Breaking: NNPC owes fuel traders $3 billion backlog on petrol payments

The Nigeria National Petroleum Corporation (NNPC) owes about $3 billion to fuel traders for imported petrol, three sources told Reuters, as the tumbling naira currency and rising global fuel prices have increased the effective subsidy it is paying.

The payment backlog is a blow to the government's efforts in Africa's largest economy to shore up its strained finances by curbing costly energy subsidies.

"They are paying, but it's slow," one of the sources with knowledge of the matter said. Five sources said that NNPC - the country's main importer of petrol - was taking more than 130 days to make the payments instead of within 90 days.

An NNPC spokesperson said the company was "not aware of any such debt nor any financial issues of such magnitude".

"Our focus remains on sustaining sufficiency in the supply of petroleum products in Nigeria," the spokesperson said.

NNPC's suppliers, including international traders like Vitol, Mercuria and Gunvor as well as Nigeria-based trading houses, are still supplying fuel, the sources said. They declined to be named because they are not authorised to speak to the media. The trading firms declined to comment.

But the payment delays underscore the creeping return of fuel subsidies scrapped in May 2023 - that sap NNPC's cash for imports and what it can send to President Bola Tinubu's government.

Nigeria had subsidised fuel for years to keep pump prices affordable, but Tinubu removed them as part of wider reforms, allowing prices to triple. Petrol consumption fell by around 30 per cent as higher prices curbed smuggling to neighbouring countries. In June, the government capped pump prices at a nationwide average of N617 per litre as Nigerians grappled with punishing inflation.

"It's hard to overstate the significance of fuel subsidies for the administration," said Clementine Wallop, director for sub-Saharan Africa at political risk consultancy Horizon Engage.

"It was subsidy removal and exchange rate reform that had investors and lenders initially positive about his administration, and it was their removal Tinubu hoped would give his team the ability to spend in the many other areas that need funding."

Nigeria is almost wholly reliant on fuel imports due to years of mismanagement and under-investment at state-owned oil refineries.

QUEUES AND BACKLOG OF BILLS

Last week, motorists queued for petrol across Nigeria's commercial capital Lagos, due to a shortage of fuel from depots. Clement Isong, head of the Major Oil Marketers Association (MOMAN), said logistical issues over Easter caused the constraints, which would soon abate.

Oil industry sources said rising global gasoline prices and a weaker naira had also impacted NNPC's ability to import.

At their peak in February, market prices for petrol in West Africa were N1,229 per litre, 150 per cent above the level the government capped prices in June, according to pricing data from Argus Media converted with tracking site Aboxifx naira rates. They have since fallen to around N912 per litre, still N295 above the capped price.

That left NNPC as the sole importer of the roughly 40 million litres per day the country consumes, as private importers cannot recoup their costs.

Since the naira has slid against the dollar and oil prices have risen, NNPC is losing money on every litre sold, traders said.

The International Monetary Fund recently warned that capping pump prices and electricity tariffs below cost recovery could shave up to 3 per cemt off GDP in 2024.

"The government still needs to begin formulating a plan to remove the fuel subsidy when conditions allow," Tellimer's Patrick Curran said in a note.