President Bola Ahmed Tinubu has approved the request by Nigerian National Petroleum Company Limited (NNPCL) to use the final dividends of 2023 due to the federation to cover petrol subsidy payments according to The Cable News.
The report also states that the President sanctioned the suspension of 2024 interim dividends to support NNPCL’s cash flow as the oil refining and distribution company grapples with the financial burden of petrol subsidy.
According to NNPCL, it would not be able to remit taxes and royalties to the federation account due to subsidy payments which it termed “subsidy shortfall/FX differential”.
The Financial forecast for the Petroleum company reveals a cumulative petrol subsidy bill from August 2023 to December 2024 to reach N6.884 trillion. This leaves the company unable to remit N3.987 trillion in taxes and royalties to the federation.
The company had previously warned President Tinubu in June 2024 that the subsidy payments were severely impacting its cash flow, making it difficult to sustain petrol imports due to “forex pressure.”
According to the report, NNPCL explained that petrol subsidy removal in June 2023 initially led to monthly savings of N400 billion for the federation and enabled the company to remit N2.032 trillion in taxes and royalties by January 2024.
However, the devaluation of the naira led to a significant increase in the NAFEX exchange rate, which, in turn, caused the subsidy bill to escalate. The NNPCL’s costs for fuel importation turned negative in August 2023 and continued to rise, reaching N833.68 billion by April 2024. This financial strain forced NNPC to seek President Tinubu’s approval to use the 2023 dividends to cover the subsidy costs.
Despite open refusal by the presidency that subsidy would be reinstated, the NNPCL’s internal communications with the president now openly refer to the ongoing financial support as a “subsidy.” The current administration’s official stance remains that “subsidy is gone,” even as NNPC projects that subsidy costs will exceed N5 trillion in 2024. The company uses a “derived FX rate” to keep petrol prices within the N600-N700 per litre range, with the gap between this rate and the official exchange rate constituting the subsidy/FX differential.
Pegging the petrol rate at N600-N700 per litre range requires financial subsidy to cover the difference especially as naira valuation continues to fluctuate. The NNPCL has openly declared that the value of the naira directly affects fuel prices and has forced the return of subsidy.
