Nigeria’s state oil firm, NNPC Ltd, has announced the winding down of crude swap contracts with traders and a transition to cash payments for gasoline imports, according to the company’s Chief Executive Officer. The move comes as part of President Bola Tinubu’s plan to deregulate the gasoline market and alleviate the strain on government finances.
“Tinubu has already scrapped a costly fuel subsidy, effective from last Tuesday, a decision which tripled petrol prices,” said the NNPC CEO, acknowledging the government’s efforts to reduce the burden on government finances.
“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,” the NNPC CEO told Reuters in an interview late on Saturday, highlighting the company’s transition away from crude swap contracts.
“Nigeria’s total crude and condensate output was at 1.56 million barrels a day (bpd) as of Friday,” the NNPC CEO stated, shedding light on the current oil production levels in the country.
“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,” the NNPC CEO reiterated, emphasizing the shift towards cash payments.
“NNPC’s monopoly on gasoline supplies was ending and private firms could start importing as early as this month,” said the NNPC CEO, highlighting the upcoming involvement of private companies in gasoline imports.
“Nigeria has struggled to meet its OPEC oil quota of 1.742 million bpd due to grand oil theft and illegal refining,” the NNPC CEO explained, shedding light on the challenges faced by the country’s oil production.
“NNPC has a contract to supply 300,000 bpd to the refinery,” the NNPC CEO revealed, indicating the commitment to supply the recently commissioned Dangote Refinery.
As Africa’s largest crude producer, Nigeria has been heavily reliant on imported refined products due to the decline of its domestic refineries. Last year’s significant drop in oil production, coupled with high global fuel prices stemming from the conflict in Ukraine, further exacerbated NNPC’s debt to traders. The September 2022 NNPC report to the Federation Account Allocation Committee revealed a debt of approximately $2 billion owed to the consortiums.
While NNPC continues to allocate crude for fuel swaps for July loading, the volume has decreased compared to previous months, according to an industry source familiar with the matter. NNPC’s March crude oil loadings report also indicated crude allocations to the swap contracts held by the consortiums.
With the termination of crude swap contracts and the introduction of cash payments, NNPC aims to navigate the financial challenges associated with gasoline imports. The involvement of private firms in the market is expected to enhance competition, improve efficiency, and ultimately benefit consumers.
As Nigeria embraces these reforms, the success of this new approach will be crucial in shaping the nation’s energy landscape, fostering economic growth, and addressing the long-standing challenges associated with the fuel subsidy system.