President Bola Tinubu has approved the Nigerian National Petroleum Company (NNPC) Ltd’s request to use the 2023 final dividends due to the federation for petrol subsidy payments.
Additionally, the president has allowed the suspension of 2024 interim dividend payments to support NNPC’s cash flow.
The NNPC informed President Tinubu that it would be unable to remit taxes and royalties to the federation account due to the subsidy payments, which have caused a financial shortfall.
A forecast from NNPC indicated that the petrol subsidy bill could reach N6.884 trillion by December 2024, leaving the company unable to remit N3.987 trillion in taxes and royalties.
NNPC is expected to halt the payment of interim dividends from May to December 2024. Typically, these dividends are remitted monthly and shared among the three tiers of government, while final dividends are paid at the end of the year after reconciliation.
Under the Petroleum Industry Act (PIA), NNPC is obligated to pay taxes, royalties, and dividends to the federation, its sole shareholder.
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In June 2024, NNPC had alerted President Tinubu to the negative impact of subsidy payments on its cash flow, which was threatening its ability to remain a viable entity.
The company also expressed concerns about sustaining petrol imports due to the rising subsidy bill, exacerbated by forex pressure.
NNPC CEO Mele Kyari informed the president that the removal of the subsidy in June 2023 initially saved the federation N400 billion monthly, allowing the company to remit N2.032 trillion in taxes and royalties to a sequestered account at the Central Bank of Nigeria (CBN) by January 2024.
However, the devaluation of the naira led to a sharp increase in the exchange rate, pushing NNPC’s fuel importation costs from a surplus to a deficit in August 2023. By April 2024, the subsidy bill had escalated, forcing Kyari to send an urgent request to the president.
Despite implementing strategies to improve cash flow, such as fighting oil theft, debt rescheduling, and deferring non-critical projects, NNPC’s financial situation has continued to worsen.
Projections indicate that by December 2024, NNPC will still owe N2.897 trillion after accounting for its obligations and subsidy shortfall.
On June 6, 2024, President Tinubu approved Kyari’s request to use the 2023 final dividends and defer the 2024 interim dividends to cover the subsidy costs. This decision marks an acknowledgment of the ongoing subsidy payments, despite previous denials by the administration.
The subsidy, initially removed in June 2023, has resurfaced due to high crude oil prices and the devaluation of the naira, making it a significant financial burden for NNPC.