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NNPCL Pays Cash for Fuel, Spend ₦4trn on Subsidy

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  • NNPCL ends crude-for-petrol swap deal
  • To pay off debt by November
  • NMDPRA call for more transparency in the sector.

CEM REPORT, ENERGY | Fuel subsidy removal is still a trending debate in various quarters as statistics show that subsidy might still be in play but the federal government has maintained that it isn’t subsidizing the product. Perhaps the controversy around the issue will be cleared as the Nigerian National Petroleum Company Limited (NNPCL) has begun paying cash for fuel rather than oil.

This ends the nearly a decade run of the crude-for-petrol swap deal, otherwise called Direct Sale Direct Purchase (DSDP) contracts, with foreign refiners and consortia of traders, NNPCL is expected to pay the last debts owed under the long-running oil swaps by the end of next month according to a Reuters report.

DSDP could no longer continue as the new administration seeks to deregulate the Nigerian oil market and invest funds dispensed to fuel subsidy to other sectors of the ailing economy.

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While the President Bola Ahmed Tinubu led administration continues to develop and implement policies to deregularize the Nigerian oil market via licensing private companies to import fuel, the move is yet to yield results as NNPCL remains the sole importer of petrol as a result of its fair access to FX (dollar) than others.

Also, retail price ceiling set by NNPCL has made it less profitable for private firms to import fuel as the landing cost, going by recent data is more than the NNPCL retail prices.

Report has it that NNPCL sent nothing to government coffers, even amid surging oil prices, as the crude-for-petrol swap deal, consumed all the crude oil it had to sell. It also sighted debt of nearly $2 billion owed to consortiums to the Federation Account Allocation Committee in a September 2022 NNPC. The company is expected to close the payment in November.

Recall a CEM report in early June where Group Chief Executive Officer NNPCL, Mele Kyari, said in a move to end the monopoly of the oil market in Nigeria the company in the last four months, we practically terminated all DSDP contracts. And we now have an arm’s-length process where we can pay cash for the imports.

“… By importing less petrol, as private companies import the bulk, NNPC will be able to pay for its purchases in cash.”

Meanwhile, the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) has said that Nigeria spent more than ₦4 trillion on fuel subsidy in 2022 which represents about 20 per cent of the budget for the year.

According to NMDPRA’s Chief Executive Officer, Farouk Ahmed, this led to a strain on the fiscal viability of the government and became a major obstacle to inclusive participation in the downstream petroleum sector.

Speaking at the ongoing Energy Labour Summit organised by the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) in Abuja, he noted that Nigeria needs a very robust mid and downstream sector to maximise the inherent values that can be derived from the abundant reserves of over 37 billion barrels of crude oil and over 206 TCF of gas inherent in the country.

Represented by Bashir Sadiq, Executive Director of Corporate Services and Administration of the agency, he regretted that while the country produces in large quantities, a large chunk is exported which could bring value to the nation.

“The mid and downstream sector is where the most value derivable from the nation’s hydrocarbon resources can be obtained through the creation of employment, accelerated industrialization of Nigeria, security of energy and generation of revenue to list just a few,” Ahmed added

He said a transparent mid and downstream market attracts investments and promotes efficiency, competition and sustainable development of the sector quickly adding that the NMDPRA is working with all its stakeholders to effectively develop a transparent midstream and downstream sector in line with the mandates defined in the PIA.

“I am glad to inform you that we have achieved remarkable progress in this regard through our extensive stakeholder consultation during the formulation and rollout of our regulations,” he said.

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