The World Bank has stated that Nigeria is not fully benefitting from the current oil boom. This was disclosed in the November 2021 edition of its Nigeria Development Update tagged, “Time for Business Unusual.”
According to the World Bank, the Nigerian government’s fiscal position typically improves when oil prices rise, but this will not be the case in 2021. The report stated that in contrast with past periods of high oil prices, two factors are preventing the government from fully benefitting from the current boom. They include, firstly, a drop in oil production and secondly, increasing cost of PMS subsidy.
Drop in oil production
According to the report, “Oil production has fallen below Nigeria’s estimated capacity and the OPEC+ quota due to inefficiencies and emergency shutdowns in the production and distribution processes for Bonny Light, Escravos, and Qua Iboe crudes.”
Nairametrics reported that Nigeria’s oil production fell again in October, nearly handing Libya the title of Africa’s top oil producer. According to data provided to OPEC by Nigeria, output fell drastically to 1.228 million barrels per day (bpd) in October 2021, down from roughly 1.247 million bpd in September.
Increasing PMS subsidy
The World Bank stated that while domestic price of PMS has remained fixed, global PMS prices have risen, therefore increasing the cost of the PMS subsidy. The report said, “Nigeria is the only country in the world that subsidizes only PMS; most Governments end the PMS subsidy first. The Nigeria National Petroleum Corporation (NNPC) deducts the cost of the PMS subsidy from the oil and gas revenues that it transfers to the Federation Account.
“Rather than being accounted as an explicit expenditure, the PMS subsidy is treated as “forgone revenue”, and its cost is not reflected in the budget. Deducting the cost of the PMS subsidy at the source of income undermines the predictability of revenue inflow into the Federation Account, creating serious challenges for budget and debt management at both the Federal and State levels.”
The report also stated that Nigeria’s PMS subsidy imposes a massive and unsustainable fiscal burden. The cost of the PMS subsidy in 2020 rose from just 4% of the oil and gas revenues that are first transferred to the NNPC (US$0.3 billion) to a staggering 35 percent in 2021 (US$4.5 billion or roughly 2% of GDP).