The claim was listed
as “Exchange rate differential on PMS and other joint venture taxes” on petrol
products imported by the company between August 2023 to June 2024.
The Minister of Finance and the Coordinating Minister of the
Economy, Wale Edun, revealed this information during the June session of the
Federation Accounts Allocation Committee. Our correspondent acquired the
minutes from the meeting on Thursday.
Exchange rate differentials pertain to the earnings
generated by banks or government entities due to the variance in value between
two currencies at different points in time, resulting from the buying and
selling prices in foreign exchange transactions.
For instance, if one exchanges a United States dollar for
0.9 euros today, and the following day the rate changes to $1 for 0.8 euros,
the exchange rate differential represents the fluctuation between these two
rates.
Furthermore, this situation indicates that the government
will assist in fuel imports by covering the disparity between the anticipated
rate and the actual costs incurred by the NNPC for bringing petroleum products
into the nation.
This cost difference, which should typically be reflected in
the retail price and absorbed by end consumers, contradicts the government's
assertions regarding the elimination of subsidies.
This disclosure also arises amidst the difficulties faced by
the petroleum company in ensuring a sufficient supply of PMS to marketers for
nationwide distribution.
In the meeting, the minister informed the state
commissioners of finance that the national oil company had obtained
presidential approval to execute this responsibility using the “Weighted
Average Rate” from October 2023 to March 2024.
Edun further stated that the company had also requested an
extension of the period to cover the differential rate but was advised to
formally request approval from the National Economic Council.
The minutes read, “NNPC Limited Exchange Rate Differentials
on PMS Importation and Other Joint Venture Taxes for the period August 2023 to
April 2024.
“The chairman, PMSC (Post Mortem Sub-Committee) reported
that NNPC Limited informed the sub-committee that it had an outstanding claim
of N2,689,898,039,105.53 against the federation as a result of the use of
‘Weighted Average Rate’ as of May 2024.
“Furthermore, he disclosed that the sub-committee was able
to establish that there was Presidential approval to use the ‘Weighted Average
Rate’ from October 2023 to March 2024.”
It has come to our attention that the government, through
the National Economic Council, has authorized the NNPC to import fuel at an
exchange rate of N650 to $1 for retail coastal pump prices starting in June
2023. However, due to the devaluation of the naira, the price has increased to
N1,200, resulting in an exchange rate difference of N550.
On May 29, 2023, during his inauguration, President Bola
Tinubu publicly announced the elimination of fuel subsidies, indicating the
removal of obstacles that have hindered the nation’s economic growth.
Nevertheless, this assertion has been challenged by
reputable organizations such as the International Monetary Fund, the World
Bank, and other authoritative figures, who contend that the government has
discreetly reintroduced fuel subsidies.
In June, a proposed economic stabilization plan document
indicated that the government intended to allocate approximately N5.4 trillion
towards fuel subsidies.
Furthermore, oil marketers reported that with a landing cost
of ₦1,117 per liter for PMS, the monthly subsidy for the commodity had
escalated to roughly N707 billion.
In response, the Commissioner of Finance for Akwa Ibom
State, Linus Nkan, raised concerns regarding the N2.6 trillion exchange rate
differentials against the federation and sought further clarification on the
matter.
“The Commissioner of Finance, Akwa Ibom State, referred to
paragraphs 3.01 and 5.01 of the PMSC report and requested clarifications as to
how the N2.6tn exchange rate differentials against the Federation came about,”
the minute said.
In response, the General Manager of the FAAC office at the
NNPCL, Joshua Danjuma, affirmed that the amount requested by the company was
intended to cover the landing cost of PMS.
Furthermore, he noted that the cost had experienced a
significant increase by May 2024 due to fluctuations in the exchange rate.
He said, “Reacting to the issue of the N2.6tn claim of NNPC
Ltd against the Federation, the representative of NNPC Limited confirmed that
the figure had increased significantly as of May 2024 due to the change in the
rate at which the company was sourcing for the Forex to pay for the landing
cost of PMS.”
An additional document has confirmed that the total amount
rose to N4.71 trillion as of June 2024. A detailed month-by-month analysis
revealed that the debt, which had an outstanding balance of N1.18 trillion,
increased to N1.24 trillion in August 2023, followed by N1.3 trillion in
September 2023, and N1.51 trillion in October 2023.
By November, these claims had risen by N570 billion to reach
N2.08 trillion, and then increased by another N550 billion to N2.63 trillion in
December 2023.
The document also noted that the figure escalated to 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 finally to N4.71 trillion
by June 2024.
The Chairman of the Revenue Mobilisation Allocation and
Fiscal Commission, Mohammed Bello, provided an explanation for the variation in
exchange rates during a presentation at the meeting. He stated that following
the removal of the fuel subsidy on May 29, 2023, the Nigerian National
Petroleum Corporation (NNPC) adjusted its pricing using an exchange rate
benchmark of N650 to 1 US Dollar to determine the retail coastal pump prices
from June 2023 onwards.
Furthermore, the NNPC sought and obtained approval from the
President to freeze the Proforma Invoice Ex-coastal transfer price at N524.99
from August 2023 to March 31, 2024, utilizing exchange rate modulation to
maintain the supply of petroleum products and ensure national energy security.
The NNPC also reported that it had secured another approval
to extend the use of the weighted average rate from April to June 2024,
although the Sub-Committee has yet to review the relevant documentation. As of
June 2024, the NNPC reported the outstanding amount owed to the Federation due
to the exchange rate differential.
The Subcommittee noted from the Nigerian National Petroleum
Corporation (NNPC) June 2024 report to the Federation Account Allocation
Committee (FAAC) that the weighted average exchange rate for the month was
N1,200. This was the estimated rate, as opposed to the N650 sought in the
National Economic Council (NEC) extract.
The analysis also revealed that the volume, price, and sales
value were not provided to justify the exchange rate differential recorded.
NNPC responded that additional information could be provided
to the Subcommittee to clarify the issues raised upon request. The Chairman of
the Commission, who chaired the meeting, agreed to write to NNPC requesting the
relevant information to resolve the matter.
The Commissioner for Finance in Niger State, Lawal Maikano,
expressed concern regarding the inability of revenue-generating agencies to
fulfill their revenue targets, indicating that merely 50 percent of the
projected revenue for the current fiscal year has been realized.
He noted that the High Commission for Finance in Niger State
referenced the Communique, highlighting that approximately 50 percent of the
anticipated revenue for this year has been attained by the revenue-generating
agencies, which he characterized as subpar budget performance.
Consequently, he emphasized the necessity of revising the
FAAC revenue budget projections to a more attainable figure for the agencies.
Additionally, he urged these agencies to enhance their efforts in revenue
generation.
Likewise, the Honorable Commissioner of Finance for Kaduna
State, Shizzer Bada, expressed concern regarding the substantial accumulation
of outstanding revenue arrears owed by Revenue Generating Agencies (RGAs) to
the Federation Account, amounting to trillions of naira between the years 2023
and 2024. Consequently, she emphasized the urgent need to expedite the
reconciliation process with the relevant agencies.
Concerning the forensic audit of the N2.7 trillion subsidy
claim, the Director of Home Finance, Ali Mohammed, provided an update on the
ongoing exercise being conducted by the Office of the Auditor-General of the
Federation. As per the mandate, the forensic audit is focused on NNPC Limited,
and a comprehensive report is anticipated to be presented to the Federation
Account Allocation Committee (FAAC) upon completion of the assignment.
In response to this matter, Professor Wumi Iledare expressed
his confusion regarding the rationale behind the NNPC's request for the
government to reimburse it for differentials when it sells oil in foreign
currency on the government's behalf. The energy expert emphasized that the NNPC
is obligated to pay royalties to the government, similar to other oil
companies.
He questioned, "What justifies the NNPC's request for
financial compensation from the government? Is the NNPC asserting that it has
overpaid? If the NNPC intends to adhere to its new status, it must remit
royalties, Nigerian hydrocarbon tax, and corporate income tax to the
government, just as international companies do. Should the agreement be in
dollars, the NNPC is required to pay the government in dollars, while the
subsequent use of those dollars falls under the government's jurisdiction.
"Examining the taxes remitted by international oil
companies, they are derived from the tax oil that the NNPC sells on behalf of
the government, which is then provided to the government in dollars.
Therefore, it is perplexing to me why the Federal Government
would need to return any funds to the NNPC unless the NNPC claims it is
financing the government in dollar equivalents. Given the government's
adjustment of the exchange rate to N1,500, it cannot retain the excess profits,
as it now benefits more than it did when the exchange rate was N700,"
Iledare remarked.
The academic further noted, "I find it challenging to
grasp the logic behind this situation, as the government holds ownership of the
equity, the tax oil, and the royalty oil that the NNPC markets on its
behalf."
Nonetheless, he suggested that this could be indicative of a
form of under-recovery related to petrol imports.
"If the discussion revolves around what is termed
under-recovery, it implies that the NNPC has utilized dollars on the
government's behalf to import fuel, and the government is compensating them for
this under-recovery in naira, a situation I find uncertain. It is indeed a
complex matter to comprehend."
The rationale behind the Petroleum Industry Act was to
eliminate the dependency of the Federal Government on the NNPC. It is important
to note that the Federal Government does not inherently own the NNPC; rather,
it is the federation that holds ownership of the NNPC, he stated.