NNPCL not transparent on subsidy, dollar revenues – World Bank

President of the World Bank, Ajay Banga.

The world Bank has called for more clarity on oil revenues, especially the financial gains of the Nigerian National Petroleum Company Limited (NNPCL) from the subsidy removal, the subsidy arrears still being deducted and the impact of this on the federation revenues.

The World Bank Country Director for Nigeria, Dr. Shubham Chaudhuri, who made the call in Abuja, yesterday, at the launch of the Nigeria Development Update (NDU) titled “Turning the Corner, Time to Move from Reforms to Results,” said the petrol subsidy and foreign exchange management reforms were critical steps in the right direction towards improving Nigeria’s economic outlook.

This was just as the NNPCL yesterday, subtly responded to calls by Nigerians for it to account for the dollar sales from crude oil, disclosing that the forex inflow was majorly expended on petrol importation and debt service.

Chaudhari, noted that absolutely oil production in Nigeria had been declining, adding that it was a security issue among other things that needed to be addressed.

Chaudhuri, explained that between N300 billion –N400 billion was expended on fuel subsidy monthly before the removal of subsidy in June, adding that the expectation was that the NNPCL should have been paying such amount to the Federation Account, regretting that this has not been the case.

The World Bank Country Director explained:

“The basic point I think our team has been trying to understand is premium motor spirit (PMS) subsidies earlier were costing about N400 billion per month, and now are those revenues now coming into the federation account, or has oil production dropped to the point where those N400 billion in revenues has gone and it’s really about helping us.

“But not just as the Nigerian public understand because a lot of the Nigerian public view the removal of PMS subsidies is well, we’re going through this pain, is there a reward from that? I think that’s the main thing, and the NNPCL can just clarify what exactly is happening with the funds coming. That would really help.”

Chaudhuri added: “The petrol subsidy and FX management reforms are critical steps in the right direction towards improving Nigeria’s economic outlook. Now is the time to truly turn the corner by ensuring coordinated fiscal and monetary policy actions in the short to medium term.

“Continued reform implementation can ensure that Nigeria benefits from the difficult adjustments underway. This includes ensuring that improved oil revenues following the sharply increased PMS price accrue to the Federation. In the medium-term, the economy will then begin to benefit from increasing fiscal space for development spending, including on power and transport infrastructure, as well as on human capital.”

Also on the revenues accruing from subsidy removal, the NDU report tasked the NNPCL to make public its statement of accounts and transparently disclose its revenue inflows.

“The removal of the subsidy was announced on May 29 and pump prices were adjusted on June 1.

“This results in expected fiscal savings of around N2 trillion in 2023 or 0.9 per cent of GDP.

“Between 2023 and 2025, the expected gains are over N11 trillion, against a scenario in which the subsidy had continued,” the report stated, urging the national oil company to regularly publish information that explains prices at the pump.

“Publish detailed financial statements and revenue flows of NNPCL to safeguard the fiscal savings from the subsidy reform and ensure that oil revenues flow to the Federation (Account),” it stated further.

Speaking during a panel discussion, The Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun, underscored the need for NNPCL’s account to be audited.

He said, “There will be earnest scrutiny and I am sure NNPCL is getting ready for that. We want revenue to come into the government coffers from NNPCL and all other revenue agencies.”

He also disclosed plan by the federal government to come up with a new salary structure for civil service in 2024, though no details were provided.

According to him, it was statutory to review salaries every five years, in line with the Salaries and Wages Commission Act and that all stakeholders including labour leadership would be involved.

Edun, regretted that wealthy Nigerians were holding huge sums of dollars and other foreign currencies in their domiciliary bank accounts in the country, adding there was a lot of FX liquidity in Nigeria.

The federal government, he stated, would take steps to make holders of such accounts release the money.

Although he noted that that the government would not force holders of such accounts to give them up, he said incentives would be provided to enable them invest in attractive instruments, going forward.

Also commenting on the failure of the Central Bank of Nigeria (CBN) to hold its bi-monthly Monetary Policy (MPC) meetings, the Governor, Olayemi Cardoso said he would not continue on that trajectory.

According to him, past frequent MPCs did not achieve their objectives, adding: “to what extent did the meetings achieve their objectives? The answer is no. That is why we have chosen to do it differently. Holding these meetings take a lot of time and energy.”

His team, he informed, holds liquidity management meetings every 8.00 am to review the liquidity situation in the system and that he would take every necessary action to mop up excess liquidity in the system.

“We have increased OMO (Open Market Operations) both in value and volume,” he stressed.

The World Bank NDU report, the last for 2023, observed that the government of Nigeria avoided a fiscal cliff by implementing bold reforms, including ending the gasoline (premium motor spirit, PMS) subsidy, and shifting to a unified, market-reflective foreign exchange (FX) rate.

These essential reforms, it observed, entail painful adjustments, adding that they have led to an increase of retail fuel prices by an average of 163 per cent while the naira has depreciated against the US dollar by approximately 41 per cent in the official market and by about 30 per cent in the parallel market.

The NDU stated that to reap the benefits of the reforms and difficult but necessary economic adjustments now underway, it was essential to sustain and fully implement the reforms and take complementary actions.

The report added that the recently launched cash transfer intervention to cushion the impact of increased fuel prices on the poor and vulnerable was providing welcome relief to a growing number of households, with million households expected to be covered by the end of December.

The report stressed the need to continue with the reform momentum to complete the reforms and to address the costs of the reforms.

“With the continued implementation of macroeconomic stabilisation reforms, Nigeria’s economy is expected to grow at an average annual rate of 3.5 per cent in 2023-2026, or 0.5 percentage points higher than in a scenario where the reforms had not been implemented.

“In 2024, Nigeria has an opportunity to turn the corner to a more stable and predictable macroeconomic environment, and easier access to FX and imported inputs, which is critical to creating new jobs and lifting people out of poverty,” said World Bank Lead Economist for Nigeria and co-author of the NDU report, Alex Sienaert

Meanwhile, the NNPC has responded to calls by Nigerians to account for the dollar sales from crude oil, disclosing that it is majorly expended on petrol importation and servicing of debts.

A former Governor of the Central Bank of Nigeria (CBN), Lamido Sanusi, had in an apparent criticism of the national oil company adjudged it the “most opaque oil company in the world.”

He had slammed that NNPC for allegedly failing to remit enough FX into the government coffers despite the removal of fuel subsidy by the current administration.

He said: “Why is the NNPC not able to bring in dollars? I am sorry this is the question that cost me my job and I will continue asking this question until the NNPC fixes it up or until I die. Where are the dollars? We need to shine a light on the NNPC.

“We are no longer paying subsidies, so where are the dollars? It was under recovery during the subsidy era and that has been stopped, so where is the money?” the former Emir of Kano had asked at a bank directors’ event in Abuja.

Also, the Socio-Economic Rights and Accountability Project (SERAP) had issued a seven-day ultimatum to the company to disclose a comprehensive report of Nigeria’s daily oil production and export.

The group had in a letter dated December 9, 2023, signed by its Deputy Director, Kolawole Oluwadare, stated that the NNPC must reveal the total revenue generated from oil since the removal of the subsidy on petrol in May 2023.

But speaking during the World Bank event in Abuja on “Nigeria Development”, the Chief Financial Officer of the NNPC, Umar Ajiya, in an apparent response to the calls, stated that the dollars were used for fuel importation while the rest used to service the country’s debt.

He noted that until oil production increases in Nigeria, the prevailing challenge may not improve, stressing that the insecurity in the Niger Delta and lack of investment were responsible for the waning investment.

“The inflow of dollars into the country are tied to oil revenues and the oil revenues are driven from oil production. The consequence of what we’re facing today is a fall in that oil production, simply because of insecurity and lack of investment.

“The net dollar accruable from oil operations is what NNPC uses to import PMS (petrol) and PMS is sold in naira. You cannot sell PMS to Nigerians in dollars. So as a consequence, you will find that the net dollar inflows into the NNPC coffers is spent on imports of basically PMS, net off costs and debt servicing.

“So, invariably, you only reach a position where you have surplus dollars being flown into the CBN and any other banks within the country when we have production in excess of domestic PMS requirements.

“And we can only achieve that if we up production and to up production, we must all do what it takes to get the insecurity out of the way, so that it can attract our partners to bring in fresh dollars to invest in oil operations,” he pointed out.

However, Ajiya assured that the situation was changing with the current new security arrangement in the Niger Delta.

He added: “Mr. President has rekindled a new security architecture that will see us overcome that challenge. So until such a point where we have excess production of what we consume, then we will begin to see much more dollar liquidity coming into this country.”

Ajiya, further argued that the perception that the non-oil sector was contributing more revenue than the oil industry, maintaining that up to 40 per cent of monies declared by the non-oil sector were actually taxes paid by the operators in oil and gas.

“What is classified as non-oil taxes, the bulk of those taxes, 40 per cent of those taxes are actually oil-related, so that we don’t go out with the perception that the non-oil revenues have exceeded the oil related revenues,” he stated.

The NNPC chief financial officer also took a swipe at Nigerians who depend on everything imported, including clothing.

“Secondly, I think, the whole consumption pattern of all of us in Nigeria is foreign. There is nothing in this room, from our clothing, to anything we are using here that is produced locally.

“So until we come to a position whereby we begin to consume what we produce and also add value to our raw materials, and export in order to attract or to bring in further FX inflows into the country, that challenge will still be there,” he affirmed.

Meanwhile, the NNPC yesterday assured that the projections on crude oil production and price benchmark for the 2024 budget were realistic and realisable.

The Group Chief Executive Officer of the company, Mr. Mele Kyari, gave the assurance during an interactive session with the Senate Committee on Finance at the National Assembly, Abuja, according to a statement by the Chief Corporate Communications Officer of the organisation, Olufemi Soneye.

Speaking on the dynamics of the market in relation to the projected budget benchmark price of $77.96 per barrel, Kyari said: “With what we see in the market today and potentially in the year 2024 and even beyond the next two years, it is very unlikely to see $70 per barrel oil in the market.

“The oscillation we are seeing, sometimes you do see prices coming down to $75 to the barrel and sometimes it goes above it, overall, benchmarks are averages. We think that the proposal by Mr. President around the $77.96 is still realisable in 2024.”

On the crude oil production projection, he stated: “The number we have is 1.785mbpd. This is cumulative of all oil produced in the country. This figure is inclusive of all production including crude oil and condensate.

“I need to make this clarification because of the reports in the media that our OPEC quota is 1.5 million barrels per day. The OPEC quota is related only to crude oil. We also do between 250,000 to 300,000 barrels per day of condensate in our production. When you combine the two, the 1.78mbpd is realistic and realisable.”

He expressed optimism that though there were challenges such as security and force majeure, the measures being deployed by the federal government would be able to take care of them to guarantee the projected level of production.

The GCEO also assured the lawmakers that the NNPC would maintain the level of dividends remittance to the Federation Account as stated in the Medium-Term Expenditure Framework.

He added that the projected dividends from the Nigeria Liquefied Natural Gas NLNG was also realisable and would flow directly into the Federation Account as stipulated by the law.

While answering a question on the company’s Road Tax Credit Scheme, Kyari explained that all the roads being undertaken under the scheme would be duly completed, adding that the scheme was anchored by the Ministry of Works while the Federal Inland Revenue Service (FIRS) and NNPC were only playing supervisory roles to ensure that value is delivered for every kobo paid.

Speaking earlier, the Chairman of the Senate Committee on Finance, Senator Mohammed Sani Musa, said the purpose of the interactive session was to deepen conversations on the projections in the 2024 appropriation bill to help the lawmakers determine what and where to adjust.

He expressed satisfaction with the explanations offered by the NNPC’s helmsman.