statement at the presentation of the NNPCL 2023 financial report on Tuesday, August 20 affirms the under-recovery expenses.
According to Ajiya’s disclosure, the nation’s sole importer of petroleum products-NNPCL has been selling petrol at half the cost of the landing price.
“In the last eight or nine years, this company or corporation, as it were, has not paid anyone a dim as subsidy. NNPC has paid no one kobo in the name of subsidy. That means no marketers have received money from us in the name of subsidy.
“What has been happening is that we have been importing PMS, landing at a certain price, at a cost price, and the government is telling us to sell it at half the price,” he hinted.
Ajiya explained further that the difference between the landing price and the half price is what “we called shortfall or call it subsidy and the deal is between the federation and ourselves to reconcile, and sometimes they give us money, and sometimes we mark it up.”
The revelation by Ajiya raised unanswered questions about the lack of approval in the “under-recovery and subsidy concerns which was hitherto denied by the Tinibu’s administration at his inauguration on May 29, 2023.
“There are still unanswered questions about who approved trillions of naira paid in the name of subsidy under this administration that had denied there’s no more subsidy. In any corporate venture with the size of NNPCL, you have a board audit committee that looks at the balance sheet. Who approved the trillions of subsidy payments? if it is in any other company, that chief finance officer that gave such approval would have been fired,” the chief executive officer of CFG Advisory, Tilewa Adebajo said in reaction to subsidy payments as reflected in NNPLC financial statements.
The ICIR’s analysis of the financial statements showed that the NNPCL reported N7.15 trillion as revenue from petroleum product sales in 2023 from N4.50 trillion in 2022.
This indicates that subsidy payments by the federal government stood at N3.57 trillion in 2023 in the NNPCL record.
In line with Section 64(M) of the Petroleum Industry Act (PIA) 2021, the cost incurred by NNPCL as the energy supplier of last resort for energy security reasons and all associated costs shall be on account of the Federation.
The NNPCL said, “The government instructed that NNPCL cannot sell its Premium Motor Spirit (PMS) above a certain regulated price,” NNPCL stated in its financial statements. However, the cost of importing the PMS was usually much higher than this regulated price.
“The under-recovery is essentially the difference between the actual landing cost of the product and the regulated price. This balance is used to reduce the cost of sales of the Group.”
It added that the corresponding entry was either used to reduce the liability due to the Federation or used as a receivable from the Federation.
A further analysis of the report reveals that the company reported N9.38 trillion as receivables from the Federation in 2023, rising from N2.18 trillion in 2022.
A receivable represents money due a company for products or services it has already delivered, The ICIR can report.
According to NNPCL, the PMS cost under-recovery is recognised where there is reasonable assurance that it will be received and all attached conditions have been complied with.
“When it relates to an expense item, they are deducted in reporting the related expense in cost of sales,” it stated.
The payment of N3.57 trillion subsidy termed under recovery by the government is made by the Federal Government to the NNPCL to maintain price control in the gasoline market. The payment helps to bridge gap of actual payment of PMS at the market, since the NNPCL is the sole importer currently of PMS.
In the review year, the NNPCL reported N23.99 trillion in total revenue. The figure comprises N14.07 trillion revenue from crude oil sales, N2.30 trillion from natural gas, N94 million from power, N464.94 billion from services, and N7.15 trillion from petroleum products.
The revenue from crude oil sales is from sales of utilised crude during the year and liftings of equity interest in various oil assets.
Petroleum product sales include the sale of PMS, dual-purpose kerosene (DPK), automotive gasoline oil (AGO), Naphtha, lubricants, and other related products.
The sale of natural gas represents the invoice value (transaction price) of natural gas sold to third parties, and revenue from services consists of revenue from seismic contracts, time-based contracts, gas transmission tariffs, shipping, marine, and engineering, the NNPCL detailed.
