The Nigerian National Petroleum Corporation (NNPC) Limited has accumulated a debt of approximately $3 billion to traders for imported premium motor spirit, commonly known as petrol.
This backlog of payments is believed to be linked to the devaluation of the naira currency and the increasing global fuel prices following the removal of fuel subsidies.
The delay in payments is a setback for the federal government’s efforts to stabilize the country’s economy and address its financial challenges by tackling expensive energy subsidies.
Despite the payment delays, NNPC’s suppliers, including international traders and Nigeria-based trading houses, continue to supply fuel. However, the return of fuel subsidies, which were abolished in May 2023, is putting a strain on NNPC’s finances for imports and its ability to support the government.
Nigeria has historically subsidized fuel in order to maintain affordable pump prices, but Tinubu, as part of broader reforms, decided to remove these subsidies, resulting in a tripling of prices.
This move led to a decrease in petrol consumption by approximately 30% as higher prices deterred smuggling to neighboring countries. In response to the challenging inflation faced by Nigerians, the government set a nationwide average pump price of N617 per litre in June.
The removal of fuel subsidies and the reform of the exchange rate were seen as significant actions by Tinubu’s administration, initially garnering positive reactions from investors and lenders.
Nigeria heavily relies on fuel imports due to years of mismanagement and underinvestment in government-owned oil refineries. Recently, there have been fuel shortages in Lagos, with motorists queuing for petrol, attributed to logistical issues during the Easter period.
Rising global oil prices and a weaker naira have also affected the Nigerian National Petroleum Corporation’s ability to import fuel.
Despite a decrease in market prices since February, NNPC continues to be the sole importer of the country’s daily consumption of approximately 40 million litres, as private importers are unable to recover their costs.
With the depreciation of the naira and the rise in oil prices, NNPC is reportedly operating at a loss for every litre sold. The International Monetary Fund (IMF) has cautioned against capping pump prices, emphasizing the need for market-based pricing mechanisms.
