The Chief Financial Officer (CFO) of the Nigeria National Petroleum Company Ltd (NNPCL), Alhaji Umar Ajiya, has clarified the ongoing confusion regarding fuel subsidies and the financial operations of NNPCL.
Speaking in Abuja on Monday during the presentation of the company’s 2023 full-year financial results, which recorded a profit of N3.3 trillion, Ajiya disclosed that the government does no longer subsidize the cost of Premium Motor Spirit (PMS) it only compensates NNPCL for selling the product at half the landing cost.
He explained that for the past eight to nine months, NNPCL has not disbursed any subsidies to fuel marketers. Instead, the company has been handling the shortfall arising from selling PMS at government-mandated prices, which are significantly lower than the actual landing costs.
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He stated: “In the last eight to nine months, the NNPC Ltd. has not paid anybody a dime as subsidy, no one has been paid kobo by the NNPC Ltd. in the name of subsidy. No marketer has received any money from us by way of subsidy.”
Ajiya further clarified that the government’s directive requires NNPCL to sell PMS at half the landing cost, with the difference being reconciled between NNPCL and the federation. This arrangement, which he referred to as “shortfall,” essentially means that while NNPCL is not directly paying subsidies to marketers, the government is indirectly subsidizing fuel by covering the gap between the market cost and the regulated retail price.
This clarification comes amidst reports that the administration of President Bola Tinubu plans to spend N6.8 trillion on fuel subsidies between August 2023 and December 2024. This figure, the highest ever recorded, has fueled public concern and criticism, particularly given the ongoing economic challenges facing the country.
Nigerians are questioning the distinction between traditional fuel subsidies and the current arrangement where the government pays NNPCL to sell PMS at a loss. Data from NNPCL indicates that the landing cost of fuel is approximately N1,200 per liter, while the official selling price is N600 per liter. Between January and June 2024, the government reportedly spent N7.8 trillion on what is essentially a subsidy, albeit under a different label (shortfall).
Alleged $6.8 Billion Debt and Credit Lines
Addressing concerns about NNPCL’s financial obligations, Ajiya acknowledged that the company has engaged in open credit arrangements with PMS suppliers, a common practice in the global downstream sector. He noted that these credit lines involve term agreements for payment, which are critical for maintaining a steady supply of petroleum products.
Dapi Segun, NNPCL’s Executive Vice President of Downstream Operations, also weighed in on the matter, disputing reports that the company owes $6.8 billion to suppliers. He explained that while there are outstanding payments, the figure is lower than the reported amount and is subject to fluctuations based on ongoing transactions.
“Concerning the outstanding to the suppliers, it is not in that magnitude that has been put out; it is actually lower than the $6.8 billion,” Segun stated. “What matters really is the relationship between us and our suppliers to ensure that we keep faith in making these payments to our suppliers, which we have done over time.”
Segun also highlighted the dynamic nature of these financial obligations, explaining that the debt figure is not static and fluctuates as payments are made and new supplies are received. He stressed that the primary concern for NNPCL is to ensure the continuous availability of PMS across the country.
“You would understand that it is not a static figure, and I wouldn’t want to be quoting any figure, when we make payments it goes down, when they supply products, it goes up.
“It is a dynamic way, but the most important thing is to ensure that we continue to make PMS available across the country,” he said.
The Subsidy and Ongoing Fuel Scarcity
Despite assurances from NNPCL that fuel will be available across the country in a few days, the Nigerian people are currently experiencing widespread fuel scarcity, exacerbated by perceived lapses in the subsidy arrangement and distribution inefficiencies. The Independent Petroleum Marketers Association of Nigeria (IPMAN), which represents over 3,000 members controlling the largest share of filling stations nationwide, has accused NNPCL of failing to supply enough products to meet demand.
Engr Shina Amoo, Chairman of IPMAN’s Ore Depot, expressed frustration during an appearance on Channels Television’s Morning Brief, citing a lack of adequate supply from NNPCL. He pointed out that independent marketers, who are crucial to fuel distribution, have been sidelined in favor of major marketers, leading to widespread shortages.
“There is no supply anywhere. For now, the only supply available is not well distributed. We have been making noise about the distribution pattern long ago,” Amoo said. “We had a type of arrangement before now, where we used to enjoy 70/30 supply based on our strength. If you go to areas like villages, and urban areas, you will see lots of independent marketers where you would not find any major or semi-major marketers.”