The Nigerian government owes $3 billion of oil debt to major oil corporations for the fuel-for-crude swaps with which it has been importing fuel. Indeed, while Nigeria is the largest oil producer in Africa, the country does not have enough refining capacity to meet fuel demand, according to Reuters.
Nigeria’s considerable debt, which was accumulated over the years due to gasoline deliveries from trading companies such as Vitol and oil giants like BP, currently stands at an imposing $3 billion. The country is trailing in its repayment schedule by four to six months, paying crude shipments instead of cash. According to Reuters, Mele Kyari, Group Chief Executive Officer at Nigeria’s state-owned oil firm NNCP Ltd, told Reuters that the company would wind down the crude swap contracts and pay in cash for fuel imports.
This $3 billion debt presents a significant challenge to President Tinubu’s fuel subsidy reform. Indeed, President Tinubu has taken steps to liberalize the Nigerian oil market by lifting price control, liberalizing foreign exchange, and relying on Dangote’s refinery to refine crude oil.
Nigeria, which is Africa’s largest oil producer, intends to eliminate an existing arrangement in which it exchanges petroleum for gasoline imports as part of those reforms. Certainly, for years, Nigeria sold gasoline purchased on the open market at a discount to its citizens, with the government picking up the difference. Moreover, the subsidy cost around $10 billion last year. The last time the Nigerian tried to stop the plan, it was met with demonstrations. This is because Nigeria’s imports are conditioned by the lack of refinery capacity to fulfill its domestic demand.
According to Business Insider Africa, Nigeria’s central bank has maintained the naira fixed at an artificially high rate that has progressively increased from 200 to 450 naira to the dollar, which only a few entities, including the NNPC, have access to. Thus, this effectively eliminated prospective private gasoline importers from the market.
President Tinubu has allowed the naira to fall sharply in recent weeks and has withdrawn preferential naira rates, which indicates that all potential importers would have the same foreign expenses and will be able to compete in petroleum imports.
Despite the announced end to the fuel-for-crude swaps, Nigeria has yet to send the crude cargoes it still owes for previous fuel imports, and this could take months, according to traders and industry players.
As Nigeria traverses this economic crossroads, the decisions and strategies of President Tinubu will not only shape Nigeria’s economic landscape but also set a precedent for other economies grappling with similar challenges.