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Scrutinise oil revenue accruing to NNPCL, World Bank urges FG

The Federal Government has been urged to beam a searchlight on oil revenues accruing to the Nigeria National Petroleum Corporation Limited (NNPCL) from the subsidy removal and clarify how petrol pump prices are fixed as opposed to market
conditions.

This is contained in the December 2023 edition of the Nigeria Development Update (NDU), titled “Turning the Corner”, published by the World Bank.

“Revenue gains from the FX reform are visible. However, there is a need for more clarity on oil revenues, especially the financial gains of Nigeria National Petroleum Corporation Limited (NNPCL) from the subsidy removal, the subsidy arrears that are still being deducted, and the impact of this on Federation revenues”, the World Bank said.

Elaborating further on how to reap the benefits of the bold reforms and difficult but necessary economic adjustments now underway, the Bank said it is essential to sustain and fully implement the reforms and take complementary actions.

The World Bank specifically urged the Federal Government to “Clarify how prices at the pump are fixed as opposed to market conditions. Ensure revenue gains from the removal of fuel subsidy materializes, and improve the transparency of NNPC with regards to profits and oil
revenues to be remitted to the Federation Account”.

It noted that even with oil revenue benefits secured, non-oil revenues also need to be increased, as it stated, “Increase the VAT rate while allowing for input tax credit; remove exemptions for petrol products. Introduce green and pro-health taxes. Rationalize tax expenditures. Improve tax administration, and adopt a data-driven approach to tax auditing”.

Highlighting the key message in the report tagged, “Turning the Corner, time to move from reforms to results”, the Bank acknowledged that the Federal Government avoided a fiscal cliff by implementing bold reforms, including ending the premium motor spirit (PMS) subsidy, and shifting to a unified, market-reflective foreign exchange (FX) rate.

It noted that these essential reforms entail painful adjustments, which led to an increase of retail petrol prices by an average of 163 per cent, and the Naira depreciating against the US dollar by approximately 41 per cent in the official market and by about 30 per cent in the parallel market.

The report adds that the recently launched cash transfer intervention to cushion the impact of increased petrol prices on the poor and vulnerable is providing welcome relief to a growing number of households, with five million households expected to be covered by the end of December.

The report stresses the need to continue with the reform momentum to complete the reforms and to address the costs of the reforms.

“Inflation remains at record high levels for Nigeria, 27.3% (yoy) in October 2023, partly driven by the one-off price impacts of the removal of the gasoline subsidy. The impact of this is especially hard on poor and vulnerable citizens.

“The FX market has remained volatile and in a period of continuing adjustment to the new policy approach, with significant fluctuations in the exchange rate in both the official and the parallel markets”, the report finds.

Shubham Chaudhuri, World Bank Country Director for Nigeria said, “The petrol subsidy and FX management reforms are critical steps in the right direction towards improving Nigeria’s economic outlook. Now is the time to truly turn the corner by ensuring coordinated fiscal and monetary policy actions in the short to medium term.

“Continued reform implementation can ensure that Nigeria benefits from the difficult adjustments underway. This includes ensuring that improved oil revenues following the sharply increased PMS price accrue to the Federation. In the medium-term, the economy will then begin to benefit from increasing fiscal space for development spending, including on power and transport infrastructure, as well as on human capital.”

The latest NDU report recommends specific actions required to further sustain and achieve the full benefits of reforms already embarked on by the Government.

These include: “Controlling inflation and improving the stability of the FX market; achieving fiscal consolidation by sustaining savings from the PMS subsidy reform and improving non-oil revenues; addressing structural barriers to growth, e.g. removing trade barriers”.

Alex Sienaert, World Bank Lead Economist for Nigeria and co-author of the Report said, “With the continued implementation of macroeconomic stabilisation reforms, Nigeria’s economy is expected to grow at an average annual rate of 3.5 percent in 2023-2026, or 0.5 percentage points higher than in a scenario where the reforms had not been implemented.

“In 2024, Nigeria has an opportunity to turn the corner to a more stable and predictable macroeconomic environment, and easier access to foreign exchange (FX) and imported inputs, which is critical to creating new jobs and lifting people out of poverty”.

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