SAT 04 SEPT, 2021-theGBJournal- According to the data obtained from the Nigerian National Petroleum Corporation (NNPC), the corporation incurred NGN756.99 billion as PMS under-recovery costs as of 7M-21.
Recall that the FGN announced the removal of fuel subsidies in March 2020 when oil prices were low. However, under-recovery costs resurfaced in January 2021 when the FGN decided to leave the PMS pump price unchanged within a range of NGN162.00 – NGN165.00 per litre, despite the increase in global oil prices.
Accordingly, under-recovery costs for each month reflected the increase in global oil prices – January (NGN25.37 billion), February (NGN60.40 billion), March (NGN111.97 billion), April (NGN126.30 billion), May (NGN114.34 billion), June (NGN143.29 billion) and July (NGN175.32 billion).
At the July run rate, we estimate under-recovery costs will settle at NGN1.63 trillion or 32.5% of our projected FGN’s retained revenue (NGN5.02 trillion) in 2021E.
Given that the under-recovery costs were not provided for in the 2021 budget and the NNPC deducts them before remitting funds to the Federation Account, it implies that revenue will continue to be constrained over the rest of the year amid an increase in total expenditure.
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