The World Bank revealed that the Nigeria National Petroleum Corporation Limited is opaque about the financial benefits of eliminating fuel subsidies, adding that this also affects federation income and includes still-to-be-deducted subsidy arrears.
In its December 2023 Nigeria Development Update, titled “Turning The Corner (from reforms and renewed hope, to results),” the World Bank made this call, claiming that although there have been noticeable revenue gains from exchange rate reforms, more clarity is still needed regarding oil revenues, including the fiscal benefits from the PMS subsidy reforms.
The Bank said that since June, “nominal oil income increases have been visible; these are primarily categorised as “exchange rate gains,” implying that the devaluation of the naira is the cause.
“There is a lack of transparency regarding oil revenues, with the exception of exchange rate-related increases. This includes the financial gains made by the Nigeria National Petroleum Corporation from the removal of subsidies, the arrears of subsidies that are still being deducted, and the effect on Federation revenues.” Furthermore, despite swings in the currency rate and the price of oil globally, it is unclear why retail petrol prices have not moved significantly since August.
READ ALSO: Forbes’ 20th Annual Ranking: The Complete List Of 2023’s 100 Most Powerful Women
In light of what the elimination of the fuel subsidy should have added to the accounts, the Bretton Woods organisation further explained that the federation’s gains in net oil revenue were less than what they should have been.
The fuel subsidy was said to have cost the federation over N380 billion a month, and after it was eliminated, the federation account was supposed to show a rise in net oil income.
“However, exchange rate gains can be attributed to the majority of the gains in the oil revenues in H2 2023, as reported by OAGF,” the statement stated. In the absence of exchange rate increases, net oil revenue would have decreased by 0.2 percentage points of GDP year over year between January and August, with the loss occurring in the months of July through August.
“The interim yearly dividend and additional revenue from Production Sharing Contracts’ 40% profit were recorded in the accounts in August. These were not, however, as large as the gains that would have resulted from eliminating the petrol subsidy. The risk that the implicit fuel subsidy has reemerged and kept net oil revenues lower than anticipated is that petrol pump prices have not moved in step with market fundamentals (particularly changes in exchange rates and global oil prices).
The organisation added that the fuel subsidy reform should assist the NNPCL in paying off its debt and beginning to cover the Federation’s portion of joint venture operations’ expenses, allowing oil output to progressively rise over time.
Speaking at the report’s presentation, Coordinating Minister of the Economy Wale Edun claimed that, despite expectations that the removal of fuel subsidies would increase government revenue, the government was still faced with funding its debt and a significant fiscal deficit. Edun stated that the removal of fuel subsidies saved the government’s finances.
“You have correctly noted that there is an expectation that there would be fiscal dividends following the removal of subsidy, and it’s fair to say that without it, government finances will be in complete disarray now,” he remarked in reference to the state of the government’s finances. Nonetheless, there are borrowings that have been inherited, strain on the government’s finances and the fiscal imbalance, and debt funding.
“We are lowering our borrowing levels, and we have a plan to gradually lower the fiscal deficit. Oil is the main source of money, therefore I anticipate that its production and revenue will be closely examined. In a same vein, it will be demanded that oil output be increased and that the funds be deposited into the federation account in accordance with the constitution. I believe there will be more scrutiny, and NNPC is undoubtedly preparing for it.
Edun added that there would soon be a significant implementation of policies aimed at increasing tax income. He did, however, emphasise that while tax rates will not rise, significant progress would be made in the areas of efficiency, digitization, and better collection.
In order to improve it and stop leaks, especially within ministries, departments, and agencies, he continued, waivers and tax incentives would be closely examined.
