The Nigerian National Petroleum Company Limited (NNPCL) has announced its intention to reconcile fuel subsidy deductions with the Federal Government. The company stated that no fuel subsidy payments were made to marketers since January 2016.
The NNPCL shared a before and after fuel subsidy factsheet on its official Twitter account. It clarified that under the new arrangement, marketers would pay the cost price as determined by the market, eliminating the need for subsidy payments.
It is worth noting that the NNPCL recently reported that the Federal Government owed it over $6 billion (N2.8 trillion), which is the same amount that the company had paid to keep fuel prices low.
The World Bank, in its Nigeria Development Update report, acknowledged the removal of fuel subsidies as a crucial step towards restoring macroeconomic stability, creating fiscal space, and improving growth prospects. The report stated that the removal of the subsidy would enhance Nigeria’s fiscal position and lay the foundation for a more resilient and faster-growing economy. The actual fiscal impact of this decision will depend on how the government plans to utilize the savings from the subsidy regime.
The NNPCL also highlighted other changes resulting from the removal of fuel subsidies. These include the phasing out of crude oil swap deals for settlement and the transition from NNPC Limited being the sole importer of petroleum products to allowing suppliers to import on commercial terms.
According to Mele Kyari, the Group Chief Executive Officer of NNPC Limited, the fuel subsidy regime primarily benefited a small percentage of Nigerians, particularly the elite or upper middle class. He noted that the upper class, who own multiple vehicles not used for mass transportation, were the main beneficiaries of the subsidy.
Overall, these developments reflect a shift in Nigeria’s approach to fuel subsidies and aim to create a more transparent and market-driven system.