The Nigerian National Petroleum Company Limited (NNPCL) has requested a refund of N4.71 trillion from the Federal Government to settle outstanding debts incurred for importing Premium Motor Spirit (PMS), commonly known as petrol, into the country.
This claim was described as “Exchange rate differential on PMS and other joint venture taxes” for petroleum products imported by NNPCL between August 2023 and June 2024.
The disclosure was made by Wale Edun, the Minister of Finance and Coordinating Minister of the Economy, during the June meeting of the Federation Accounts Allocation Committee (FAAC). The minutes of the meeting were obtained by our correspondent on Thursday.
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Exchange rate differentials refer to the income gained by banks or government agencies from the difference in value between two currencies over time through foreign exchange transactions. For example, if one US dollar is exchanged for 0.9 euros today and 0.8 euros tomorrow, the exchange rate differential is the difference between these two rates.
This situation means that the government would effectively subsidize fuel imports by covering the difference between the projected exchange rate and the actual expenses NNPCL incurred in importing petroleum products. This difference in cost, which would typically be reflected in the retail price and borne by consumers, contradicts the government’s claims that subsidies have been eliminated.
The revelation also comes amid difficulties faced by NNPCL in ensuring an adequate supply of PMS to marketers nationwide.
During the FAAC meeting, the minister explained to state finance commissioners that the national oil company had received presidential approval to execute this task using the “Weighted Average Rate” from October 2023 to March 2024. Edun added that NNPCL had sought an extension of this period but was advised to write to the National Economic Council for approval.
The minutes of the meeting stated, “NNPC Limited Exchange Rate Differentials on PMS Importation and Other Joint Venture Taxes for the period August 2023 to April 2024.”
The PMSC (Post Mortem Sub-Committee) chairman reported that NNPCL informed the sub-committee of an outstanding claim of N2.69 trillion against the federation as a result of using the “Weighted Average Rate” as of May 2024. The chairman further disclosed that the sub-committee confirmed there was presidential approval to use this rate from October 2023 to March 2024.
It was learned that the government, through the National Economic Council, had permitted NNPCL to import fuel at an exchange rate of N650 to $1 at retail coastal pump prices from June 2023. However, the naira’s devaluation increased the exchange rate to N1,200, creating a difference of N550 per dollar as the exchange differential.
On May 29, 2023, during his inauguration, President Bola Tinubu declared that “subsidy is gone,” signaling the end of restrictions that had been hampering the nation’s economic growth. However, this claim has been challenged by the International Monetary Fund (IMF), the World Bank, and other authorities, who argue that the government has quietly reintroduced fuel subsidies.
In June, a proposed economic stabilization plan indicated that the government planned to spend around N5.4 trillion on fuel subsidies. Oil marketers also stated that with a landing cost of ₦1,117 per liter for PMS, the monthly subsidy on the commodity had risen to approximately N707 billion.
Commenting during the meeting, the Commissioner of Finance for Akwa Ibom State, Linus Nkan, questioned how the N2.6 trillion exchange rate differential against the federation was calculated, seeking further clarification.
The General Manager of the FAAC office at NNPCL, Joshua Danjuma, confirmed that the amount claimed by the company was to cover the landing cost of PMS, which had significantly increased by May 2024 due to changes in the exchange rate.
A month-by-month breakdown indicated that the debt, which had an outstanding balance of N1.18 trillion, increased to N1.24 trillion in August 2023, N1.3 trillion in September 2023, and N1.51 trillion in October 2023. By November, these claims rose by N570 billion to N2.08 trillion, and by another N550 billion to N2.63 trillion in December 2023.
The debt continued to rise, reaching N3.19 trillion in January 2024, N3.29 trillion in February, N3.55 trillion in March, N4.02 trillion in April, N4.29 trillion in May, and N4.71 trillion by June 2024.
During the meeting, Mohammed Bello, Chairman of the Revenue Mobilisation Allocation and Fiscal Commission, explained the reason for the rate difference. He stated that following the removal of the PMS subsidy on May 29, 2023, NNPCL adjusted prices using an exchange rate of N650 to $1 to determine retail coastal pump prices from June 2023.
He added that NNPCL obtained presidential approval to freeze the Proforma Invoice Ex-coastal transfer price at N524.99 from August 2023 to March 31, 2024, using exchange rate modulation to ensure a steady supply of petroleum products and national energy security.
However, the sub-committee noted that the weighted average exchange rate for June 2024 was N1,200, as estimated by NNPCL, compared to the N650 rate mentioned in the NEC extract. The sub-committee also observed that the volume, price, and sales value were not provided to justify the recorded exchange rate differential.
The Chairman of the Commission agreed to request the relevant information from NNPCL to resolve the issue.
Meanwhile, the Commissioner for Finance of Niger State, Lawal Maikano, expressed concern over the inability of revenue-generating agencies to meet their targets, noting that only 50 percent of the budgeted revenue for the current year had been achieved.
The Commissioner for Finance of Kaduna State, Shizzer Bada, also raised concerns about the accumulation of outstanding revenue arrears by RGAs against the Federation Account, which had reached trillions of naira between 2023 and 2024. She urged a speedy resolution of the reconciliation process with the agencies.
Regarding the forensic audit of the N2.7 trillion subsidy claim, Ali Mohammed, Director of Home Finance, reported that the Office of the Auditor-General of the Federation was conducting a forensic audit of NNPCL, with a report expected to be presented to FAAC.
Reacting to the situation, Professor Wumi Iledare questioned the basis for NNPCL requesting a refund from the government, given that NNPCL sells oil in foreign currency on behalf of the government. He argued that NNPCL should be paying royalties to the government like other oil companies.
Professor Iledare expressed confusion over why the Federal Government should return money to NNPCL unless NNPCL claims it overpaid the government. He explained that NNPCL should pay royalties, Nigerian hydrocarbon tax, and corporate income tax, just as international companies do. If the agreement is in dollars, NNPCL should pay the government in dollars, and what the government does with the dollars is its responsibility.
He further explained that if the issue is under-recovery for petrol importation, it means NNPCL spent dollars on behalf of the government to import fuel, and the government is compensating them in naira. However, he noted that this is a complex issue to understand.
Professor Iledare also pointed out that the Petroleum Industry Act intended to reduce the Federal Government’s dependency on NNPCL, emphasizing that the federation, not the Federal Government, owns NNPCL.
