The dust had barely settled following the release of Nigeria National Petroleum Company Limited’s (NNPCL) 2023 audited financial statement, where it declared record profits of ₦3.297 trillion – a 28% rise from ₦2.548 trillion recorded in 2022. However, amidst this apparent financial success, the company faced a stark reality: a staggering $6.8 billion debt to international oil traders that has begun to threaten the sustainability of fuel supply in Nigeria. This financial strain has placed considerable pressure on NNPCL, raising questions about its operational viability and the broader implications for the Nigerian economy.

The Burden of Debt

The NNPCL’s acknowledgment of its $6 billion debt to oil traders is a critical juncture for the company. The audited financials revealed that receivables from the Federation were ₦9.4 trillion in 2023, up 331% from ₦2.18 trillion in 2022. It amounts to about half of the Federal Government’s ₦19.4 trillion revenue target for 2024 and is particularly alarming given that it exceeds the total amount Nigeria spent on fuel subsidies over the past decade, which was approximately ₦8.9 trillion from 2012 to 2021.

In a bid to alleviate the financial burden on NNPCL, the Nigerian government has approved the company’s request to utilise the 2023 final dividends due to the federation, estimated at ₦2.2 trillion (around $1.4 billion), to cover the petrol subsidies. This decision reflects the Federal Government of Nigeria’s (FGN) ongoing struggle to manage the costs associated with fuel imports while attempting to stabilise the market. The government’s reliance on dividends from NNPCL to fund petrol subsidies raises concerns about the sustainability of this strategy, particularly given the ongoing disruptions in petrol supply caused by the debt to international oil traders. This situation also raises questions about how the Federal Government intends to settle its remaining obligations to NNPCL.

Implications for National Debt and Debt Service Payments

The FGN’s debt to NNPCL could significantly impact Nigeria’s overall debt burden, potentially exacerbating national debt levels and escalating debt service obligations, which stood at ₦121.67 trillion and ₦1.31 trillion (74% of retained revenue) in Q1 2024, respectively. This development raises serious concerns about the country’s debt sustainability, as the growing fiscal pressures could constrain future policy choices and economic resilience. The recent 30% increase in petrol pump prices to ₦855-₦897 per litre brings the price closer to the estimated landing cost of ₦1,203/litre. While this is expected to lower subsidy payments in the short term, the entry of petrol from the Dangote Refinery, with NNPCL as the sole buyer, suggests that the government may still be hesitant to fully deregulate petrol pricing. Recent escalations in conflict, particularly between Israel and Hamas, have raised concerns about potential disruptions to oil supplies from the Middle East. Ongoing oil production shutdowns in Libya further complicate the supply landscape. These events are likely to exert upward pressure on oil prices in the short term. Given this backdrop, the continuation on subsidies, could necessitate increased government borrowing, potentially exacerbating Nigeria’s already significant debt burden.