August 30, 2020

Fuel subsidy returns, as NNPC pays N5.4bn as under recovery


By Michael Eboh

Subsidy on Premium Motor Spirit, PMS, also known as petrol, has once again resurfaced, as the Nigerian National Petroleum Corporation, NNPC, weekend, said it incurred N5.35 billion as under recovery in June 2020.

Under-recovery, also known as subsidy, occurs when the pump price of petrol is lower than the actual cost price of the commodity. In this case, the NNPC, through its subsidiary, NNPC Retail or through oil marketers, sell the product to motorists at a particular price, which is lower than the cost of the product, and pay itself subsidy to cushion against the loss.

According to its Monthly Financial and Operation Reports for June 2020, released weekend, the NNPC said it had recorded zero subsidy payments in April and May 2020, after it had recorded under recovery of N43.31 billion, N20.68 billion and N37.66 billion in January, February and March 2020 respectively.

READ ALSO: Full deregulation of oil & gas sector will force down PMS price – PPPRA

The confusion stemmed from the fact that the Minister of State for Petroleum Resources, Chief Timipre Sylva, had few weeks backs, stated that the Federal Government had deregulated the downstream petroleum sector since March 2020, thereby relieving the government of the burden of fuel subsidy and giving oil marketers the freedom to determine fuel price, with guidance from the Petroleum Products Pricing and Regulatory Agency, PPPRA.

Confirming this also, Group Managing Director of the NNPC, Mallam Mele Kyari, had in April 2020, declared that fuel subsidy was gone forever, and that going forward, market forces would be responsible for determining the price of the commodity.

When contacted, Group General Manager, Group Public Affairs Division of the NNPC, Dr. Kennie Obateru, said: “The under-recovery in the report represents payment for stock held by marketers at the onset of the removal of subsidy by the federal government. Since the subsidy removal started with reduction in pump price, marketers have to be paid the differential of the PPPRA verified stock they held and it is spread over a period of six months.”