September 6, 2022/CSL Research

The continued inability of the Nigerian National Petroleum Company Limited (NNPCL) to remit any revenue to the government is a reminder that the huge subsidy payments termed as value shortfall/under recovery is no longer sustainable and raises significant fiscal concerns. The NNPCL did not transfer any revenue to the government from January to July due to increased petrol subsidies and low oil production. To underscore the seriousness of the current situation, the average monthly gross oil & gas revenue was N405.3bn in the first seven months of the year (January – July), up by 71.5% y/y compared to N236.3bn in the equivalent period of the prior year. However, despite the revenue accretion, nothing was remitted to the federation account in the same period (January – July 2022) compared with an average monthly remittance of N49.9bn in prior year (January – July 2021).

Meanwhile, the average monthly subsidy payment in 2022 so far was N291.8bn from an average of N78.9bn in the equivalent period of 2021, implying that most of the gains accrued from elevated oil prices in the review period was lost to subsidy payments. More damning is the fact that in the month of July 2022, based on the latest data released by the NNPCL, all monies from the gross oil & gas revenue (N448.8bn) went to subsidy payments. On the other hand, oil production has remained low due to the perennial issues of terminal maintenance, shutdowns, vandalism, and reduced investments, which over time has masked the gains from increased oil prices. The absence of the political will and financial resources to tackle these challenges makes matters worse.

At this point, given the government’s plans to retain petrol subsidy till June 2023, the country’s fiscal strain is far from over. Although, the federal government has engaged the services of the indigenes through a pipeline surveillance contract to combat the heightened vandalism and crude oil theft, we expect the gains from these measures to remain subdued for as long as the petrol subsidy regime remains in place. According to the Minister of Finance, resources that should ordinarily be invested in the oil and gas sector are being lost to subsidy payments. That said, investors patiently await the commencement of the long-awaited Dangote Refinery. Even though, we do not expect it to do much for the country’s fiscal position, investors expect to see at least an improved FX liquidity situation.

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