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Nigeria risks spending 63% of its oil revenue on gasoline subsidies in 2022

Nigeria could pay about 63 percent of oil revenue next year Gasoline subsidy If the practice is not completed by August 2022.

The government estimates that it will produce about 1.8 million barrels of oil per day and will generate 3,160 billion N in revenue. But spending 2 trillion N at the end of the 12-month deadline given by President Muhammadu Buhari to end the practice, as stipulated in the Petroleum Industry Act (PIA) enacted in August. May become.

This effectively means that the federal government has quietly postponed the implementation of the PIA until August 2022. This is a development that delays the reform of the downstream sector.

The PIA provides for complete deregulation of the downstream sector, and regulators are empowered to apply backward integration policies that promote regional refining.

Under the law, missing import licenses may be assigned to companies with valid local refining licenses or a track record of international crude oil and petroleum product transactions.

“Full deregulation will open the public market for petroleum product pricing and put an end to fuel subsidies,” a PwC analyst said in a PIA review.

However, capping the retail price of gasoline will discourage marketers from importing gasoline. With the support of Nigeria’s Leading Oil Marketers Association (MOMAN), oil marketers are calling for complete deregulation of the downstream sector of the oil industry within six months.

Nigeria pays subsidies as analysts, including Goldman Sachs, raise their Brent crude oil price forecast at the end of the year from $ 80 to $ 90 against the backdrop of a faster recovery in demand from the effects of Pandemic and Hurricane Aida. May pay a high price to continue US production.

If the subsidy is unsuccessful, Nigeria could pay N2 trillion in gasoline subsidies by August next year.

Read again: More pain for Nigeria as petrol subsidies consume N608bn

The Nigerian National Petroleum Authority (NNPC), which will be remodeled into a commercial organization within the next six months, will be the only domestically refined PMS as it will erode upper retail gasoline prices below landing costs. It may continue to be an importing country. Profit margin of marketers who want to import gasoline.

Earlier this year, NNPC said it spends about 120 billion N on gasoline subsidies each month. This limits the ability of the government to fund the distribution of oil revenues among different layers. For the past four months, companies have not funded federation accounts and quotas committees (FAACs).

Of the 26 cargoes of crude oil that NNPC provides for trade, sources close to NNPC state that 11 have been hampered and 15 have been used for underrecovery of NNPC. Nigeria will exchange crude oil for gasoline under a direct sales direct purchase agreement where NNPC offers a European crude oil refiner in exchange for refined petroleum products.

The danger to Nigeria’s economy is that more crude oil cargo is being diverted to the DSDP program than is used to solve government obligations. That’s why the government is in debt to increase the oil plunge.

To make the situation worse, Nigeria’s oil production is so declining that the country cannot even meet the estimates set by OPEC. According to the newly released OPEC Oil Market Report, Nigeria’s oil production in September averaged 1,247 million barrels per day, with quotas set at 1.5 million barrels per day.

Taking into account exchange rates, global oil prices and shipping costs, gasoline prices are estimated to be N212-N234 / ltr compared to the government’s mandatory retail price of N162-N165 / ltr.

Analysts have long made economic claims to fuel subsidies, including the fact that they are denying the value of countries that could result from rising oil prices and lead to better infrastructure and economic growth. I did.

“The economic cases of the abolition of Nigeria’s fuel subsidy system are increasing day by day, and it seems undecided how the current administration will proceed,” said Joe, former chairman of the Petroleum Engineers Association (SPE). Nuwaque told Business Day.

But it was more difficult to make a political claim.

“Government completes the downstream oil sector to abolish subsidies and release funds for national development, including investment in renewable energy that will eventually be part of the energy mix that drives our economy. Is in the process of deregulation, “said Minister Timipure Sylva. The state of oil resources at the recent Seplat Energy conference last Thursday.

At various times, Sylva, Mele Kyari, and NNPC GMD have called for the elimination of subsidies that provide a solid reason for it to be financially distressing. In the end, the government turned back for political reasons, analysts said.

The prospect of dismissal does not seem promising for a year for the general election, where the ruling party may face a fierce battle for power.

According to data from a presentation to the Federation Account and Allocation Committee (FAAC) confirmed by Business Day, the cost of subsidies increased from 14.329 billion N in June to 17.532 billion N in July, but in August it was 14.928 billion N. Has decreased to.

This spending pattern could be exacerbated if analysts’ forecasts of oil prices come true. Crude oil prices have risen nearly 45% from $ 54.77 in January to over $ 80, while Goldman Sachs analysts predict a price of $ 90 a barrel in 2021, while JP Morgan analysts say 1. It’s even more bullish at $ 100 per barrel.

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Nigeria risks spending 63% of its oil revenue on gasoline subsidies in 2022 Nigeria risks spending 63% of its oil revenue on gasoline subsidies in 2022

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