Market News

Nigeria spends N11. 35tr on refinery rehabilitation, N13.7tr on subsidy - THE NATION

MAY 31, 2023

  • Govt still owing NNPCL N2.8tr

A report of the Ad-hoc Committee on the State of Refineries in the Country set up by the House of Representatives has revealed that the nation spent about N11. 35 trillion on the rehabilitation of the three refineries from 2010 till date.

The Nigeria Extractive Industries Transparency Initiative (NEITI) also yesterday insisted that the country spent N13.697 trillion on Premium Motor Spirit (PMS) subsidy between 2005 and 2021.

Group Chief Executive Officer, Nigerian National Petroleum Company Limited (NNPCL), Mele Kyari, yesterday said the federal government owes the company N2.8 trillion in subsidy payment deficit.

Kyari, who spoke with reporters at the Presidential Villa, Abuja, after a meeting with President Bola Tinubu, said the heavy subsidy burden has starved NNPCL of funds for its core businesses.

The House of Representatives’ report indicated that the nation spent over N4.8 trillion in running the refineries between 2010 to 2020.

Next Stay

The House differed consideration of the report to Thursday, June 1, 2023 to allow the committee make more far reaching recommendations which the House will adopt.

Deputy Speaker, Ahmed Idris Wase who presided over consideration of reports said even though the findings of the committee was far, the recommendations contained in it did not capture the essence for which it was set up.

Wase said the Committee was take a day to take another look at its findings and make far reaching recommendations that will help the new government in fashioning out ways of addressing the challenge identified.

The report said that the nation’s three refineries became unproductive from year 2010.

It also said “that from year 2010 to 2019, the nation’s refineries were performing sub-optimally with an annual combined capacity of less than 30 per cent. In the year 2019, the NNPC obtained an executive approval and shutdown the refineries for comprehensive rehabilitation to restore the plants to a maximum of 90 per cent nameplate company utilization”.

The total losses from the non-functional refineries since year 2010 is put at N366.52 billion.

The total cost of operations and running the refineries from 2010 to 2020 is put at N4.8 trillion. The Port Harcourt Refinery Company (PHRC) carried out rehabilitation projects over a period of seven years ranging from 2013 to 2019 valued at about N12.16 billion. The Warri Refinery and Petrochemical Company (WRPC) carried out rehabilitation projects over a period of six years ranging from 2014 to 2019 valued at about N28.22 billion. The Kaduna Refinery and Petrochemical Company (KRPC) also carried out rehabilitation works over the period under review valued at about N2.27 billion.

According to the report, the total cost of rehabilitation for the three refineries based on the submissions of the NNPC from year 2013 to 2019 is put at N42.65 billion.

The Committee recommended continuous legislative oversight of the ongoing rehabilitation works at the Port Harcourt and Warri refineries to ensure that the desired results is achieved.

It also recommend that the NNPC should ensure the immediate award of contract for the rehabilitation of the Kaduna Refinery and also take full advantage of the Petroleum Industry Act to fast track the rehabilitation of the refineries and ensure that the refineries are restored to a maximum 90% nameplate utilization.

NEITI yesterday commended President Bola Tinubu for taking the bold political step to phase out the subsidy regime.

A press statement which Deputy Director/Head Communications & Stakeholders Management, Mrs. Obiageli Onuorah issued in Abuja said, “From the NEITI reports, between 2005 to 2021, the country spent $74.3862 billion which translates to N13.697 trillion”.

She said the NEITI report breakdown of these figures showed that in 2005, the government paid $2.6Billion (N351Billion) as subsidy. In 2006 & 2007, it paid $1.99Billion & $2.176Billion (N257Billion & N272Billion) respectively.

Commending Tinubu, NEITI said, it has “welcomed with high expectations the political will, courage and sincerity of purpose demonstrated by President Bola Ahmed Tinubu to remove fuel subsidy right from his inaugural speech.

“A statement from NEITI House, Abuja described the move as a positive statement by the administration to decisively implement the findings and recommendations contained in the NEITI reports.

“This bold step is required to block leakages, grow revenues and advance the ongoing reforms in the oil, gas and mining industries.”

NEITI recalled  that its recommendations for the removal of fuel subsidies have remained a persistent request since 2006 given the agency’s concerns about the huge financial burden that the subsidy regime imposed on the growth of the Nigerian economy over the years.

The report further pointed out that subsidy payments more than doubled in 2008 and 2010 and witnessed the highest increase ever in 2011 to $13.52billion (N2.11Trillion).

NEITI noted that a sharp decline was witnessed in the years 2012, 2013, 2014 and 2015 when it dropped to $3.336billion (N654Billion) in 2012. The decline in subsidy expenditure continued in 2016 and 2017 to as low as $473million (N154billion) in 2017.

According to the statement, the reduction was short-lived as the payments skyrocketed to over $3.88billion (N1.190trillion) in 2018 and 2021 to $3.575Billion (N1.43trillion).

 By these figures, the organization said, Nigeria expended an average of 805.7billion Naira annually, 67.1billion monthly or N2.2billion daily.

The NEITI data, in addition, showed that the amount expended on subsidies from 2005 to 2021 is equivalent to the entire budget for health, education, agriculture and defence in the last 5 years. The sum also equals the capital expenditure for 10 years between 2011-2020. Subsidy payment reached its peak in 2011 ($ 13.52 Billion or N2.11 Trillion). NEITI explained that it was during this time (2011) that fuel subsidies dwarfed allocations to all critical areas of the economy.

NEITI ‘s persistent calls for the removal of petroleum subsidies were informed by the fact that the ways and means of funding the expenditure over these years relied more on federation accounts funds, the federal government and sometimes from external borrowing with negative consequences on government overall revenue profiles.

NEITI was also concerned that the consequences of funding subsidies have resulted in poor development of the downstream sector, declining GDP growth, rise in product theft, pipeline vandalism, environmental pollution and undue pressure on foreign exchange. Other challenges imposed on the economy were naira depreciation, low employment generation, the declining balance of payments and worsening national debt.

In a policy advisory released by the NEITI House in late 2022 to drive home the urgency to remove subsidy and re-submitted earlier in the year 2023, NEITI recommended eight steps to manage subsidy removal when and if the decision is made. These include the urgency to strengthen the implementation of the Petroleum Industry Act (PIA) as a whole and not in parts. NEITI also underlined the importance of unveiling the implementation of people-oriented welfare programs to provide relief for the poor and vulnerable; advised on priority attention to be paid to the rehabilitation of the nation’s four refineries currently ongoing while encouraging private investments in establishing new refineries. Other policy considerations are that government should commission a special report on actual PMS consumption in Nigeria, enforce stringent sanctions for criminal activities in the oil and gas sector and conduct appropriate stakeholders’ consultations, engagements and enlightenment.

While the details of the implementation of the policy are being awaited, NEITI is set to commission a special research on the actual consumption of PMS in Nigeria. The study is to establish precisely what the nation is consuming. NEITI’s view remains that the data on the country’s actual consumption is unknown resulting in huge revenue losses to the nation through subsidy payments based on estimates.

NEITI particularly welcomed President Bola Tinubu’s position that the revenues saved from subsidy should be channeled to education, health, roads and other critical infrastructure,

The policy advisory also conducted a survey of the pump price of petrol across the country outside the major cities of Lagos & Abuja during the era of petroleum subsidy.

In the North West, North East and North Central states a litre of petrol averages N270.00, N265.80 and N 269.00 respectively. The southern states pay slightly lower with the South-South paying N232.50, South East N235.20k while the South West states pay an average of N250.00. Major marketers and prices at the state capitals stood largely between N169.90 to N190.00.

NEITI’s study on the petroleum subsidy also established the prices of Petroleum products across Nigeria’s borders and within the West and East African region. In Senegal, a litre of fuel sells for 635.91k, while in Guinea, Sierra-Leone, Togo, Cameroun and the Republic of Benin it costs N609.30k, N506.96K, N 497.78K, N449.24 and N462.23k respectively. It is on record that the supply to some of these Nigerian neighbours is largely the smuggled subsidized petroleum products from Nigeria.

NEITI’s position which is based on the data in its reports has also been strengthened by similar empirical studies and recommendations by reputable international organisations such as the World Bank and our global body, the Extractive Industries Transparency Initiative (EITI).

NEITI, therefore, calls on the regulatory institutions to stand firm and tackle artificial scarcity, hoarding and other man-made obstacles being created at the moment to frustrate the implementation of subsidy removal.

With its removal, subsidy payments for petroleum products with its attendant insecurity in the country, due to smuggling etc will be reduced.

Kyari said: “Since the provision of the N6 trillion in 2022, and N3.7 trillion in 2023, we have not received any payment whatsoever from the federation.

“That means they (Federal Government) are unable to pay and we’ve continued to support this subsidy from the cash flow of the NNPC.

“When we net off our fiscal obligations of taxes and royalty, there’s still a balance that we’re funding from our cash flow and that has become very difficult and affecting our other operations.

“We’re not able to keep some of this cash to invest in our core businesses and the result is that it can be a huge challenge for the company.

“We have highlighted this severally to the government that they must compensate NNPC; they must pay back the NNPC for the money that we have spent on the subsidy.

“Today, the country doesn’t have the money to pay for subsidy. We can’t afford it and they are not able to pay our bill. That comes to how much the federation owes NNPC now.

“We are waiting for them to settle up to N2.8 trillion of NNPC’s cashflow from the subsidy regime and we can’t continue to build this.

“Fortunately also, by virtue of the provisions of the law and the Appropriation Act 2023, it is no longer available for that funding and we are very convinced today that the country can no longer fund this subsidy bill and they will not be able to pay NNPC.

“Therefore, we are happy and pleased to hear Mr. President’s commitment to the elimination of this subsidy because they can’t afford it anymore.”

With petrol already selling far above the official pump price in parts of the country, Kyari said steps will be taken to ensure customers are not exploited.

“We will take necessary steps to ensure that we recover our costs from the market and also be mindful of the fact that a situation like this can lead to the exploitation of customers.

“We’re also working with the regulator, whose head is here with me to see how we can cut any such excessive management of greed.

“This will be contained by the virtue of provisions of the law, the Authority or the Nigerian Petroleum Midstream and Downstream Regulatory Authority. And then the competition agency – they’ll play their part.

“We think this is a very commendable step taken by Mr. President to bring it to effect – the provisions of the law.”

Kyari explained that petrol was to be priced at its commercial value six months after the enactment of the Petroleum Industry Act.

That meant that by February 17, 2022, there should have been no subsidy on petrol.

He recalled that the Federal Government extended the terminal date till June this year.

“But the provision (of subsidy) in 2022 and 2023 (budgets) has not been funded by the government. A greater part of it is supported by the cash flow from NNPC’s other businesses.

“Therefore, even though there is provision to the end of June, there is no financing even from the start.

“Therefore, since you can’t pay, you cannot expect NNPC to continue to carry it.

“This has been the position that the NNPC has taken and what the President simply said is obeying the law and acknowledging the realities that the federation can no longer pay NNPC for the burden of subsidy that we are carrying,” Kyari said.

He noted that the queues were caused by panic buying.

The NNPCL GMD said: “Typically, consumers will rush to the fuel station to fill their tanks and that is why you’re seeing these queues.

“Also, marketers would like to see what exactly this means. ‘How are we going to sell the product if the subsidy on PMS is removed?’

“The combination of the two is what you are seeing – the obvious dislocation of distribution. And we believe that this will go away very, very quickly as you’re aware also.

“The PIA made it very clear that the price of petroleum must be at the market value. But, our country decided to provide for subsidy in the 2022 Appropriation Act and also half year in 2023.

“Therefore, we as a commercial company established under the Petroleum Act, are doing this simply as business, delivering value to a supplier of last resort by the law, but at the cost to the federation. And that cost includes the cost of subsidy,” he said.

Ahmed said there will be no price cap on petroleum products.

He said the government would ensure no marketer takes advantage of Nigerians. 

“With the removal of subsidy as pronounced by Mr President, this has opened the floodgate for any market or company that wants to import PMS. And we are ready to issue licenses for them. At least that will open the competition that will reduce the burden.

“And let me assure Nigerians that the NMDRA and the Federal Competition and Consumer Protection Commission will make sure that consumers are not taken advantage of. We intend to work together on this.”

Ahmed, who said the Federal Government will not cap the oil price, called on marketers to open their petrol stations and depots to the public.

He said they will soon get the government’s directive from the NNPCL.

“I cannot tell you the exact price because the market is deregulated. Therefore, it is going to be based on delivery.

“The NNPCL will tell all the companies their transfer price, which will translate into what the pump price will be,” the CEO explained.

To lighten the burden on NNPCL, being the sole petrol importer, import licenses will be issued to interested persons.

Ahmed said the criteria for importing fuel will be similar to importing kerosene and diesel.


This website uses cookies We use cookies to personalise content and ads, to provide social media features and to analyse our traffic. We also share information about your use of our site with our social media, advertising and analytics partners who may combine it with other information that you've provided to them or that they've collected from your use of their services
Real Time Analytics