NNPC Backs Subsidy Removal, Say it Will Curb Excess Consumption

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CEM REPORT, OIL & GAS | To reduce government expenditure on petrol and public consumption, the Nigerian National Petroleum Company Limited (NNPCL) has supported the position of the federal government to remove subsidies on the product.

The national petroleum company notes that the current petrol consumption in the country will decline when there’s no incentive for excess consumption.

nnpc boss
Mele Kyari – NNPC GMD

According to the Group Chief Executive Officer, Mele Kyari when the subsidy is removed, people only purchase only the fuel and products they need, adding that those who have more than one car may decide to park some, thereby reducing excess use.

“What will happen is that there will be no further incentive for cross-border smuggling and more than anything even the marketing companies will have enough resources to go to the depots to buy. And when it comes to the fuel stations, some of you have two cars everybody will park one. This will happen. It is very natural.

“Then we will come down to the real level of consumption which is that people will only buy what they need. Today we buy what we don’t need and it is very difficult to stop it,” he maintained.”

Kyari who spoke at the Petroleum and Natural Gas Workers Association (PENGASSAN) summit in Abuja, explained that it currently costs N371.3 per litre to import fuel, while the product is being given to oil marketing companies at a subsidised rate of N118 per litre.

He decried that the subsidy incentives had created leakages which had sponsored the smuggling of subsidized petroleum products to neighbouring countries,

“Are their leakages? yes, there is no doubt about it. We admit that whenever you have an arbitrage situation, you will have issues. You will have cross-border issues. You will have internal issues.

“You can’t avoid it. For instance, today, if you go to the market today to sell petroleum products, you will be at N371.3, we are transferring to oil marketing companies at N118 to the litre so that they will be able to sell at N165 or N170 at the pump. There is no other way of doing it.

“That means the difference between N118 and N371 is the burden carried by the state, it is not by the market and a simple number around this will tell you that we need about N6 trillion every year minimum to cover this gap at the current market condition.

“Of course, this is crude and we all know that it can change and prices can collapse tomorrow. In today’s circumstances, this is what we are dealing with.”

He however noted that the NNPC Ltd was working with security agencies to curb smuggling, stating that several interventions were ongoing to stop leakages.

“Can we control the volume? Yes. Is it something that we can do tomorrow? No. Are their actions taken by the regulators? Absolutely yes. I’m aware there are a number of interventions that are going on to see how we can contain cross-border smuggling, internal leakages and a number of interventions with government security agencies the EFCC, and DSS to help us cut this down.”

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He noted that “a broad shift in energy supplies can mean a catastrophic distortion. We understand this, every country in the world is making decisions around this, reducing the tax rate on petroleum products.

“Everybody is doing something to ensure they cushion the effect of high prices. But is it something you can continuously do? Absolutely no. That is why we need to have the conversation and have a transition around this so that ultimately, we can reduce the arbitrage.”

Kyari seized the platform to clarify the amount of product lifted daily. He maintained that 66 million litres remain the quantity lifted noting that a reduction leads to scarcity.

“Today, our evacuation, let me make it very clear, I’m sure maybe you have heard a lot of things in the media. What we know is that evacuation from the depot is 66 million litres per day at any time.

“Anytime you bring down the evacuation to below 60 million litres, you will see a scarcity on the streets. So, it is a clear indication that the evacuation from the depot is reflective of our consumption level but not our exact consumption figures.”

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