Nigeria’s $15.7bn 2022 Fuel Subsidy Projection to Exceed All 36 States’ Budget

With Nigeria’s petrol subsidy bill skyrocketing in 2022, the estimates for the whole year would exceed the total expenditure by all the states of the federation in 2021, which was $9.8 billion, a new report by a member of President Muhammadu Buhari’s Economic Advisory Council and Chief Executive Officer of Financial Derivatives Company Limited (FDC), Mr. Bismarck Rewane, has indicated.

The report came as the Nigerian National Petroleum Company Limited (NNPCL) yesterday maintained that crude oil theft was taking a severe toll on its performance. NNPCL disclosed that it lost 470,000 barrels of crude oil per day, which amounted to about $700 million monthly, saying this is in addition to security challenges that hinder oil production in some terminals.

Group General Manager, National Petroleum Investment Management Services (NAPMS), Bala Wunti, made the revelation during an interview with journalists in Abuja.

Rewane maintained that the petrol subsidy policy remained economically costly. The economist, in the latest edition of his monthly Breakfast Meeting report held at the Lagos Business School (LBS), noted that while between 2015 to 2020, $5.5 billion was spent on subsidy, in 2021 alone it went up to $3.8 billion, and $6.2 billion in just the first quarter of 2022.

He stated that despite the increase in money available to the Federation Account Allocation Committee (FAAC), even without contributions from the oil sector, many states continued to pile up debts, with frequent defaults in salaries and pensions.

The report said the huge subsidy payments would account for more than half of the N11 trillion budget deficit, which the federal government projected for 2023.

In 2021, according to FDC, all the 36 states spent the equivalent of $9.8 billion, nearly half what the country would spend this year to cover the petrol subsidy payments, largely seen as opaque.

It estimated that with a mere hike of the price of petrol to N215 per litre by December, the federal government could save as much as N1.25 trillion.

In addition, it stated that the federal government could rake in at least N600 billion by adjusting the exchange rate to N470 per dollar, but admitted that removing subsidy could be politically undesirable.

FDC suggested some pathways to fuel subsidy removal as discontinued fixing of prices, opting for gradual removal, and abandoning national uniform pricing, stressing that subsidy administration has been largely abused.

With oil theft and illegal bunkering taking as much as 400,000 barrels per day of the country’s oil production, Rewane said as much as $1.2 billion was lost to the menace every month, which was the combined budget of Osun, Ekiti and Kwara in 2021.

The federal government recently put the current daily spend on maintaining the petrol subsidy at N18.4 billion for 2022.

Last week, Director General of the Budget Office of the Federation, Mr. Ben Akabueze, in an interview, suggested that Nigeria might seek relief from the International Monetary Fund (IMF) if it was unable to address its fiscal challenges.

Akabueze had said, “Essentially, there are two ways countries end up with the IMF. One is voluntary, when they ask IMF for help, or when things get to the grind, where they simply have no other option.

“I don’t see Nigeria going to the IMF voluntarily. It’s a hot issue here in Nigeria. But the honest truth is that if we don’t address our fiscal challenges in a sensible and sustainable matter, we may end up unwillingly with the IMF.”

He, however, stated that Nigeria was not at that desperate situation yet.
Akabueze had added, “We are not there yet. But we could as much stop digging. There is a maxim that if you find yourself in a pit, you should stop digging and start climbing out.

“If we continue to fund regressive deficits, it is tantamount to continuing to dig. If we continue to pass on reasonable opportunities to increase revenues by introducing taxes, it is tantamount to continuing digging.

“Even though I said we should not cut expenditure in total, we need to get more efficient in our spending. If we don’t do that again, it is tantamount to continuing to dig.”

But continuing in the report, Rewane said the country might soon experience increased oil sales, courtesy of the contract recently awarded to ex-militant, Mr. Government Ekpemupolo, also known as Tompolo, which was worth about $1.08 billion in a month.

The report also put average inflation rate for the last five years at 14.38 per cent, relative to the global average of 3.78 per cent and Sub-Saharan Africa average of 9.65 per cent.

Nigeria emerged the country with eighth highest inflation rate in Sub-Saharan Africa and 25th highest in the world, with price rises mainly driven by higher energy and food prices, the report said.

FDC added that the naira had lost at least 94.87 per cent of its value in five years, crossing N715/$, before falling to N645/$ recently, and now trading at N703/$.

Last week, the Organisation of Petroleum Exporting Countries (OPEC) and its allies slashed Nigeria’s production for the month by 4,000 barrels per day, to 1.826 million bpd, as against the 1.830 million bpd allocated in September.

But Nigeria had even before then been unable to meet all of its production allocation, hitting just 1.083 million bpd in the July assessment and falling even lower to 972,000 barrels in August.