Petrol Subsidy May Hit N3.55tn in 2022, Says Report
Amid the surging price of crude oil in the international market, watchers of the unfolding development said Nigeria may incur N3.55trillion in petrol under-recovery cost, better known as subsidy in 2022.
The price of Brent, Nigeria’s variant was put at $116.40 per barrel on Friday, with the likelihood of a further escalation in price, a development that analysts believed will raise under-recovery costs over the short-to-medium term.
Under-recovery is a term used to denote the notional losses that oil companies incur due to the difference between the subsidised price at which the oil marketing companies sell certain products like petrol and the price which they should have received for meeting their cost of production.
Relying on the recently released data from the Nigerian National Petroleum Corporation (NNPC), analysts from Cordros Securities, at the weekend, said the upward swing in the price of crude oil will increase the burden of bridging the gap between the actual cost of petrol and the subsidised rate at which the product is sold to the Nigerian public.
In its report for last week, the research company said, “We expect under-recovery costs to increase significantly over the short-to-medium term, given the rise in crude oil prices compared to the 2021FY levels. Consequently, we estimate petrol under-recovery cost to settle at N3.55 trillion (or 56.8 per cent of our estimated FGN’s retained revenue) in 2022E (vs 2021FY: N1.61 trillion or 34.3 per cent of FGN’s retained revenue).”
Relying on the NNPC’s data, the report said the corporation incurred N245.77 billion as petrol under-recovery cost in March (February: N219.79 billion). It further explained that the under-recovery cost for the review month consists of the previous months’ outstanding and part of the February 2022 value shortfall.
According to the report, ”the tally brings the total underrecovery cost in Q1-22 to N675.94 billion– 3.4x the size in Q1-21 (N197.74 billion). That said, the NNPC further estimated that it would deduct N671.88 billion from April proceeds due to be shared by the three tiers of government at the May FAAC meeting.” It, therefore, explained that the estimated deduction consists of N519.00 billion as petrol under-recovery cost in April and N152.88 billion for March.
The report noted that apart from the impact of the under-recovery activities on the economy, another cause of concern is the sustained decline in oil production in Nigeria.