Amid Rising Subsidy Payments, Decreasing Oil Production, NNPC Posts 78.4% Deficit Remittance to Federation Account in 2021

.Contributes N542bn of projected N2.5trn

Emmanuel Addeh

With a whopping deficit of approximately N2 trillion out of its projected N2.511 trillion, the Nigerian National Petroleum Company (NNPC) Limited, was unable to remit roughly 80 per cent of its projected contribution to the Federation Account in 2021.

Data provided by the national oil company itself, showed that in the entire 12 months of the period under review, the NNPC disbursed N542 billion as against the budgeted N2.511 trillion, given a monthly contribution forecast of N209.3 billion.

The N542 billion represents just about 21. 6 per cent of the total expected contribution of the company to the joint account operated by the federal government, states and local governments.

The development underscores how a combination of factors, including declining oil production, rising subsidy payments and high oil production costs hobbled the organisation’s performance despite the increasing international oil prices which averaged $85 last year.

President Muhammadu Buhari last week backtracked on the planned full deregulation of the downstream sector, including the wholesale removal of petrol subsidy, citing the negative impact it would have on the poor and the vulnerable in the country.

For decades, Nigeria’s attempt to fully free the downstream oil and gas industry has met with a brick wall even as the latest effort has been pushed forward by about 18 months, effectively exempting the current administration which will exit by May 2023 of any burden.

The company’s revenue slump is also partly blamed in high production costs despite fresh initiatives by the industry to cut cost per barrel, regarded as the highest in the world.

In spite of the much-talked-about initiatives, not much has been achieved in that respect as various costs are build into the process, including that of securing the oil assets.

In addition, the lack of synergy among operators, which practice independent wholesale procurement of operational facilities instead of agreeing on sharing arrangements have contributed to the ineffectiveness of cost reduction strategies in the industry.

The latest information presented by the NNPC during its January 2022 Federation Account Allocation Committee (FAAC) meeting indicated that total deductions for petrol subsidy or what the government terms under-recovery was about N1.43 trillion for the year.

Aside April 2021 when the NNPC contributed nothing to the Federation Account, October, November and December were the worst months for the country as the company only remitted a paltry N14.8 billion, N10.54 billion and N20 billion in the months respectively.

The November remittance represents 8.5 per cent of its projection for that month, being the second least payment for the year, just behind October.

The FAAC committee comprises the minister of finance, who chairs the body, all state commissioners of finance and accountants-general, accountant–general of the federation and permanent secretary of the ministry of finance.

The NNPC has been struggling with production capacity, pumping less than 1.3 million barrels of crude oil daily against its projected 1.8 million barrels per day, on the back of dilapidating upstream infrastructure owing to ageing assets and years of under-investment.

It wasn’t clear how the authorities augmented the shortfall for the entire period the NNPC remitted very meagre sums, but in December, the three tiers of government shared N675.946 billion as FAAC revenue for the month of November while in January, it shared almost N700 billion.

A communiqué issued at the end of a virtual meeting of FAAC for December 2021 stated that the N675.946 billion total distributable revenue comprised statutory revenue of N488.674 billion; distributable Value Added Tax (VAT) revenue of N182.678 billion, exchange gain of N4.156 billion and excess bank charges recovery of N0.438 billion.

Under the current sharing arrangement, the federal government takes 52.68 per cent of the revenue shared, states get 26.72 per cent while the local governments get 20.60 per cent.

But for December (shared in January) the N699.824 billion total distributable revenue comprised distributable statutory revenue of N507.267 billion; distributable VAT revenue of N187.409 billion and Exchange Gain of N5.148 billion.

A review of the figures released by the NNPC during the January FAAC presentation showed that in majority of the months between January and December, the company was barely able to meet its obligation to the federation.

In January, the national oil company paid N90.8 billion of the total projection; in February it remitted N64.16 billion and in March, the NNPC paid N41.1 billion into the federation account.

But in April, it paid nothing to the three tiers of government; in May it was N38.608 billion; in June it paid N47.16 billion while in the month of July it remitted N67.2 billion.

Things appeared to be looking up in August when the NNPC remitted N80 billion to the joint account, but it fell again to N67.533 billion in September, before slumping to N14.85 billion in October and finally hitting a low of N10.54 billion in November, before its N20 billion payment in December.

Although the mandatory cuts imposed by the Organisation of Petroleum Exporting Countries (OPEC), last year initially played a role in the inability of the NNPC to meet its obligation to the federation, the country has now been unable to meet its allocation for months.
This has further reduced its total crude oil export, coupled with the subsidy problem for which the NNPC deducted N200 billion in December and netted off another N270 billion by January 2022.

THISDAY analysis of the document detailing the presentation of the national oil company to FAAC in December, for instance, indicated that the N270 billion was the highest amount deducted by the NNPC since it resumed payment of petroleum subsidies in February this year.
A breakdown of the various subsidy deductions indicated that payments have increased progressively, growing from N24.3 billion in February to N60.3 billion in March and N61.9 billion in April this year.

Furthermore, in May, the NNPC removed N126 billion as subsidy, while June came next with N164.3 billion. In July, the document stated that N103.2 billion was spent on what the government terms under-recovery.

Hitherto, August had the year’s lion’s share of N173.1 billion but was overtaken by the deduction in November of N200 billion, while September’s deduction stood at N149.28 billion and the October figure was N163.709 billion, before the N270 billion removed in January.
In June last, the NNPC told the nation that Nigeria was losing about 42 million litres of petrol to the activities of smugglers across the country’s borders, increasing Nigeria’s estimated daily consumption of 60 million litres to 103 million litres, thereby worsening the subsidy payment regime.

Nigeria has not been able to reap the full benefits of rising international oil prices because it doesn’t refine a drop of the fuel it consumes locally.

This means that almost all the revenues from sales are spent importing petrol and paying subsidies, even for neighbouring countries where the product are smuggled into.

On November 23, 2021, the Group Managing Director of NNPC, Mallam Mele Kyari, projected that petrol will sell for between N320 and N340 per litre from February, this year if the federal government began full deregulation of the downstream as prescribed by the Petroleum Industry Act (PIA).

The continuous decline in the remittances from NNPC to the federation account means that the states will have lesser amount to share amongst themselves.

Most of the states in the country are very much dependent on the statutory allocations from the federal purse, as their Internally Generated Revenue (IGR) remain insignificant compared to their expenses.

Last week, the NNPC requested a total of N3 trillion from the federal government to fund fuel subsidy in 2022 after the current administration suspended its plan to remove the monthly under-recovery.