"$6 Billion Gasoline Debt: Nigeria's Rising Debt and Failing Currency Create Economic Disaster"

Nigeria is grappling with a soaring gasoline debt that has now reached $6 billion, exacerbating the country's financial woes and igniting concerns over its economic stability. The debt surge is primarily attributed to the partial reintroduction of fuel subsidies by the Nigerian National Petroleum Corporation (NNPC) and the devaluation of the naira.

President Bola Tinubu had announced the end of costly fuel subsidies last year, leading to a significant increase in pump prices. However, the NNPC soon imposed a cap on these prices as public discontent over the rising cost of living grew. This cap, coupled with a sharp decline in the naira, has allowed the subsidy to re-emerge. The government anticipates that the subsidy will cost at least $3.7 billion this year, adding to the financial strain.

Fuel subsidies have long been a contentious issue in Nigeria. Analysts, non-governmental organizations, and government officials have criticized them for being inefficient and corrupt. Despite this, many Nigerians have grown to view cheap fuel as a fundamental right, especially in the midst of the current cost-of-living crisis. The global context only adds to the pressure. In Kenya, for instance, riots over proposed tax hikes led the government to retract its plans, reflecting the widespread discontent over rising inflation.

NNPC's financial troubles became apparent earlier this year when delayed gasoline payments exceeded $3 billion. Some traders have reported that NNPC has yet to settle payments for January imports, with overdue payments now totalling between $4 billion and $5 billion. Under standard contract terms, the NNPC is required to make payments within 90 days of delivery, a timeline it has struggled to meet.

NNPC declined to comment on the situation. However, an industry source disclosed, "The only reason traders are putting up with it is the $250,000 a month (per cargo) for late payment compensation." Due to mounting debt, at least two suppliers have halted participation in recent tenders after hitting their debt exposure limits to Nigeria. This has led to smaller gasoline import tenders for June and July, with NNPC importing approximately 850,000 tonnes in July, down from the usual 1 million tonnes.

Consequently, fuel shortages have begun to surface in major cities like Lagos and Abuja, with some stations in Abuja ceasing gasoline sales. Nigeria, despite being Africa's largest oil exporter, imports nearly all its fuel due to the dilapidated state of its state-owned refineries. The recently opened Dangote refinery, with a capacity of 650,000 barrels per day, has yet to produce marketable gasoline and is currently exporting other fuels.

The country's financial reserves are dwindling, eroded by corruption and mismanagement of oil revenues. NNPC has also mortgaged much of its future oil production, limiting its cash flow. In an attempt to stabilize the economy, NNPC secured a $3.3 billion oil-backed loan from Afreximbank and a consortium of traders, including Gunvor International, in late 2023.

The situation underscores the urgent need for Nigeria to address its subsidy policies and enhance the efficiency of its energy sector to prevent further economic deterioration.