Stunner As World Bank Exposes NNPCL On Subsidy, Dollar Revenues
The World Bank has revealed that the Nigeria National Petroleum Corporation Limited (NNPCL) lacks transparency concerning the financial benefits resulting from the removal of fuel subsidies.
This includes the ongoing deductions for subsidy arrears and the overall impact of subsidy removal on federation revenues, as stated in the World Bank’s Nigeria Development Update for December 2023, titled ‘Turning The Corner (from reforms and renewed hope, to results).
In response to these concerns, the Minister of Finance and Coordinating Minister of Economy, Wale Edun, has indicated that the government is prepared to scrutinize the revenue flow from the NNPCL.
The World Bank emphasized the need for more clarity on oil revenues, specifically regarding the fiscal benefits arising from the Premium Motor Spirit (PMS) subsidy reforms, despite the visibility of revenue gains from exchange rate reforms.
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 elaborated that the net oil revenue gains for the federation were below the expected levels, considering the anticipated addition to the accounts resulting from the removal of the fuel subsidy
The World Bank highlighted that the fuel subsidy was incurring a monthly cost of approximately N380 billion to the federation. With its removal, the federation account should have experienced a notable 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 also highlighted that the reform of the fuel subsidy should enable the NNPCL to clear its arrears and commence full payment for the Federation’s share of costs in joint venture operations. This, in turn, would facilitate a gradual increase in oil production over time.
During the report presentation, the Coordinating Minister of the Economy, Edun, acknowledged that the removal of the fuel subsidy had a positive impact on the government’s finances. Despite the anticipation that subsidy removal would enhance government revenue, challenges such as debt funding and a high fiscal deficit were faced.
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 announced that there would be a comprehensive implementation of measures aimed at boosting tax revenue in the near future. However, he emphasized that tax rates would not be raised, focusing instead on enhancing efficiency, digitalization, and improving collection methods.
He explained that a thorough review of waivers and tax incentives would be conducted to streamline and prevent leaks, particularly within ministries, departments, and agencies.
