Petrol shortage expected to deepen as Nigeria National Petroleum Company Limited reveals a $6 billion debt, heightening concerns over fuel supply disruptions.
It appears that the cost to fill up vehicles with premium petrol could increase at filling stations, as the Nigerian National Petroleum Company Limited has acknowledged difficulties arising from a debt worth $6 billion.
Following weeks of refusal, the NNPC ultimately confessed on Sunday to owing its petrol vendors a considerable sum totaling $6bn. The institution attributed these financial challenges to soaring expenses associated with petrol supply expenditures.
The state-owned energy company has tacitly acknowledged that the fuel queues in filling stations across the country are a result of its debt. In a statement issued by their Chief Corporate Communications Officer, Olufemi Soneye, they stated it is affecting supply sustainability.
In July, it was reported that Nigeria had accumulated over $6bn in debt to petrol suppliers. This has caused challenges for NNPC as they attempt to bridge the difference between fixed pump prices and global fuel expenses.
According to a report from Reuters, the national oil company has been facing difficulties since the start of this year due to overdue payments for petroleum products exceeding $3 billion.
Traders reported that the company has yet to settle payments for several January imports, resulting in a mounting debt. According to contractual obligations, NNPC is expected to make payment within 90 days of delivery.
As per an industry insider, traders are tolerating the situation solely due to receiving $250,000 a month (for each cargo) as compensation for delayed payment.
According to traders, Nigeria’s PMS procurement tenders have been reduced in size since June.
As of now, five traders who have not received payment are reported to have stopped supplying PMS to the NNPC. This includes three additional traders in addition to the two from July.
In August, Soneye denied that the $6.8bn owed to international oil traders was a debt of NNPC.
According to the spokesman, NNPC Ltd has no outstanding debt of $6.8bn with international traders as transactions in the oil business are often credit-based and may have unpaid obligations occasionally. Nevertheless, its subsidiary company – NNPC Trading – maintains various trade credit lines with multiple merchants while fulfilling them on a first-in-first-out principle.
Despite the NNPC’s attempts to address the fuel crisis by citing factors such as unfavorable weather conditions and issues regarding vessel discharge, none of their actions have successfully alleviated the long queues at filling stations.
The company made a sudden admission on Sunday, acknowledging its financial constraints and reversing course.
The significant debt of NNPC Ltd to petrol suppliers has been acknowledged by the company in recent reports published in national newspapers.
“Soneye, in a statement titled ‘NNPC Ltd Faces Financial Strain Due to PMS Supply Costs, Impacting Supply Sustainability,’ expressed that the financial strain has exerted significant pressure on the company and puts the sustainability of fuel supply at risk.”
He stated that the company was partnering with pertinent government entities and other interested parties to ensure a steady provision of petroleum products throughout the country.
NNPC Ltd is committed to its obligation as the ultimate supplier, guaranteeing energy security across the country in concurrence with the Petroleum Industry Act.
“We are working in close partnership with pertinent government agencies and other stakeholders to ensure an uninterrupted provision of petroleum products across the nation.”
Despite ongoing complaints from Nigerians about the prolonged fuel crisis that started in July, there have been rumors triggered by NNPC’s recent admission of a claim it previously denied. This has led to speculation that the Federal Government may cease paying for what they refer to as “under-recovery” or shortfall on imported gasoline.
The company may be considering the sole solution to their debt problems: ceasing payment of shortfalls that are no longer tenable.
In the event of such an occurrence, operators have asserted that petrol prices would exceed N1,000. Accredited marketers who are keen can then import fuel, thereby eliminating NNPC’s monopoly.
Subsidies are paid by FG.
The NNPC, which holds exclusive rights for petrol importation, has recently acknowledged that the current PMS price of N1,117 per litre is subsidized by the Federal Government.
Despite denying payment of fuel subsidies to marketers over the last nine years, the NNPC mentioned that it was authorized by the government to sell at a price lower than the landing cost.
During the presentation of its 2023 report in Abuja, Alhaji Umar Ajiya who serves as the Chief Financial Officer for the company made this announcement.
Over the past eight to nine years, NNPC has not provided any subsidy payments to anyone. No kobo in the name of a subsidy has been paid out by us and no marketer received funds from NNPC for this purpose.
READ ALSO: NNPCL Demands N4.7tn Refund for Petrol Imports – Full Story
The situation is such that PMS has been imported at a set cost and the government mandates us to sell it for half of that amount. As a result, there exists a deficit between the landing price and this reduced rate.
According to him, “The agreement is between the Federation and NNPC for reconciliation purposes. Occasionally, they provide us with funds; thus, no marketer receives any subsidy payment.”
According to him, credit lines are commonly found in downstream industries due to the global commercial network.
In the past, there was an open credit agreement between the company and PMS suppliers that included payment term-line contracts. This was disclosed by him.
Moreover, Dapo Segun – the Executive Vice President in charge of Downstream affairs at NNPCL – emphasized that creating an open credit system with suppliers was a testament to the national oil company’s hard-earned reputation for reliability.
“The outstanding amount owed to suppliers is not as high as previously stated, it falls below the $6.8bn threshold.”
The crucial aspect is our relationship with suppliers which guarantees that we consistently fulfill payment obligations, as proven by our track record.
He explained that the figure cannot be considered static and refrained from quoting a specific number. The quantity fluctuates with each payment made and product supplied, making it dynamic. However, ensuring widespread availability of PMS remains the top priority.
The NNPC, as the sole importer of petrol, receives payment from the Federal Government to provide Nigerians with fuel at a discounted price.
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The continuous accumulation of debt with international oil companies has resulted in an unending fuel scarcity throughout the nation.
President Bola Tinubu declared on May 29, 2023 that the fuel subsidy had been abolished.
Following the floatation of the naira, imported petrol became too expensive for an average Nigerian to afford. Consequently, in order to address this matter, the Federal Government decided to intervene by capping its price below its landing cost and covering the shortfall.
Fuel importation is being influenced by the lack of payment on the shortfall from the Federal Government.
The Nigerian government received a warning from the International Monetary Fund in May to eliminate what was referred to as implicit subsidies for fuel and electricity.
According to a report released by the IMF, Nigeria was informed that subsidies would consume 3% of its Gross Domestic Product in 2024 compared to the previous year’s figure of only 1%.
As per the report, the IMF lauded the Federal Government for eliminating “expensive and inequitable energy subsidies”, citing its significance in generating financial resources for developmental expenditures as well as enhancing social welfare without impeding debt sustainability.
Following the removal of subsidy by Tinubu, IMF observed that sufficient actions to aid the less privileged were not promptly executed and halted due to suspicions of corruption. To manage Nigeria’s high inflation rate and currency value depreciation, pump prices will be capped below cost as a means of reintroducing implicit subsidies for citizens until 2023-end.
The IMF’s advice seems to be finally heeded by the Federal Government.
“‘Partial deregulation causing fatalities’.”
Hammed Fashola, the National Vice Chairman of the Independent Petroleum Marketers Association of Nigeria, has urged the government to either fully reinstate or completely eliminate fuel subsidies rather than implementing a limited form of deregulation.
The Federal Government and the NNPC ought to take definitive action in their deregulation efforts. Full deregulation should be implemented, as we are well aware of its ultimate destination. This is evidenced by the stark contrast between retail pricing at N580 from NNPC versus independent marketers at N800 in Lagos – a significant gap that suffocates our industry’s growth potential with unproductive results for us all.
Fashola stressed that if the Federal Government intends to reinstate the subsidy, it should be a complete revival and not limited to NNPC Retail. This way everyone can unmistakably recognize they are using subsidized products. However, Fashola expressed his concerns about reintroducing subsidies as he believes such policies would negatively impact on the country’s economy.
He expressed that the discrepancy in pricing creates a negative perception for independent marketers, as it is difficult for consumers to comprehend why their rates may be higher.
He suggested that people view us as bad simply because they are unaware that we are trying to educate them and it is not our fault.
According to the leader of IPMAN, the PMS fuel shortage is due to NNPC being the sole importer.
He stated that the issue lies in only the NNPC having the ability to provide this product due to forex. The sole distributors are them, despite two or three independent marketers attempting imports but failing.
Fashola emphasized the need for marketers to accept reality and stand firm. He requested that if the subsidy should be removed, it should be done fairly so all parties would have equal opportunity. The objective is not to benefit NNPC Retail at others’ expense but rather operate on a level playing field. Being perceived as selfish businesspeople like Shylock isn’t ideal either.
Our correspondent has observed that independent marketers’ filling stations are experiencing a continuous rise in prices during the two-month fuel crisis.
Starting from under N700 in July, the cost of one liter of petrol has steadily increased and now exceeds N900 at most gas stations as August concludes. Presently, there have been no successful efforts to halt this ongoing rise.
A bus conductor negotiating transport fare along the Lagos-Ibadan Expressway was visibly angry as they informed a passenger that they had just purchased one liter of petrol for N980 in Ogere.
Major marketers such as NNPC Retail, Mobil, MRS, Conoil,Ardova and TotalEnergies sell their products below N700 at filling stations. However,long queues of motorists struggling to purchase fuel can be observed.
Over the weekend, it was noted that numerous leading marketers, such as NNPC, operate with limited services because of erratic fuel availability.
Despite promises made, Nigerians are still facing difficulties in achieving energy security, particularly with regards to the transportation sector.
Our correspondent was told by a depot operator that the increase in price should be attributed to marketers’ desperation for PMS.
The PUNCH was informed by an operator, who wished to remain anonymous, that numerous marketers engage in fierce competition and are willing to purchase at any cost as they anticipate selling for a greater price and making profit.
However, the operator argued that insufficient supply is to blame for the despair. They stated that several depots have been depleted of stock for weeks.
According to the source, it is often not the depot owners who increase prices; rather, it is the marketers competing with each other at depots.
According to our correspondent’s findings, certain individuals functioning as intermediaries between the depots and filling stations exclusively cater to those with higher bids while neglecting others who are unable to afford it.
It has been discovered that these intermediaries generate profits solely by making phone calls to gas stations and bargaining prices.
Our correspondent was informed by an additional depot source that fuel loading has exhibited progress over the weekend, with hope being expressed for further improvement during this upcoming week.
“The loading process improved during the weekend. It is anticipated that the supply will further improve. Our team carried out loading activities from Saturday to Sunday and we remain optimistic about an improvement in fuel situation this week,” revealed the source.
Despite the supposed enhancement in fuel loading, Nigerians still have to pay elevated rates for purchasing fuel as per our correspondent’s report.
Research findings indicated that transport expenses had surged by approximately 40 percent, with variations based on the location.
