Key Points
- Nigeria’s debt to petrol suppliers has ballooned to over $6 billion, leading some traders to stop supplying fuel with a resultant fuel crisis.
- This is due to the gap between government-capped pump prices and rising global fuel costs.
- President Tinubu ended fuel subsidies in 2023, but public backlash forced a price cap, effectively re-introducing subsidies.
- The government expects the subsidy to cost $3.7 billion in 2024.
- Analysts criticise the subsidy as wasteful, but Nigerians see cheap fuel as essential, especially during inflation.
- NNPC, the state oil firm, struggles to pay suppliers due to limited funds.
- Smaller gasoline tenders and delays in payments raise concerns about fuel shortages.
- Fresh queues for petrol have already emerged in major cities.
Nigeria’s debt to gasoline suppliers has ballooned to over $6 billion, doubling since early April, as the state oil firm Nigerian National Petroleum Company Limited grapples with the financial strain of covering the difference between fixed pump prices and rising international fuel costs, according to six industry sources, Reuters reports.
Background and Current Situation
In an effort to address fiscal pressures, Nigerian President Bola Tinubu announced the termination of costly fuel subsidies last year, resulting in a tripling of pump prices. However, the state oil company NNPC soon imposed a cap on pump prices due to public discontent over the rising cost of living.
This cap, along with a significant devaluation of the naira, has effectively reintroduced the subsidy, which the government estimates will cost at least $3.7 billion this year.
Also Read: Fuel Subsidy is Gone, Tinubu Declares as He is Inaugurated as President
For years, analysts, NGOs, and even government officials have criticised the fuel subsidy as wasteful and corrupt. However, many Nigerians, who benefit from few government services, view affordable fuel as a fundamental right, particularly amidst the current cost-of-living crisis.
Regional Context
The issue of fuel subsidies is not unique to Nigeria. Recently, Kenya experienced deadly riots that forced its debt-burdened government to cancel planned tax increases, highlighting the challenges of implementing further economic austerity measures amid rising inflation.
Also Read: First Post Subsidy Oil Cargo Lands Nigeria, Emadeb Calls for Fixed Forex Rate for Oil Imports
Senegal’s energy subsidy bill remains high at 3.3 per cent of GDP, while Egypt and Angola are also attempting to eliminate subsidies to stabilise their finances.
Financial Strain on NNPC
NNPC’s financial difficulties became apparent earlier this year when overdue fuel payments exceeded $3 billion. Traders report that some payments for January imports remain outstanding, with total overdue payments now ranging between $4 billion and $5 billion.
According to contract terms, NNPC is supposed to pay within 90 days of delivery, a deadline it has consistently missed.
NNPC declined to comment on the situation. One industry source noted that traders continue to engage with NNPC largely due to the $250,000 monthly compensation per cargo for late payments.
Impact on Petrol Supply
At least two suppliers have ceased participating in recent tenders after reaching their self-imposed credit exposure limits with Nigeria, indicating they will not send more gasoline until they receive payments. While traders are accustomed to operating in high-risk environments, they set credit limits to manage exposure, which varies by company size and operational region.
Also Read: Poor implementation of fuel subsidy removal impoverishing Nigerians, Obasanjo berates Tinubu
As a consequence, Nigeria’s tenders for petrol in June and July were notably smaller. In July, NNPC is expected to import around 850,000 tonnes, down from the typical 1 million tonnes in previous months. This reduction has already led to fuel queues forming in Lagos and Abuja, with some stations in the capital halting gasoline sales.
Structural Issues
Despite being Africa’s largest oil exporter, Nigeria imports nearly all its fuel due to the prolonged neglect of its state-owned oil refineries. The newly opened Dangote refinery, with a capacity of 650,000 barrels per day, has yet to produce marketable petrol and is currently exporting other types of fuel.
Years of corruption and wasteful spending have depleted Nigeria’s savings, leaving NNPC cash-strapped. The company has also leveraged much of its oil cargoes, limiting its ability to generate cash from spot sales.
In late 2023, NNPC secured its largest-ever oil-backed loan, worth $3.3 billion, from Afreximbank and a consortium of traders, including Gunvor, to bolster the country’s foreign exchange reserves.
Nigeria’s escalating petrol debt and the withdrawal of key traders highlight the nation’s ongoing struggle with financial mismanagement and economic instability. As fuel queues grow and subsidy costs rise, the government faces mounting pressure to find sustainable solutions to its fiscal challenges while maintaining public support amid a cost-of-living crisis.
