$6bn debt by NNPC to worsen petrol scarcity

After weeks of denial, the Nigerian National Petroleum Company Limited (NNPC) acknowledged on September 1, 2024, that it owed its petrol suppliers $6bn, citing financial strains due to petrol supply costs.

There are indications that the pump price of petrol, may rise in filling stations due to the revelation of the debt.

In a statement by its Chief Corporate Communications Officer, Olufemi Soneye, the state-owned energy company subtly confirmed this debt.

Soneye stated that the debt is a key reason for the fuel queues across the country and is impacting supply sustainability.

Possible implications of the $6bn debt

Reports from July indicated that Nigeria’s debt to petrol suppliers had surpassed $6bn.

This made it difficult for the NNPC to cover the gap between fixed pump prices and international fuel costs.

A Reuters report revealed that the national oil company began struggling early this year when late payments for premium motor spirit (PMS) surpassed $3bn.

Traders reported that the NNPC had not paid for some imports from as far back as January, and the debt continues to accumulate.

Despite earlier denials by the NNPC, the company made a U-turn on Sunday, admitting to financial constraints impacting fuel supply.

Soneye said the company is working with government agencies and stakeholders to ensure a consistent nationwide supply of petroleum products.

However, this admission has fueled speculation that the Federal Government may stop covering petrol import shortfalls, possibly causing price hikes.

Industry operators suggests that If this happens, petrol prices could exceed N1,000, potentially ending NNPC’s monopoly on fuel imports.

NNPC admits fuel subsidy by the government

NNPC admitted that the Federal Government has been subsidizing petrol, with marketers recently estimating the price at N1,117 per litre.

Despite denying the payment of fuel subsidies to marketers over the past nine years, the NNPC revealed that the government has allowed the company to sell petrol at a price below the landing cost.

The Chief Financial Officer of NNPC, Alhaji Umar Ajiya, revealed this during the company’s 2023 report presentation in Abuja.

Ajiya clarified that no direct subsidies were paid to marketers, but NNPC sold petrol below cost, creating a shortfall.

He stressed that the shortfall is settled between NNPC and the Federation, without any direct payments to marketers.

IMF urges end to fuel subsidies

In response to ongoing fuel scarcity and rising debt to international oil companies, the NNPC has acknowledged the issue.

The Federal Government’s practice of capping fuel prices below the landing cost has exacerbated the situation.

Dapo Segun, NNPC’s EVP of Downstream, downplayed the debt, suggesting it is less than the reported $6bn.

He emphasized the importance of maintaining strong relationships with suppliers to ensure the continuous availability of petrol across the country.

The Federal Government’s intervention in the fuel market follows President Bola Tinubu’s announcement on May 29, 2023, to end fuel subsidies.

This decision was influenced by the soaring price of imported petrol due to the floating of the naira.

The International Monetary Fund (IMF) has repeatedly warned Nigeria to eliminate implicit fuel and electricity subsidies.

The IMF predicts these subsidies could consume 3% of the nation’s GDP in 2024.

The IMF praised Nigeria for phasing out energy subsidies but criticized the reintroduction of implicit subsidies due to inflation.

The government may follow the IMF’s advice more closely, potentially leading to further changes in fuel pricing policies.

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