The World Bank claims the Nigerian National Petroleum Company Limited (NNPC) has not provided transparency into financial gains from the removal of fuel subsidies. This includes outstanding subsidy payments still being deducted and the overall impact on federal revenues, according to the bank’s latest Nigeria Development Update report.
The Washington-based institution called for more clarity around oil revenue streams, especially relating to the fiscal impact of gasoline subsidy reforms. While nominal gains have resulted from exchange rate policy changes, most are categorised as “exchange rate gains,” indicating they stem from naira depreciation rather than direct gains.
“Except for the exchange rate-related increases, however, there is a lack of transparency regarding oil revenues, especially the financial gains of the Nigeria National Petroleum Corporation from the subsidy removal,” the report stated.
Gains in net Federation oil revenue have also seemingly fallen short of expectations when considering the estimated 380 billion-naira monthly savings from ending subsidies. The World Bank said revenue increases in the second half of 2023 were mostly due to exchange rate gains rather than the subsidy removal itself.
The reform was intended to ease NNPC’s financial position, allowing it to pay down arrears and gradually ramp up oil production over time. However, pump prices have not adjusted downward in line with market forces, hinting that implicit subsidies may have reemerged and capped revenues.
Nigeria’s Finance Minister, Wale Edun, acknowledged the challenges but said scrutiny over NNPC’s finances would increase. He also outlined plans to boost non-oil revenue through improved tax administration and incentive reviews rather than rate hikes.
The World Bank maintains that the successful implementation of reforms, including subsidy removal and exchange rate unification, could add 0.5 percentage points to Nigeria’s GDP growth outlook. But it warns that without further transparency around oil earnings, the potential gains may not fully materialise.