President Bola Tinubu has approved a request by the Nigerian National Petroleum Company (NNPC) Ltd to utilise the 2023 final dividends due to the federation to pay for petrol subsidy, according to a report by TheCable.
Tinubu equally approved the suspension of the payment of 2024 interim dividends to the federation in order to augment NNPC’s cash flow.
In addition, the national oil company told the president it will be unable to remit taxes and royalties to the federation account for now because of the subsidy payments, which it termed subsidy shortfall/FX differential.
According to the report, an NNPC forecast showed that the cumulative petrol subsidy bill from August 2023 will hit N6.884 trillion by December 2024 — leaving the national oil company unable to remit N3.987 trillion in taxes and royalties to the federation account.
NNPC is expected to pause the payment of interim dividends for eight months this year — from May to December.
Interim dividends, based on inflow projections, are usually remitted monthly into the federation account and shared by the three tiers of government while the final dividends are paid at the end of the year after reconciliation.
Under the Petroleum Industry Act (PIA), the NNPC is obligated to pay taxes and royalties as well as dividends to the federation, its sole shareholder.
NNPC had in June informed Tinubu that the subsidy payments were negatively impacting its cash flow and it was struggling to remain a “going concern”.
The company said it might not be able to sustain petrol imports because of the ballooning subsidy bill, which it blamed on “forex pressure”.
Mele Kyari, the group CEO of NNPC, according to TheCable, informed the president that when subsidy was removed in June 2023, it led to monthly savings of N400 billion to the federation.
This, he said, enabled the company to remit its taxes and royalties totalling N2.032 trillion into a sequestered account at the Central Bank of Nigeria (CBN) as at January 2024.
Kyari said the development was short-lived with the devaluation of the naira which led to month-on-month escalation in the NAFEX exchange rate.
In August 2023, NNPC moved from surplus to negative in fuel importation costs, incurring a subsidy bill of N52.73 billion.
This increased to N57.59 billion in September and N212.28 billion in October before ballooning to N665.60 billion in November, when exchange rate had more than doubled from the time subsidy was removed.
The bill fell slightly to N537.66 billion in December before hitting a new high of N693.67 billion in January 2024.
The bill dropped to N592.09 billion the following month and N497.39 billion in March before rising again to N833.68 billion in April, forcing Kyari to send an SOS to the president.
He said the situation had continued to exert “undue pressure” on the NNPC, leading to its inability to remit royalties and taxes into the federation account.
Kyari further said national energy security was being threatened as the NNPC might not be able to sustain petrol imports “beyond July 2024”.
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