NNPCL’s Petrol Price Reduction: Who Owns The Money – The Federation or The Federal Government?

By Nick Agule 

The clip distinguishes a subsidy from a discount on the basis that a subsidy involves public funds, whereas a discount represents a reduction in NNPCL Retail’s profit margin.

However, this distinction raises a fundamental question of ownership and the character of the funds involved. NNPCL Retail is a subsidiary of NNPCL, which is owned by the Federation of Nigeria. Consequently, any margin foregone by NNPCL Retail represents revenue forgone within a federally owned enterprise. To the extent that such earnings would otherwise accrue to the Federation Account, using them to reduce pump prices constitutes the deployment of public resources. Therefore, categorically asserting that no public funds are involved merely because the intervention is described as a discount is fiscally questionable.

The more fundamental issue is fiscal federalism. Revenue foregone by NNPCL that would otherwise accrue to the Federation Account is a collective resource of the Federation. If the FG unilaterally deploys that resource to finance a policy intervention, it raises legitimate questions about the constitutional entitlements of the federating units and the proper authority for allocating Federation revenue.

Bottom line: Any genuine effort to reduce petrol prices is welcome. However, the apparent reluctance to describe the intervention as a subsidy, whereas it meets the economic definition of one, is difficult to understand. The FG must also distinguish between its own resources and those belonging collectively to the Federation, and refrain from unilaterally deploying the latter to finance its policy programmes.

Nick Agule (nick.agule@yahoo.co.uk) is an energy expert.