FG may pay more on subsidy as oil prices climb to $82.77

Nigerian states including local governments might face financial difficulties in the coming months as the rise in oil prices means a larger chunk of oil revenue will have to go into subsidy payment.

According to data from oil price, on Tuesday, the international oil benchmark, Brent crude, increased 1.51% or $1.86 to $82.77 per barrel, while the US West Texas Intermediate (WTI) rose 2.0% or $1.55 to $79.17 per barrel.

This means Nigeria’s landing cost of petrol is expected to rise closer to N250 per litre.

In covering the expense of maintaining the pump price of N162-N165 per litre, Nigerian National Petroleum Corporation (NNPC) the sole importer of petrol will continue to withdraw from its contribution to the Federation Account and Allocation Committee (FAAC) to pay oil marketers.

Already in the first nine months of the year, data from the NNPC monthly FAAC report shows over N905.27 billion have been spent on subsidy to keep the price of petrol around N162-N165 per litre.

To meet the expense, NNPC reported it deducted N114.3 billion from its June remittance when oil price averaged around $74. With a notification that a balance of 40 billion will be removed in the subsequent month.

In July N173.13 billion was deducted from FAAC contribution and another N149.28 billion in August.

Mele Kyari the group managing director of NNPC has consistently been reported to have said the comfort zone for Nigeria is at $58-$60.

“Anything above $70-$80 will create major distortions in the projections of the corporation and add more difficulties to the company,” he said.

With the problem of producing enough oil to sell, as well as importing and subsidizing the commodity for Nigerians, the next few months might be more difficult for NNPC and Nigerian states as oil prices are expected to increase closer to $100 per barrel by year’s end.