REPORT: Fuel traders stop supply to Nigeria over unpaid $6B debt

Nigeria’s debt to gasoline suppliers has surpassed $6 billion, doubling since early April, as the state oil firm NNPC struggles to cover the gap between fixed pump prices and international fuel costs, according to six industry sources.

Last year, Nigerian President Bola Tinubu announced an end to expensive fuel subsidies, resulting in pump prices tripling. However, the state oil company NNPC capped pump prices shortly afterward as citizens grappled with the rising cost of living.

This price cap, coupled with a naira currency crash, has allowed the subsidy to re-emerge. Tinubu’s government anticipates the subsidy will cost at least $3.7 billion this year.

For years, analysts, NGOs, and government officials have criticized the subsidy as wasteful and corrupt.

Nevertheless, Nigerians, who receive few government services, have long regarded cheap fuel as a right, especially during the current cost-of-living crisis.

Last week, deadly riots forced Kenya’s debt-burdened government to cancel planned tax increases, highlighting the challenges other countries face in imposing further financial burdens on citizens amid rising inflation.

Senegal’s energy subsidy bill remains high at 3.3% of GDP, while Egypt and Angola are also attempting to cut subsidies to stabilize state finances.

NNPC began struggling early this year when late gasoline payments surpassed $3 billion. The company has not yet paid for some January imports, with late payments now 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 matter.

“The only reason traders are putting up with it is the $250,000 a month (per cargo) for late payment compensation,” one industry source said.

According to the source, at least two suppliers have stopped participating in recent tenders after reaching self-imposed debt exposure limits to Nigeria, meaning they will not send more gasoline until they receive payments.

While traders often operate in risky environments, they set limits on credit allocation per trade to avoid excessive exposure to one borrower. These limits vary by company based on size and operational region.

Consequently, Nigeria’s tenders to buy gasoline in June and July were smaller, traders said. NNPC plans to import around 850,000 tonnes in July, down from the typical 1 million tonnes in previous months, according to two sources.

Fresh fuel queues have already started forming in Lagos and Abuja this week, with some Abuja stations ceasing gasoline sales.

Despite being Africa’s largest oil exporter, Nigeria imports nearly all its fuel due to years of neglect at its state-owned oil refineries. The newly opened 650,000 barrel-per-day Dangote refinery has not yet produced marketable gasoline and is currently selling other fuels abroad.

The country has limited savings to rely on as corruption and wasteful spending have depleted decades of oil revenues. Cash-strapped NNPC has also mortgaged much of its spot oil cargoes, limiting what it can sell for cash.

In late 2023, NNPC secured its largest-ever oil-backed loan worth $3.3 billion from Afreximbank and a consortium of traders, including Gunvor, to bolster the country’s foreign exchange reserves.

Source: Reuters

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