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December 14, 2023
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World bank slams NNPCL’s transparency on subsidies and dollar revenues

The World Bank has criticized the Nigeria National Petroleum Corporation Limited (NNPCL) for a lack of transparency regarding the financial gains from the removal of fuel subsidies. This includes concerns about subsidy arrears, the impact of subsidy removal on federation revenues, and unclear information about the NNPCL’s financial gains.

The World Bank emphasized the need for more clarity on oil revenues, especially regarding the fiscal benefits from Petroleum Motor Spirit (PMS) subsidy reforms.

In response, the Minister of Finance and Coordinating Minister of Economy, Wale Edun, expressed the government’s readiness to scrutinize the revenue flow from the NNPCL. The World Bank pointed out that nominal oil revenue gains since June have been attributed to exchange rate gains, raising questions about transparency in reporting actual oil revenues.

The Bank highlighted that gains in net oil revenue were lower than expected after the removal of fuel subsidies, suggesting that the federation account should have recorded a more significant increase. It emphasized the need for fuel subsidy reform to help the NNPCL settle arrears and contribute fully to joint venture operations, allowing for gradual increases in oil production.

Edun acknowledged the fiscal benefits expected from subsidy removal but noted challenges such as debt funding, high fiscal deficit, and inherited borrowings. He emphasized a plan to reduce fiscal deficit over time and scrutiny on oil revenue, hinting at increased oversight.

The former Governor of the Central Bank of Nigeria, Sanusi Lamido Sanusi, raised concerns about the NNPCL’s transparency and alleged insufficient remittance of dollars to the federation account after subsidy removal. The NNPCL’s Chief Financial Officer, Umar Ajiya, defended the company’s finances, attributing challenges to falling oil production, insecurity, and lack of investments.

The World Bank’s Lead Economist for Nigeria, Alex Sienaert, suggested that fuel prices in Nigeria are not fully reflecting market conditions, estimating that the cost-reflective price should be around N750 per liter. He emphasized the need for government clarification on how pump prices are fixed and urged transparency from the NNPCL regarding profits and oil revenues.

The World Bank’s report highlighted that important reforms had been initiated to prevent a fiscal cliff but acknowledged the challenges of economic adjustments. It noted that the recent reforms might marginally and slowly decrease poverty rates from 46% in 2024 to 44% in 2026, with expectations of higher growth and lower inflation in the medium term.

The successful implementation of fuel subsidy removal and foreign exchange unification rate was seen as a crucial step toward improving Nigeria’s growth prospects.

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