President Bola Tinubu has authorized the Nigerian National Petroleum Company (NNPC) Ltd. to apply its 2023 final dividends towards covering escalating petrol subsidy expenses.
The NNPC sought this approval due to the financial strain from soaring fuel subsidy costs, which has impacted the company’s ability to remit taxes and royalties to the federation account. The company projected a petrol subsidy bill of N6.884 trillion from August 2023 to December 2024, resulting in an inability to remit N3.987 trillion in taxes and royalties.
Despite the removal of the petrol subsidy in June 2023, which initially saved the federation N400 billion monthly, the devaluation of the naira has drastically increased the NAFEX exchange rate, causing a spike in subsidy costs. By April 2024, NNPC’s fuel importation costs had turned negative, amounting to N833.68 billion.
To ease NNPC’s cash flow challenges, President Tinubu also approved the suspension of 2024 interim dividends. The company anticipates that subsidy costs will surpass N5 trillion in 2024, as it uses a “derived FX rate” to maintain petrol prices between N600-N700 per litre. The gap between this rate and the official exchange rate represents the “subsidy/FX differential.”
