President Bola Tinubu has authorized the Nigerian National Petroleum Company (NNPC) Ltd to use the 2023 final dividends owed to the federation for covering petrol subsidies.
Additionally, he has sanctioned the temporary halt of the 2024 interim dividend payments to the federation to support NNPC’s financial liquidity and tackle the increasing fuel subsidy costs.
After Tinubu eliminated the subsidy in June 2023, NNPC employed a “derived FX rate” to maintain petrol prices between N600-N700 per liter. The difference between this rate and the official one represents the subsidy/FX gap. Essentially, the nation still subsidizes fuel, although the current administration avoids explicitly acknowledging it.
In a recent update, NNPC notified the president that it cannot transfer taxes and royalties to the federation account because of the subsidy outlays, referred to as “subsidy deficit/FX differential.”
According to an NNPC projection, the total petrol subsidy expenditure is projected to reach N6.884 trillion by December 2024 starting from August 2023. As a result, the national oil company will be unable to transfer N3.987 trillion in taxes and royalties to the federation account.
NNPC plans to suspend the distribution of interim dividends for an eight-month period this year, spanning from May to December.
According to reports, every month, the NNPC usually sends some money to the government’s account, which is then shared among different levels of government. At the end of the year, they pay a bigger sum after sorting out all the accounts.
The law says NNPC must give some money to the government as taxes and profits because the government owns it. But NNPC has been finding it hard to do this properly because of the rising cost of supporting fuel prices.
In June 2024, NNPC expressed to Tinubu that the subsidy payments were severely affecting its finances and endangering its operational sustainability. The company highlighted difficulties in sustaining petrol imports due to the soaring subsidy costs attributed to foreign exchange challenges.
The president has given approval to the National oil company’s request. Earlier, NNPC’s group CEO, Mele Kyari, briefed the president that the removal of subsidies in 2023 resulted in monthly savings of N400 billion for the federation.
However, this benefit was short-lived as the naira devaluation triggered a continuous increase in the NAFEX exchange rate, causing challenges.NNPC has tried different strategies to deal with the subsidy problem, like producing more oil, rearranging debts, and delaying payments to suppliers.
However, the situation is still serious, with estimates showing a growing lack of cash mainly because of exchange rate changes. This year alone, it’s expected that the petrol subsidy bill will be more than N5 trillion.
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