EXCLUSIVE: Tinubu Approves NNPC's Use of Federation Dividends for Petrol Subsidy

President Bola Tinubu has granted approval for the Nigerian National Petroleum Company (NNPC) Ltd to use the 2023 final dividends owed to the federation to cover petrol subsidy costs, as reported by TheCable.

Additionally, the president has sanctioned the suspension of the 2024 interim dividend payments to the federation to enhance NNPC’s cash flow, according to sources within the presidency.

The national oil company informed the president that it would be unable to remit taxes and royalties to the federation account due to the subsidy payments, which it referred to as “subsidy shortfall/FX differential”.

An NNPC forecast obtained by the newspaper indicated that the cumulative petrol subsidy bill from August 2023 would reach N6.884 trillion by December 2024, leaving the company unable to remit N3.987 trillion in taxes and royalties to the federation account.

TheCable could not verify the total amount of dividends to be withheld or suspended.

NNPC is expected to halt the payment of interim dividends for eight months this year, from May to December.

Interim dividends, based on inflow projections, are typically 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), NNPC is obligated to pay taxes, royalties, and dividends to the federation, its sole shareholder.

SAVE OUR SOUL

In June 2024, NNPC appealed to Tinubu, stating that the subsidy payments were adversely affecting its cash flow and it was struggling to remain a “going concern”.

The company indicated that it might not be able to sustain petrol imports due to the escalating subsidy bill, which it attributed to “forex pressure”.

TheCable understands that Mele Kyari, the group CEO of NNPC, informed the president that the removal of the subsidy in June 2023 led to monthly savings of N400 billion for the federation.

This enabled the company to remit its taxes and royalties totaling N2.032 trillion into a sequestered account at the Central Bank of Nigeria (CBN) as of January 2024.

Kyari noted that the benefit was short-lived due to the devaluation of the naira, which led to a month-on-month increase in the NAFEX exchange rate.

In August 2023, NNPC moved from surplus to deficit in fuel importation costs, incurring a subsidy bill of N52.73 billion.

This increased to N57.59 billion in September, N212.28 billion in October, and ballooned to N665.60 billion in November, as the exchange rate more than doubled from the time the subsidy was removed.

The bill slightly decreased to N537.66 billion in December before reaching a new high of N693.67 billion in January 2024.

The bill dropped to N592.09 billion in February and N497.39 billion in March before rising again to N833.68 billion in April, prompting Kyari to send an SOS to the president.

He stated that the situation continued to exert “undue pressure” on NNPC, leading to its inability to remit royalties and taxes into the federation account.

Kyari further warned that national energy security was at risk as NNPC might not be able to sustain petrol imports “beyond July 2024”.

ALL EFFORTS NOT WORKING

In his appeal to the president, Kyari explained that NNPC had implemented several strategies between August 2023 and April 2024, but the situation was worsening.

The strategies included improving oil production by combating theft and vandalism, debt rescheduling/forward sales, payment deferrals to suppliers and contractors, deferrals of non-critical projects, and debt recovery.

However, the situation remained dire as projections showed a consistent increase in cash flow deficit mainly due to the exchange rate.

While an estimated N3.987 trillion in taxes and royalties would be due to the federation account by December 2024, NNPC stated it would still be owed N2.897 trillion after reconciling its obligations and subsidy shortfall.

Kyari requested that Tinubu approve the use of the final dividends due to the federation for 2023 and the deferment of the remaining interim dividends for 2024 to cover the subsidy costs.

The president approved Kyari’s request on June 6, 2024, according to TheCable.

FINALLY, AN ADMISSION OF ‘SUBSIDY’

When TheCable reported in August 2023 that Tinubu was considering the return of the subsidy, Ajuri Ngelale, his spokesman, immediately issued a statement denying the story, asserting that there was no going back on the new policy.

However, in official communication between NNPC and the president, the term “subsidy” is now frequently used.

It is believed that the All Progressives Congress (APC) government seeks to distance itself from the term because “subsidy scam” was one of the campaign tools it used to unseat the Peoples Democratic Party (PDP) from power in 2015.

The Muhammadu Buhari administration used “under recovery” instead of “subsidy”, although it began using “subsidy” more freely in later years.

The official stance of the Tinubu administration remains that “subsidy is gone” — although NNPC projects that it will consume at least over N5 trillion this year alone.

Petrol subsidy was removed in June 2023 when the exchange rate was N463/$, but it is now about N1,500/$, while crude oil prices have also been high, creating a “double whammy” for NNPC.

To keep petrol prices within the N600-N700 per litre range, NNPC uses a “derived FX rate”.

The gap between that rate and the official rate is the subsidy/FX differential.

Source News

The Cable

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