Nigeria has failed to capitalise on an oil price boom that has helped cushion other exporters from the impact of inflation, with millions more Nigerians now facing poverty.
Data from Nigeria's state oil company NNPC shows that it did not contribute anything to state coffers in the first eight months of 2022, despite crude prices averaging $94 a barrel so far this year, a rise of 42% from last year.
At the heart of Nigeria's problem is that despite being Africa's biggest oil and gas producer, the country depends almost entirely on imports to cover its gasoline needs.
It then subsidises the cost to consumers, which has created a disparity between the price at the pump and what people pay to fill their tanks in neighbouring countries, such as Benin.
This has led to widespread smuggling, which has in turn driven up the amount of costly gasoline Nigeria imports and wiped out the gains that it should have made from crude exports because it ends up buying far more than it needs.
"Hundreds of thousands of people (in Benin) organize their survival around this traffic," Boris Houenou, a Beninois economist said of the smuggling of Nigerian gasoline.
"A litre of Nigerian petrol worth $0.45 (per litre) can be passed to Benin for $0.70," he added.
Estimates of the amount of gasoline smuggled abroad vary, with some independent researchers putting it at around 15 million litres a day, while NNPC's own assessment is 42 million.
Nigerian National Petroleum Co (NNPC) said this month that gasoline smuggling was distorting supplies, adding that it was working to crack down on it.
The NNPC's federal account allocation (FAAC) shows it remitted just over $3 billion from oil and gas sales to Nigeria's federal account in 2020, falling to about $1.4 billion in 2021 and dropping to zero in 2022.
Nigerian oil production has fallen to 1-1.2 million bpd from pre-pandemic levels of 1.8 million bpd after decades of under-investment in upstream assets, while pipeline theft is at its highest level in years, at an estimated at 200,000 barrels per day (bpd).
Gasoline imports, meanwhile, have ballooned to more than double Nigeria's estimated needs this year, Reuters calculations based on the FAAC data indicate.
"We've moved from 30 million litres a day to 90 million during this administration without anything to show that consumption has actually increased," said Cheta Nwanze, lead partner at Lagos-based risk consultancy SBM Intelligence.
NNPC recorded gasoline deliveries of 90 million litres a day in March and 83 million in April, Reuters calculations showed. In the same months last year, imports were 64 and 63 million litres respectively, well above national demand.
Nigeria's reliance on imported oil products looks set to continue, two industry sources with knowledge of the matter said, with a new refinery near Lagos unlikely to come online until the end of 2023 and a revamp of the 210,000 barrel-per-day Port Harcourt facility expected to take several years.
NNPC and Nigeria's finance ministry did not respond to multiple Reuters requests for comment.
Although the Nigerian government announced plans to remove the gasoline subsidy last year, it then backtracked in July, citing concerns over potential social unrest.
The World Bank estimates inflationary pressures will tip 7 million more Nigerians into poverty this year, bringing the total to 45% of the population of 200 million.
"Despite the better-than-expected performance of the services and agriculture sectors and higher oil prices ... Nigeria is experiencing a curious case of lower fiscal revenues," Marco Hernandez, World Bank Lead Economist for Nigeria, said in a June development Report.
"This is limiting the government's ability to expand basic services, support the economic recovery, and protect the poor during this difficult time," Hernandez added in the report.
Nigeria's Finance Minister Zainab Ahmed has repeatedly warned about the high cost of gasoline subsidies, saying the bill could reach $16.2 billion in 2023.
And the World Bank estimated that foregone oil revenues would total 5 trillion naira ($12.04 billion) this year due to the subsidy, equivalent to 30% of Nigeria's entire budget.
In 2020, NNPC retained 4% of oil and gas sales to cover gasoline subsidies. This rose to 45% last year and in 2022 it has reached 83% of sales.
The increasing fuel subsidy is taking away money from capital expenditure and is a "major drainer to overall government revenues and fiscal position," Nigeria's finance ministry said in its latest budget projection in August.
"The subsidy on Petroleum Motor Spirit (PMS) supply has had significant adverse impact on government revenues," it added.
Nwanze of SBM Intelligence said: "The subsidy is a complete waste at this point, but it's politically explosive."
Nigeria holds presidential elections in February against a backdrop of price rises as a result of the Ukraine crisis and post-pandemic supply chain bottlenecks.
As well as the higher cost of gasoline purchases, a more costly swap contract has also come at a bad time.
Until the end of last year, NNPC covered domestic gasoline needs via Direct Sale Direct Purchase (DSDP) contracts.
Now NNPC is also buying ad hoc cargoes and through a Crude Oil Refining and Direct Partnership Agreement (CORDPA), which involves paying higher premiums and a trader waiting longer to receive its crude delivery as payment.
In May, for example, the DSDP premium was around $10 per tonne of gasoline, while the premium paid under a CORDPA was $22, according to NNPC's spreadsheets. Rates vary seasonally and for most of the year these levels had been $35 to about $50 a tonne. NNPC paid up $80 and $100 for some ad hoc cargoes.
And although gasoline is subsidised, the amount ordinary Nigerians pay at the pump remains higher than the set price.
In its FAAC reports for 2021 and 2022, NNPC set its subsidised price at 124 naira ($0.30) per litre, but the average pump price is closer to 200 naira per litre across many states.
"We should be reaping a bumper harvest but alas we are not," lamented one Nigerian official.
By Julia Payne
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