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States In Tough Financial Position Over NNPC’s N700bn FAAC Deductions

Within the last three months, the Nigerian National Petroleum Company has deducted about N697bn from its remittance to the Federation Account Allocation Committee (FAAC) to pay petrol subsidy, putting states in a tough financial position.

To meet up the shortfall created in their finances, states have resorted to owing government workers, rationing their pay or cutting their salaries, pushing many Nigerians deeper into poverty.

“The estimated value shortfall of N127,035,585,356.25 is to be recovered from the January 2022 proceed due for sharing at the February 2022 FAAC meeting,” the NNPC said in its presentation to FAAC in January.

The NNPC prefers to call petrol subsidy ‘value shortfall’ or ‘under-recovery’ in its documents.

In February, the national oil company said the estimated value shortfall of N242.53 billion was to be recovered from February proceed due for sharing at the March FAAC meeting.

NNPC said in its presentation to FAAC this month said it would deduct N328 billion from March proceed.

It said, “The value shortfall of N219,783,148,011.13 was charged for the month which comprises of N195,975,376,910.12 for January 2022 plus part of the November 2021 spot cargo arrears of N23,807,771,101.00.

“The estimated value shortfall of N328,004,248,900.01 (consisting of N253,004,248,900.01 for February 2022 recovery plus balance of November 2021 spot cargo arrears of N75,000,000,000.00) is to be recovered from the March 2022 proceed due for sharing at the April 2022 FAAC meeting.”

An analysis of the FAAC presentations by BusinessDay indicates that deductions made by the NNPC to keep petrol prices within the N162-N165 price band are having detrimental impact on the finances of states.

FAAC
AIHS 2022

In March 2021, it was estimated that between N70 billion and N210 billion would be spent every month to keep petrol price at N162/litre (below import parity cost), and remittances to FAAC would shrink to less than N50 billion per month or even zero if trends persist.

By November 2021, the cost of the petrol subsidy rose to around N250 billion per month.

The country has not benefitted from the significant rise in oil prices because oil production has declined and petrol subsidy is increasing.

State governments are embarking on tough fiscal measures to make their monthly allocations last longer. In Kano, civil servants and political appointees suffered cuts in their February salaries.

In Kogi, salaries are rationed to civil servants and political appointees. Government workers are receiving what the government called a staggered amount. Their counterparts in Ondo State were last paid salaries in December.

“The federation will continue to bear the shortfall due to differentials between the current PMS retail price and actual open market price, unless PMS pricing is fully deregulated,” said a report by the National Economic Council Ad-hoc Committee, chaired by Nasir El-Rufai, Kaduna state governor.

The report said FAAC have therefore continued to shrink further as NNPC recovers shortfall quite arbitrarily from the federation’s crude oil sales revenue.

It noted that as at May 2021, Nigeria’s crude oil production and revenues had been impacted by the daily cut of about 500,000 barrels per day due to compliance with OPEC+ since May 2020 and a soaring value shortfall due to under-pricing of petrol against cost of supply.

The Organization of the Petroleum Exporting Countries may have implemented cuts but Nigeria has been unable to meet its allocated quota. Production has hovered around 1.4 million bpd due to above-the-ground challenges which has since worsened due to crude theft in the Niger Delta.

BusinessDay

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