NNPCL demands N4.7tn petrol imports refund amid rising tensions. Discover the implications and potential outcomes of this bold move.
The Federal Government has been requested by the Nigerian National Petroleum Company Limited to pay back N4.71tn in order to clear unpaid obligations from importing petrol, commonly referred to as Premium Motor Spirit (PMS), into Nigeria.
Between August 2023 and June 2024, the company documented a request entitled “Exchange rate differential on PMS and other joint venture taxes” regarding imported fuel products.
The Minister of Finance and the Coordinating Minister of the Economy, Wale Edun, revealed this information during the June gathering of the Federation Accounts Allocation Committee. On Thursday, our reporter accessed minutes from that meeting.
Exchange rate differentials pertain to the profits earned by financial institutions or governmental bodies resulting from discrepancies in currency values at various points in time, a result of variations in foreign exchange buying and selling prices.
As an illustration, the difference between exchanging one US dollar for 0.9 euros today and getting $1 for 0.8 euros tomorrow is called the exchange rate variance.
The said advancement implies that the government will lend assistance to fuel imports by compensating for the disparity between expected and real expenditures amassed by NNPC in importing petroleum commodities within the nation.
The government’s assertion that subsidies have been eliminated is contradicted by the fact that consumers are typically expected to bear the cost difference through retail prices of products.
The petroleum company is currently facing hurdles in ensuring nationwide distribution of PMS to marketers, and this new information only adds to their challenges.
The minister addressed the state commissioners of finance during the meeting, informing them that approval from the president had been granted to allow for utilization of the “Weighted Average Rate” by the national oil company between October 2023 and March 2024.
Edun mentioned that the company requested an extension to include the differential rate, but was instructed to address a letter seeking approval from the National Economic Council.
According to the minutes, NNPC Limited exchanged rate differentials on PMS importation and other joint venture taxes from August 2023 until April 2024.
According to the PMSC chairman, it was reported that NNPC Limited had informed the sub-committee of an outstanding claim amounting to N2,689,898,039,105.53 against the federation. This arose due to their usage of ‘Weighted Average Rate’ as at May 2024.
In addition, he revealed that the sub-committee was successful in confirming that there had been authorization from the President to utilize the “Weighted Average Rate” between October 2023 and March 2024.
According to reports, the NNPC had been authorized by the National Economic Council to purchase fuel at a retail coastal pump rate of N650 per $1 starting from June 2023. However, due to the depreciation of the naira in value, this price soared up to N1,200 resulting in an exchange difference of N550.
During his inauguration on May 29, 2023, President Bola Tinubu made a public announcement declaring the removal of subsidies. This marked an end to obstacles that had previously hindered the progress and development of our nation’s economy.
The International Monetary Fund, the World Bank and other authoritative figures have contested this assertion by arguing that the government has quietly re-established fuel subsidies.
According to a proposed economic stabilisation plan document in June, approximately N5.4tn was earmarked by the government for fuel subsidies expenditures.
Oil marketers have declared that due to a landing cost of ₦1,117 per litre for PMS, the monthly subsidy on this product has increased by about N707bn.
The commissioner of Finance, Akwa Ibom State, Linus Nkan expressed his concern by questioning the cause of the N2.6tn exchange rate discrepancies against the federation and requesting more information for clarification.
According to the minute, the Commissioner of Finance in Akwa Ibom State made reference to sections 3.01 and 5.01 of the PMSC report and sought explanations regarding the origin of N2.6tn exchange rate variances against the Federation.
The General Manager of the FAAC office at the NNPCL, Joshua Danjuma, confirmed that the company’s claimed amount was to cover for PMS’ landing cost in his reaction.
He stated that there has been a notable rise in costs as of May 2024 because of fluctuations in the currency exchange rate.
In response to the N2.6tn claim made by NNPC against the Federation, it was confirmed by a representative of NNPC that as of May 2024, there had been a significant increase in this figure due to changes in their Forex sourcing rates for payment towards PMS landing costs.
He urged the Agencies to dedicate more resources towards increasing revenue generation.
Shizzer Bada, the HCF of Kaduna State, expressed worry about RGAs accumulating huge amounts in outstanding revenue arrears owed to the Federation Account. The amount had accrued to trillions of naira between 2023 and 2024. In view of this concern, she suggested that it was important to hasten reconciliation with Agencies for speedy resolution.
Ali Mohammed, Director of Home Finance, stated that the Office of the Auditor-General was conducting a forensic audit on NNPC Limited’s N2.7tn subsidy claim in accordance with their mandate. It has been reported that FAAC will receive a report upon completion of this exercise.
Upon hearing this, Professor Wumi Iledare expressed his confusion at the NNPC’s request for differentials from the government despite selling oil in foreign currency on behalf of them.
Other oil companies are required to pay royalties to the government, and as per the energy expert’s opinion, NNPC should do the same.
On what grounds does the NNPC request a reimbursement from the government? Are they contending that they made an overpayment? If the NNPC intends to adhere to its new status, it must remit royalties, Nigerian hydrocarbon tax, and corporate income tax to the government. They should make payments in line with what international firms pay as dues. In case of dollar agreements, payment ought be made by NNPC in dollars; any responsibility regarding what governmental authorities do with such funds falls solely on them.
According to Iledare, if you examine the taxes paid by international oil companies, they are essentially paying for NNPC’s sale of taxed oil on behalf of the government. Thus, it is perplexing why the Federal Government would need to reimburse any funds back to NNPC unless in cases where NNPC claims that they have been financing the government through dollar equivalence. Additionally, with a change in exchange rate from N700 to N1,500 resulting in windfall profits for Nigeria’s government – they cannot hold onto these additional revenues and must return them due having more than previously accounted for.
The scholar stated that understanding the reasoning behind it was challenging since NNPC sold royalty oil on behalf of the government, which owned both equity and tax oil.
Nevertheless, he stated that importing petrol may still be subject to insufficient cost recovery.
The issue in question pertains to what NNPC refers to as under-recovery, which involves the utilization of US dollars by NNPC for fuel importation on behalf of the government with subsequent reimbursement in naira. My comprehension regarding this matter is not certain and it seems rather intricate.
He submitted that the Petroleum Industry Act aimed to break the dependence of the Federal Government on NNPC. It is noteworthy that, contrary to popular belief, it’s not exclusively owned by the government but rather by all members of Nigeria’s federation.
