The tenacious under-recovery of premium motor spirit (PMS), also known as petrol subsidy, created a messy revenue for the federation in 2021.
Aside from the usual controversies about whether “to remove or not,” the petrol subsidy payments gulped over N1.03 trillion in 10 months, resulting in low revenue for federal, state and local governments to cater for developmental projects.
This figure is more than the budget proposal for Nigeria’s health sector in 2022 at N711.2 billion.
In April and October 2021, the Nigerian National Petroleum Corporation (NNPC) recorded no revenue from oil export due to overbearing subsidy claims. TheCable looks at how payment of petrol subsidy affected the country’s revenue in 2021.
HIGHER OIL PRICES, LOW IMPACT ON THE COUNTRY
Oil prices performed better in 2021 — reaching a three-year high. Last year, prices bottomed out due to the impact of the COVID-19 pandemic and lockdowns, which roiled the global oil market.
From $11 per barrel in 2020 to above $80/barrel in 2021, the rise in global crude oil prices should portend an upturn in Nigeria’s economy as it implies more oil revenues for the government.
But that has not been the case with subsidy claims eroding the gains from oil revenue.
President Muhammadu Buhari presides over a federal executive meeting.
Throughout 2021, the federal government made up for the shortfall to ensure that citizens bought the commodity below the actual value. Since there was no provision for subsidy payment in the 2021 budget, the Nigerian National Petroleum Corporation (NNPC) resolved to directly it from the revenue remittance to the federation account allocation committee (FAAC).
This is partly due to the absence of functional and optimal refineries, which forced the country to spend part of its revenue subsidising refined products for citizens.
In simple terms, a higher oil price comes with a climb in petrol’s landing cost — meaning an increase in global oil price means the government will continue to pay more to subsidize the product for local consumers — contestable citizens.
Despite projecting N2.09 trillion revenue remittance to FAAC between January and October 2021, the state-owned oil firm only remitted a meagre of N511.66 billion during the period, resulting in a N1.58 trillion shortfall.
Owing to the revenue shortfall, FAAC had to forgo a huge chunk of revenue from the oil sector — an integral revenue source for an oil-dependent nation.
In April, the corporation said it did not remit any amount from oil and gas proceeds to FAAC in May due to the pressure of funding petrol subsidy, thereby reducing revenue distribution to the three tiers of government in the month.
TheCable
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