Nigeria has accumulated at least $3 billion in debt in what was meant to be an arrangement by which the Federal Government swapped crude oil for refined products. This debt is owed to trading houses such as Vitol and oil majors such as BP for fuel supplies. Reports have revealed that Nigeria is trailing four to six months behind schedule in repaying its swap partners with cargoes of crude for four traders and executives. It has now been revealed that Nigeria will likely take months before the debts are repaid.
This situation will complicate the new president Tinubu’s reforms which are aimed at getting Africa’s largest economy and most populous black nation on earth off costly fuel subsidies that have contributed to growing debt and foreign exchange shortages. In other words, Nigeria has entered into these debts because the government does not have any functional oil refinery in the country. This has necessitated the swap deal. The four traders and executives involved in this made it known to the media days ago.
New president has introduced a number of new policies into office.
Barely in his two weeks of having assumed office, Tinubu removed petrol price caps and restrictions on the naira currency. These liberalisation changes that investors have been awaiting for more than a decade to be implemented. As part of those reforms, Nigeria, Africa’s top oil producer, plans to scrap the old scheme by which it swaps its crude for gasoline imports. For years, the country sold premium motor spirit (PMS) which was being bought at an open-market price with a subsidized rate to its people.
In 2022, the subsidy costs about $10 billion. The last time that the administration of former President Goodluck Jonathan tried to end the subsidy scheme, it resulted into an #OccupyNigeria protest, which saw Ojota in Lagos thronged by aggrieved citizens. The government was forced to continue the scheme in 2012. Presently, economic downturns have made it clear to Nigerians that the fuel subsidy has to be removed. It should be noted that Nigeria imports refined petroleum products because it lacks the capacity to refine its crude oil extracted from the Niger Delta region.
NNPC to pay now in cash but traders say swap ongoing.
Head of Nigeria’s state-owned NNPC, Mele Kyari, has said that the oil firm was ending the swaps known as Direct Purchase Direct Sale (DSDP). There has been years of criticism by civil society organizations (CSO) including the Nigerian Extractive Transparency Initiative for a lack of transparency and corruption. He said payments would now be made in cash but traders say NNPC is still importing gasoline via swaps for July delivery. As such, the firm has to pay for those cargoes in crude oil as well as for the pending payments for previous swaps in the past months.
For years, the arrangement has involved more than a dozen foreign and local trading consortia, and back payments are expected to continue until at least October 2023, according to the four traders involved in business with NNPC. Swaps participants include Vitol, Mercuria, BP and TotalEnergies. Also, the NNPC claims that the government owes it $6 billion for subsidized fuel sales. One of the major players have said that swaps will ultimately stop but not yet. “We are getting our swaps crude cargo in October at the earliest,” the rep said.
Country’s failing oil production has contributed to fiscal problems.
In May, NNPC had made a rare cash payment of $200 million to some partners, according to two trading partners. But there has been no payment since then. The country’s falling oil production has heightened the country’s fiscal problems as it reduces the revenue that could be used to repay debt. Nigeria used to produce 1.8 million barrels per day of crude but output has fallen in recent years to as little as 1.1 million during due to the lack of investment. Due to pipeline vandalism and illegal oil sabotage and refinery, Nigeria’s output has also gone below the one million mark in recent years.
Related Link
Wikipedia: Website
