I have tried to ignore the own goal policy frameworks in Nigeria. But this one is painful to ignore since it is coming from NNPCL, an iconic national institution. Recall that in June 2023, I noted that Nigeria would be unable to float Naira and remove fuel subsidy at the same time. I posited that within 18 months, the nation would get into a vicious circle of carry-capacity, where trying to “suppress” subsidies and “hold” Naira, Nigeria will trigger significant welfare losses for the citizens.
For NNPCL to drop this statement, it does mean it wants to open the veil: “NNPC Ltd. has acknowledged recent reports in national newspapers regarding the company’s significant debt to petrol suppliers. This financial strain has placed considerable pressure on the Company and poses a threat to the sustainability of fuel supply.” Whoever tells you that you can float Naira and keep the prices of petrol and diesel constant is lying to you.
PRESS RELEASE – NNPC Ltd Faces Financial Strain Due to PMS Supply Costs, Impacting Supply Sustainability
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NNPC Ltd. has acknowledged recent reports in national newspapers regarding the company’s significant debt to petrol suppliers. This financial strain has placed considerable pressure on the Company and poses a threat to the sustainability of fuel supply.
In line with the Petroleum Industry Act (PIA), NNPC Ltd. remains dedicated to its role as the supplier of last resort, ensuring national energy security. We are actively collaborating with relevant government agencies and other stakeholders to maintain a consistent supply of petroleum products nationwide. – NNPC /1st September, 2024
A Great Summary from TC Daily newsletter
Nigeria’s petrol subsidy, a decades-long government intervention that has defied all efforts at dismantling, was scrapped unceremoniously in May 2023. It was hailed as an important but poorly executed reform, but other problems like FX volatility and a government struggling to raise revenues have made follow-through difficult.
The devaluation of the naira, for instance, has increased the cost of importing petrol and has ensured that a 3x increase in fuel price is no longer sufficient. Depending on who you talk to, the current landing price of petrol is ?1,000 ($0.63)/litre, significantly higher than the ?610 ($0.38) fuel currently retails for. It means the federal government has been paying subsidies for months.
Those subsidies have strained the government’s finances and caused late payments to fuel importers. Late payments lead to long fuel queues and Nigeria’s fuel scarcity, which has historically been seasonal, is now a feature in many major cities.
It is creating headaches for individuals and businesses. Logistics operators are struggling to get fuel and sometimes paying above market price. They’re also passing on those costs to end users. The scarcity also makes life difficult for millions of people who generate their own power given the country’s unreliable power supply.
Yet the situation may only get worse.
On Sunday, the Nigeria National Petroleum Company Limited (NNPC) admitted that its debts to fuel importers are significant and the “financial strain has placed considerable pressure on the company and poses a threat to the sustainability of fuel supply.”
If you’re not versed in government speak, the NNPC, which reported ?3.3 trillion ($2.07 billion) in 2023 profits in August, will likely use all of those profits to pay subsidies. And that may not even be sufficient. Some reports put the backlog of payments at $6 billion.
While NNPC continues to “engage with stakeholders,” Nigerians have to brace themselves for more queues and a possible fuel price increase.
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