Nigeria's gasoline debt hits $6 billion, traders back out of further deal

The debt owed to gasoline suppliers has doubled since early April, reflecting the struggle of the state oil firm, Nigeria National Petroleum Corporation (NNPC), to bridge the gap between fixed pump prices and rising international fuel costs, according to six industry insiders.

President Bola Tinubu ended costly fuel subsidies last year, leading to a tripling of pump prices. However, the NNPC soon capped these prices due to public discontent over the rising cost of living. 

For years, analysts, NGOs, and even government officials have criticized the subsidies as wasteful and corrupt. Yet, many Nigerians, who receive few government services, have long viewed affordable fuel as a right, particularly amid the current cost-of-living crisis. 

Recent deadly riots forced Kenya’s heavily indebted government to abandon planned tax hikes, highlighting the challenges other nations face in implementing similar measures.

Elsewhere, Senegal's energy subsidies remain high at 3.3% of GDP, while Egypt and Angola are also working to eliminate subsidies to improve state finances. Traders noted that NNPC has not paid for some January imports, with late payments amounting to $4 billion to $5 billion. Under contract terms, NNPC is supposed to pay within 90 days of delivery. NNPC declined to comment on the situation.

There are fears among some quarters that Nigerians may also resist the hardship imposed by a government that has lost control of the economy which is currently characterized by unprecedented high cost of living. 

One industry source explained, "The only reason traders are tolerating this is the $250,000 a month (per cargo) compensation for late payments." At least two suppliers have ceased participating in recent tenders after reaching their debt exposure limits with Nigeria. These suppliers will not provide more gasoline until they are paid.

While traders often operate in risky environments, they impose credit limits to prevent overexposure to a single borrower. Consequently, Nigeria's gasoline tenders for June and July were smaller than usual. In July, NNPC is set to import around 850,000 tonnes of gasoline, down from the typical 1 million tonnes.

Fresh fuel queues have started forming in Lagos and Abuja, with some stations in Abuja halting gasoline sales. Despite being Africa's largest oil exporter, Nigeria imports nearly all its fuel due to the long-term neglect of its state-owned refineries. The newly opened Dangote refinery, with a capacity of 650,000 barrels per day, has not yet produced marketable gasoline and is instead selling other fuels abroad.

Nigeria's savings have been depleted by corruption and wasteful spending, leaving the country with limited financial reserves. The cash-strapped NNPC has also mortgaged much of its spot oil cargoes, reducing its ability to sell oil for cash. In late 2023, NNPC secured its largest-ever oil-backed loan of $3.3 billion from Afreximbank and a consortium of traders, including Gunvor, to bolster the nation's foreign exchange reserves.