Nigeria: At $100 a barrel, government to subsidize ex-deposit gasoline price by $8.5 billion in 2022 – Report

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At around $100 a barrel of oil this year, Nigeria will subsidize the ex-deposit price by around 50% or $8.5 billion in 2022, according to a new report by Renaissance Capital (RenCap), an investment bank in the border market.

RenCap, which also provides institutional research and investment management services, said the amount of funds will amount to about 1.8 percent of the country’s gross domestic product (GDP).

Nigeria has a largely opaque gasoline subsidy program and for years imported all products consumed in the country, although it does not know the exact number of liters consumed daily.

All the refineries in the country, which have deteriorated over the years, have become inoperative, resulting in a Direct Sales, Direct Purchase (DSDP) agreement, which basically involves the exchange of crude oil for refined products.

This year alone, the government is expected to spend 4 trillion naira for this purpose, having postponed the removal of subsidies for 18 months mainly due to the expected backlash from the masses, being an election period.

The government also said it had postponed the planned withdrawal under the Petroleum Industry Act (PIA) due to the crushing impact development would have on Nigeria’s poor.

However, the RenCap report indicates that the amount to be paid for the subsidies this year will represent approximately 34% of total government revenue as well as 50% of net oil revenue.

“Assuming oil prices rise to $100/bbl and we forecast a gasoline crack (the difference between a barrel of gasoline and a barrel of crude) of $10/bbl for 2022, we estimate that Nigeria will have to subsidize 50% of the ex-depot price, or $8.5 billion (1.8% of GDP), assuming gasoline consumption and imports of 400,000 barrels per day.

“The number is comparable to the 4 trillion naira ($9.6 billion) provision for gasoline subsidy in the federal government’s revised FY22 budget. At $100/bbl. In 2022, we estimate that the gasoline subsidy will represent 34% of government crude oil revenue and 50% of net oil revenue,” he said.

Regarding the impact of a devaluation of the naira on the figures, he estimated that at N/$500 and N/$600 and assuming the price at the pump does not change, the subsidy will cost $10 billion respectively. and $11.3 billion (at $100/bbl of Brent) or $1.3 billion for a 100 NGN movement of the naira against the dollar.

In its estimate of the gasoline subsidy, RenCap said it assumed that Nigeria consumes 23 billion liters of gasoline per year (400 kbpd), which is taken from the most recent 12-month consumption, according to the Nigerian National Petroleum Company (NNPC).

As a federation, which operates at three levels of government, the document said payments were being undermined by rising subsidy payments, declining oil production and high oil production costs.

“The NNPC would have paid only 20% of its planned contribution to the federal account in 2021 and would have paid nothing in January,” he added. Indeed, for the entire first quarter of this year, the national oil company has not delivered anything, a report by THISDAY recently indicated.

Many economic pundits support scrapping gasoline subsidies, though the argument has always been whether it was right at this time when most key economic indices and forecasts appear to have deteriorated over the past few years. years under the current administration.

For example, real GDP year-over-year fell from 6.3% in 2014 to around 2.9% in 2022, oil production fell from 2.4 million bpd to around 1.4 currently, while the population has grown from around 160 million in 2011 to over 200 million in 2022.

Another breakdown of the indexes by RenCap analysts indicated that in 2011, when the total public debt was 17.6% of GDP, in 2022 it is 35.1% while the trade balance, which was from 13.5% of GDP in 2011, currently stands at 0.3%. percent.

Net foreign direct investment (FDI), which was $8.1 billion in 2011, is now $2.1 billion, according to RenCap estimates, while gross external debt, which was $21 billion in 2011, had jumped to $80 billion at the time of writing. year.

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