By Adewale Sanyaolu
Nigeria’s Federation Accounts Allocation Committee (FAAC) is bracing for a significant reduction in revenue as President Bola Tinubu has authorised the Nigerian National Petroleum Company (NNPC) Ltd to allocate N3.987 trillion—initially designated as final dividends due to the federation—to cover the cost of petrol subsidies. Additionally, to alleviate immediate financial pressures, the President has approved the suspension of 2024 interim dividend payments to bolster NNPC’s cash flow.
For a consecutive 18 months, from December 2021 to May 2023, NNPC made no remittances to FAAC, attributing this lapse to what it termed ‘under-recovery,’ or subsidy payments. It was only in June 2023 that the company made its first remittance of N123 billion after a prolonged hiatus.
The NNPC has faced ongoing disputes with FAAC regarding its failure to remit profits from crude oil sales to the federation account. The company consistently cited value shortfalls between the landing cost and ex-coastal price of petrol, which it blamed for the lack of remittances.
Moreover, NNPC has informed the President that it is currently unable to remit taxes and royalties to the federation account due to what it describes as “subsidy shortfall/FX differential.” Projections indicate that by December 2024, the cumulative petrol subsidy bill will reach N6.884 trillion, leaving NNPC unable to remit the anticipated N3.987 trillion in taxes and royalties.
In June 2024, NNPC alerted President Tinubu to the adverse impact of subsidy payments on its cash flow, expressing concerns about its ability to sustain petrol imports due to escalating subsidy costs exacerbated by “forex pressure.”
Commenting on the situation, Mr. Paul Alaje, Senior Partner at SPM Professionals, warned that the President’s decision could exacerbate the economic hardships faced by Nigerians. He criticized the timing of subsidy removal and the unification of the exchange rate, attributing these decisions to the current economic strain. Alaje noted that the increasing subsidy costs, driven by exchange rate fluctuations, are likely to continue mounting, thus deepening the financial challenges for both federal and state governments.
He pointed out that the reduction in FAAC revenue would lead to diminished funding for state governments, already under financial strain. This situation is further compounded by a recent Supreme Court ruling directing that Local Government allocations be paid directly to councils, which limits state governments’ financial flexibility.
Mr. Ademola Adigun, an energy policy analyst and Director at the Institute for Energy and Extractive Industry Law, echoed Alaje’s concerns. He criticized the flawed process behind the subsidy removal and naira devaluation, stating that ongoing subsidy payments—now exceeding N8 trillion—have made the market uncompetitive and disrupted supply chains. Adigun argued that the government should have implemented compensatory measures before removing the subsidy.
Conversely, Mr. Bismarck Rewane, Managing Director of Financial Derivatives Limited, defended the President’s approach, suggesting that ensuring a stable supply of petroleum products might be preferable to contending with fuel shortages, even at the expense of FAAC revenue.
Mr. Hammed Fashola, Vice President of the Independent Petroleum Marketers Association of Nigeria (IPMAN), supported President Tinubu’s decision, emphasizing its potential to alleviate current hardships. He highlighted that the approval would enable NNPC Ltd to enhance its operations and increase petroleum imports, thereby mitigating the impact of fuel shortages on Nigerians.