Paragraph 1: Mounting Fuel Subsidy Debt and Deregulation
The Nigerian National Petroleum Company Limited (NNPCL) disclosed a substantial debt of N7.74 trillion owed by the Federal Government as of September 2024, attributed to exchange rate differentials (subsidies) on Premium Motor Spirit (PMS) imports. This massive debt accumulated between June 2023 and September 2024, a period marked by the full implementation of downstream oil sector deregulation. The deregulation aimed to remove price controls and allow market forces to determine fuel prices, but the government continued to intervene by covering the difference between the landing cost of imported petrol and the regulated pump price, effectively maintaining a form of subsidy. This intervention, intended to cushion the impact of price increases on consumers, resulted in the significant debt burden revealed by the NNPCL.
Paragraph 2: Unveiling the Subsidy Mechanism and Debt Repayment Plan
The N7.74 trillion debt arises from the government’s commitment to maintaining a specific price range for petrol at the retail level, despite the NNPCL incurring higher costs to acquire the product internationally. The government essentially absorbed the difference between the projected exchange rate and the actual expenses incurred by the NNPCL for importing petroleum products. This difference, which would typically be passed on to consumers through higher pump prices, became the subsidy that the NNPCL now seeks to recover from the government. The FAAC document indicated that the government is working towards settling this substantial debt within 210 days, suggesting a structured repayment plan is under development.
Paragraph 3: Analyzing the Debt Accumulation and Exchange Rate Dynamics
The NNPCL’s claim for subsidy reimbursement was initially reported as N4.71 trillion in August 2024, covering the period from August 2023 to June 2024. This figure subsequently increased to N7.74 trillion by September 2024, reflecting the ongoing accrual of exchange rate differentials. The calculation of these differentials is based on the Nigerian Autonomous Foreign Exchange Market rate, which can fluctuate, potentially altering the final debt figure. The NNPCL acknowledged that the actual differentials might change based on the prevailing foreign exchange rate at the time of import settlements. This dynamic nature of the exchange rate adds complexity to determining the precise final amount owed.
Paragraph 4: Deconstructing the Debt Components and Repayment Timeline
A detailed breakdown of the debt reveals a cumulative total exchange rate differential of N10.499 trillion. However, the NNPCL recovered N2.756 trillion between November 2023 and September 2024, reducing the outstanding balance to the reported N7.74 trillion. The documentation further clarifies that the weighted average of purchased USD as of February 7, 2025, was applied in these calculations, and that ongoing payments are being made within a 210-day timeframe. This timeline suggests a phased approach to debt settlement.
Paragraph 5: Tracking the Monthly Debt Progression and Budgetary Implications
The debt exhibited a consistent upward trend, escalating from N1.29 trillion in June 2023 to N7.74 trillion by September 2024. This trajectory indicates a continuous accumulation of subsidy costs despite the announced deregulation of the downstream oil sector. The magnitude of the debt, representing 14.07% of the N54.99 trillion 2025 national budget, raises concerns about its impact on public finances and other budgetary allocations. This substantial financial burden could potentially strain government resources and necessitate adjustments in other expenditure areas.
Paragraph 6: Conflicting Perspectives and Revenue Reporting Concerns
The significant fuel subsidy debt has generated controversy and conflicting viewpoints. While President Tinubu declared the end of fuel subsidies in May 2023, international institutions like the IMF and World Bank argued that subsidies were effectively reintroduced. Energy expert Wumi Iledare questioned the rationale behind NNPCL’s request for government reimbursement, given that the NNPCL sells oil in foreign currency on the government’s behalf and is expected to pay royalties. This raises questions about the financial relationship between the government and the NNPCL, and the appropriate accounting treatment of oil revenues and subsidy costs. Furthermore, members of the FAAC committee expressed concerns about inconsistencies in NNPCL’s revenue reporting, highlighting the need for greater transparency and accuracy in the reconciliation of financial figures. The discrepancies in reported figures emphasize the challenge of accurately assessing the true financial position and the full extent of the subsidy burden.
