Governors of the 36 states of the federation, under the aegis of Nigerian Governors Forum, NGF yesterday painted a grim picture of the economy, with dwindling revenue allocation, saying payment of salaries would be difficult in the months ahead.
The Forum raised the alarm in a presentation it made to the House of Representatives ad hoc committee investigating daily PMS consumption in the country.
It, however, attributed the situation to the inability of the Nigerian National Petroleum Company, NNPC, Limited to make remittances accruable from oil and gas into the federation account.
The Forum disclosed that the federation (FAAC) net oil & gas revenues had been declining since 2019 and were projected to decline significantly in 2022 by between N3 billion and up to N4.4 billion, if no action was taken to halt it.
The presentation was signed on behalf of the Chairman of the Forum, Governor Kayode Fayemi, by the Head, Legislative Liason, Peace and Security, Hajiya Fatima Y. Usman Katsina
The forum said: “Although the operating environment has significantly worsened since the report was released, with NNPC now consistently reporting zero remittance to the federation account as profit from joint venture (JV), production sharing contract (PSC) and miscellaneous operations, the position of the Forum remains generally the same.
“The report had noted that ‘federation (FAAC) net oil & gas revenues have been declining since 2019 and are projected to decline significantly in 2022 by between N3 billion and up to N4.4 billion unless action is taken now.”
The NGF said its finding revealed that “remittances to the Federation Account Allocation Committee, FAAC, have continued to shrink as NNPC recovers shortfall ‘quite arbitrarily’, from the Federation’s crude oil sales revenue. ”FAAC deductions for PMS subsidy are above 2019 levels, even without adjusting for reduced purchasing power of the Naira due to inflation and FX rate deterioration.
“An analysis of the average monthly PMS consumption by states showed that a third of the country accounts for over 65 per cent consumption of PMS. The analysis showed that Lagos, Oyo, Ogun, Abuja, Delta, Kano, Kwara, Edo, Rivers, Kaduna, Kebbi and Adamawa accounted for 65 percent of PMS consumption in the Country.
“Most states with high PMS consumption either have borders with neighbouring countries or are in close proximity, this has been an avenue for smugglers to benefit from profitable arbitrage opportunities in PMS pricing.
“Households directly consume only about 25% of the PMS that is consumed nationally, with the remaining three-quarters being consumed by firms, MDAs, transport operators or smuggled to neighboring countries where the PMS price is nearly three times what it is in Nigeria. Of the PMs consumed by households, the richest 40% of households account for over three-quarters of the PMS purchased by households, while the poorest 40% of households purchased less than 3% of all PMS sold in Nigeria.
“In the current fiscal regime, remittances to FAAC would continue to shrink as NNPC recovers this shortfall from the Federation as a result of crude oil price recovery. The report recommended a PMS pricing structure that addresses regional arbitrage and smuggling of PMS and provides additional revenue to the Federation Account.
“There is a significant market opportunity for additional export revenue streams for Nigeria to had given the price parity with our neighbouring countries.
“Privatisation of the three (3) government refineries as is, or after their full rehabilitation if affordable and viable, and expediting the licensing procedure for modular refineries will reduce the recurring government expenditure on refinery maintenance and increase the country’s refining capacity.
“There were also economic risks highlighted in the report. Fiscal pressures are threatening Nigeria’s recovery, as rising prices continue to push millions into poverty.”
The forum also stated that rising inflation between 2020 and 2021 was likely to push about 5.6 million more Nigerians into poverty. “Fiscal pressures are growing unsustainably with the PMS subsidy significantly reducing the flow of revenues into the Federation account. 35 out of 36 states are likely to see transfers from the federation fall (in Nominal terms) between 2021 and 2022, with the average decline projected to be about 11%.
“Most states are already experiencing fiscal stress, with 30 out of 36 states recording fiscal deficits In 2020, Including Lagos and every oil-producing state except Akwa Ibom.
“With the projected decline in gross distributable federation revenues in 2022, fiscal deficits and debt burdens will grow even larger and faster. This will mean that transfers from the federation will not be enough to cover even salaries, and certainly not recurrent costs, which are growing in nominal terms.
“With the coming into effect of the Petroleum Industry Act, gross oil & gas revenues could be (much) lower than currently projected because of the new fiscal terms and the earmarking of deductible revenues specified in the PIA, and that could reduce net oil & gas revenues even further.
“Greater accountability and transparency around oil and gas revenues are the only immediate options for easing the pressure on government finances and maximizing socially responsible profit gain.
“The Mid-Stream Regulatory Authority established by the PIA 2021 concentrates on promoting price competition and lowering prices charged to consumers. It also avoids continued politicization of government involvement in PMS price-setting.
“This option minimizes corruption, streamlines consumption, sterilizes smuggling and is more effective. Immediate checks and balance would be the recommended next step.
“It is our prayer that Nigerians can benefit from the bounty that God has blessed our nation with, and that Nigerians can enjoy the special privileges of being members of an oil producing nation”, the Forum added.
Similarly, the Nigeria Customs Service in a document submitted to the committee stated that total volume of fuel imported between 2015 and June 2022 stood at about 2,380,814,974.418 metric tonnes in 3,703 vessels, while 876,801,931.515 metric tonnes of the product in 1,296 vessels were exported at the same time.
In its presentation, the Nigeria Labour Congress, NLC, said there was an argument on whether the fuel imported was not far above the consumption rate.
The NLC President, Ayuba Wabba, who fingered a criminal enterprise within the system through over-invoicing, said the position of the organized labour was to fix the refineries and do away with subsidy payments.
He said: “We do believe that even if there is subsidy, it cannot be at the level quoted by authorities in the sector. ln our document on the oil sector, we have outlined conditions precedent for removing subsidy, if any, including fixing the refineries, creating conditions for private sector participation in the building of refineries, even if they are modular.”
“Sadly, we are not aware if any of the terms and conditions we have recommended have been met, several years after. We are nonetheless conscious of the fact that the continuous opaque importation of PMS holds clear and present danger to the country.
“On the other hand, the transparent operation of the importation of PMS has two major advantages. The first advantage is that, knowing the exact volume of PMS the country needs and publicising it will deter further falsification of imports, hopefully.”
Similarly, the Petroleum and Natural Gas Senior Staff Association of Nigeria, PENGASSAN, stated that the average daily consumption of fuel was 60 million litres per day.
The union also said 14 million litres of AGO (diesel), 0.74 million litres of DPK/HHK (kerosine) and 3 million litres of ATK (aviation fuel) were also consumed in the country daily.
The Deputy President of PENGASSAN, Owan Abua, said the average daily consumption was ascertained by using truck out from depots as a yardstick for estimation, while consumption was estimated from the actual truck out volumes from coastal depots in 2021 and adjusted for population and GDP growth rates.
He added that the population increase index of 3.2 percent and GDP rate of 2.7 per cent were the factors employed to ascertain the rate.