NNPCL: supply strain and financing issues threaten fuel stability

The Nigerian National Petroleum Company Limited (NNPCL), on Sunday, September 1, 2024, finally acknowledged its “significant debt to petrol suppliers,” warning that it threatens the stability of the fuel supply.

Reports indicate that a $6 billion debt owed by NNPCL to petrol suppliers has worsened the fuel shortage in Nigeria, which has been ongoing since early 2024.

At various times, NNPCL has attributed the fuel shortages to logistics challenges, flooding, and other factors.

However, in a statement on Sunday, NNPCL spokesman Olufemi Soneye spoke on the situation.

He said: “This financial strain has placed considerable pressure on the company and threatens the sustainability of the fuel supply.”

“In accordance with the Petroleum Industry Act (PIA), NNPCL remains committed to its role as the supplier of last resort, ensuring national energy security.”

“We are working closely with relevant government agencies and other stakeholders to maintain a steady supply of petroleum products nationwide.”

Is Nigeria’s fuel crisis worsening?

Nigeria, Africa’s most populous country, faces significant energy challenges, with its state-owned refineries currently non-operational.

The country relies heavily on imported refined petroleum products, with the state-run NNPCL serving as the primary importer.

Fuel queues are common in the country. The price of petrol has tripled since the subsidy was removed in May 2023.

The price of petrol soared from ₦200 to ₦800 per liter, heavily burdening citizens dependent on it.

Decades of unreliable electricity supply have forced people to rely on petrol for vehicles and generators.

Meanwhile, the government unified forex windows, leading the naira’s value to drop from ₦700 to over ₦1600 per dollar.

Prices of food and basic commodities immediately surged as Nigerians faced rising inflation.

NNPCL imports more petrol than marketers

Recently, the Independent Petroleum Marketers Association of Nigeria (IPMAN) stated high landing costs have made it impossible for marketers to import petrol like NNPCL.

IPMAN explained the cost exceeds ₦1,200 per liter, excluding transportation, logistics, and marketers’ margins, making imports unsustainable.

IPMAN National Operations Controller Zarama Mustapha said: “The current PMS landing cost exceeds ₦1,200, excluding marketers’ margins, transport, and logistics.”

“NNPC sells to marketers at about ₦565, meaning there is a subsidy of nearly ₦600 to ₦700 at present.

“Whether government officials acknowledge it or not, the reality on the ground indicates that there is some form of under-recovery.”

About NNPCL

The Nigerian National Petroleum Company Limited (NNPCL) is a state-owned oil company in Nigeria, established in 1977.

In July 2022, NNPCL became a limited liability company after the Petroleum Industry Act (PIA) passed in August 2021.

NNPCL is the only entity licensed to operate in Nigeria’s petroleum industry.

It partners with various foreign oil companies, including Royal Dutch Shell, ExxonMobil, TotalEnergies, Chevron, and others, to explore and produce petroleum resources.

The company is headquartered in Abuja and operates zonal offices in Lagos, Kaduna, Benin City, Port Harcourt, and Warri.

NNPCL’s mission is to ensure energy security in Nigeria and contribute to the country’s economic and social development.

It engages in initiatives like free eye treatment outreach programs and expanding its global market footprint.

What is a limited liability company?

A limited liability company (LLC) is a type of business structure that combines elements of both corporations and partnerships.

Here are some key features:

Limited Liability: Owners (also called members) are not personally liable for the company’s debts and liabilities. They limit their financial risk to the amount they invested in the company.

Flexible Management: LLCs can be managed by the members themselves or by appointed managers. This flexibility allows for various management structures.

Pass-Through Taxation: LLC profits and losses pass through to members, who report them on personal tax returns, avoiding double taxation.

Fewer Formalities: Compared to corporations, LLCs have fewer regulatory requirements and formalities, making them easier to manage.

LLCs are popular because they offer protection from personal liability while providing operational flexibility and tax benefits.