Mele Kolo Kyari, the Group Managing Director of NNPCL, spoke on The Morning Show on Arise News on Thursday, June 1st. He noted that the government could no longer afford to fund petrol subsidies. He noted that the government did not pay any “single Naira” to the NNPC to provide subsidies in 2022, stating that the subsidy had to be funded by the cash flow of the NNPC.
He said, “… I’m sure you are aware that the Petroleum Industry Act [clearly] indicated that the subsidy regime would terminate latest by the 17th of February 2022. We got to 2022 [and] government in its wisdom, the government can choose to spend money on its citizens, we completely agree with it. There are subsidies all over the world, in very many commodities, agriculture, and so on.
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“Government decided that in fiscal 2022, provisions were made irrespective of the law saying you should price petroleum at the market price. It said we’re going to provide money for the subsidy, it is not the business of the NNPC to worry about this and we agreed [completely]. We executed that will of the government and that provision was made in 2022.
“Again in 2023, up to half-year, the government still made another provision of subsidy to enable NNPC to continue supplying at the subsidized rate, but the complication is that you can make provision in the budget but you have to finance it. And that financing part of it is absent.
“I can tell you, since 2022 when that provision was made, not a single Naira was paid to the NNPC to provide those subsidies, and the implication of this is that you have to take the cash flow of the NNPC to continue to supply petroleum into the country. And it is becoming a daunting task, almost impossible for NNPC to continue to bear this cost, and therefore when we saw the alignment of government, with the realities of the law, and the very fact that government does no longer have the money to fund this, it means it is eliminated by the facts of the law and by the reality that government doesn’t have the money anymore.”
Information released by NNPCL earlier this year noted that the oil company spent about $10 billion on fuel subsidies in 2022, even as they did not remit a single dime to the Federation Account. In the 2023 budget, the Federal Government set aside N3.35 trillion specifically for fuel subsidies during the first half of the year. Also, during an interview with journalists on Wednesday, May 31st, Mele Kyari stated that the government owes NNPCL a total of N2.8 trillion for the money spent on petrol subsidies.
There is no Fixed Price, We Will Sell at the Market Price
In response to the upward adjustment of the pump price of PMS at NNPC outlets, Mr Kyari noted on Arise News that the price adjustment was necessary for the corporation to ensure supply to the country. He mentioned that the prices could be reduced depending on the market conditions at different times.
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Kyari noted, “The prices you are seeing today at our stations are the current market price of the commodity, so what this means is that prices in the market can go down anytime and of course, the market will adjust itself.”
He mentioned that under the new system, more companies are expected to enter the petroleum industry’s downstream sector. He explained that the previous subsidy system was obstructive to potential participants in the petroleum market. He said,
“The beauty of this is that there will be new entrants because oil marketing companies’ reluctance to come into the market all along is the [very] fact that there is a subsidy regime in place. The subsidy regime doesn’t have a guarantee of repayment back to those who provide the product at subsidized prices.
“Now that the market regulates itself, oil marketing companies can [actually] import products or even if it is produced locally, they can buy and take it into the market, and sell it at its commercial price, therefore you would see competition even with NNPC.
NNPC will Stop the Monopoly of Petroleum Products
Kyari noted in line with the PIA, NNPC may not supply more than 30% of Nigeria’s petroleum needs. He pointed out that the requirement for the NNPC to hold a minimum of 30% of the nation’s petroleum reserves was implemented to ensure energy security.
He noted, “By law, NNPC cannot do more than 30% of the market going forward. As soon as the market stabilizes, oil marketing companies [are able to] come in… Competition will surely come in and definitely, the market will regulate the price itself. Therefore, this is just an instantaneous price… Ultimately, you will see changes in price downwards, it is very potential, very likely.”
Kyari argued that the new system would herald a period of greater efficiency within the downstream sector. He noted that with the exit of the subsidy regime, oil marketing companies would become more efficient in managing their operations so they can maximize profit.
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Since 2017, NNPCL had been the sole importer of PMS into Nigeria, a situation attributed to the Direct Sales Direct Purchase (DSDP) scheme being carried out by NNPCL. Since they were the only importers, they were solely responsible for financing the petrol subsidy. This was because the PIA 2021 did not include any provision for funding petroleum subsidies in Nigeria.
