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

*Monthly stolen oil equivalent to budgets of Osun, Kwara, Ekiti 

*NNPCL loses $700m monthly to crude oil theft 

*Wants quick legal framework, stiffer sanction for criminals

Deji Elumoye and Emmanuel Addeh in Abuja

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.

NNPCL Loses $700 million Monthly to Crude Oil Theft

NNPCL lamented the heavy toll of crude oil theft on its performance, saying it loses 470,000 barrels per day, which amounts to $700 million monthly, in addition to security challenges that hinder oil production in some terminals.
Wunti, while speaking with some journalists at the weekend during a tour of NNPCL facilities, said the pipelines, particularly, those around Bonny terminal, could not be operated due to the activities of criminals.
He said the number of barrels stolen rose on a daily basis, saying about 270 barrels, supposed to be loaded in Bonny, are no longer going to be loaded because of theft.

According to Wunti, “If you’re producing 30,000 barrels a day, every month, you get 1,940 barrels. So what it means is that you can take it to 270 every four days, calculate it in a month; you will have seven cargos on a million barrels, that’s seven million barrels.
“When you multiply seven million barrels by $100 that is $700 million lost per month, while about 150,000 barrels expected are differed, we are not producing due to security challenges.”

He added, “The Shell Petroleum Company (SPDC) trunk line, TNP transnational pipeline, cannot be operated and this has been like this since March the 3rd that we put in this. Just take your calculator, 150,000, it means if you want to arrive at one million barrels per day, it means every week as a minimum, basically for one week alone, it’s four cargo and four cargo is four million barrels. Four million barrels formula bar or $100 is $400 million. So you can do your calculations by yourself, take whatever price you want, take this to multiply by the number of days that have been shut in since March 3.”
The NAPIMS general manager said Forcados was not completely secured due to some challenges, but assured that they were addressing it, and in two weeks it might be fixed.

According to him, “But we also have Brass, about 100,000 barrels, which is operated by Agip and is also facing insecurity and vandalism.
“Illegal siphoning of crude oil from oil facilities by criminal individuals and groups impacted negatively on revenue to all stakeholders.
He lamented that the quantity of oil delivered into these federal oil terminals in the country had been limited by the activities of pipeline vandals and organised criminals.

Wunti said vandalism caused low crude oil production, interrupted gas supply, countrywide interruption of distribution of petroleum products, refineries’ downtimes, increasing instability in the oil and gas market, “but I will tell you the major thing that affects us.”
He revealed, “Nigeria will suffer for it; the revenues are impacted, so we can only appeal to them to rein in themselves, the oil theft situation is regrettable. It’s not going on across the whole of the Niger Delta, there are trunk lines that are more impacted on, I think the Bonny trunk line ranks highest.
“Our major challenge as a country is our capability to respond and that is as a result of several factors, the terrain as well as some incapacity that we have.”
Commenting on the role of technology in the effort to check illegal activities around the oil facilities in the creeks, Wunti said, “I was in the Saudi Arabia infrastructure twice, and I know what they have. It’s a digital control system; it’s different from our own. Digital control system, it’s like you have the control system of all your assets in one place.

“This is beyond the digital control system; it’s also a security system and we are doing it and to tell you that this was built-in by our in-house software engineers because of the security sensitivities to it, because they are customised, the moment you give to somebody who creates that. So we use a combination of technology to integrate and synchronise and create what we are now confident and comfortable with.
“In the effort of the corporation to meet its financial tasks the corporation maintained industry data on crude and all NGS production and lifting and most importantly, we ensured energy security, ensuring bulk supply of petroleum products to the nation and remit 100 per cent of this to the federation.”
Speaking on synergy with other government agencies, Wunti explained that the Nigerian Midstream and Downstream Petroleum Regulatory Authority, former DPR, and the regulatory commission had issued what they called Bill of Quantity and they also handled vessel clearance and export permits, while the Federal Ministry of Trade and Industry handled the issuance of export permits.
He said, “We also relate with the Nigerian Customs Service, which also helps with the export permit and to also clear all the vessels; and the Central Bank of Nigeria processes all Nigerian Export Proceeds forms, Nigerian export supervision scheme. So, these are all the agencies we deal with, it’s not an NNPC thing, we have to work through all these agencies before a ship can come in and sail”.
The NAPIMS general manager mentioned some of the government agencies at the terminals to include Nigerian Midstream and Downstream Petroleum Regulatory Authority; the Regulatory Commission; the Nigerian Customs at the terminal; NNPC terminal representatives; pre-shipment inspection agents; Nigerian Immigration officials; Nigerian Ports Authority; and Nigerian Port Health Authority.
He stated, “Then recently, the Navy wanted to be at the terminal. In fact, we are trying to deploy them anytime from now. They also want to be at the terminals to see what is going on, because a lot of back and forth has been going on in the recent past, blaming the Navy. So, they now said they want to be there to participate physically in what’s going on.
“You can see what is happening, that it’s not just an NNPC thing, it is all government agencies working together to make sure that each ship that comes at any point in time has all the clearances.”