NNPC buying fuel on cash, rather than crude, in post-reform shift

NNPC has started buying fuel via cash tenders, rather than oil swaps, for the first time in nearly a decade, four sources familiar with the matter told Reuters. The company’s latest tender to buy gasoline for delivery in November closed this week, the sources said. Two of them added that NNPC would pay the last debts owed under the long-running oil swaps by the end of next month. NNPC did not immediately reply to a request for comment. The shift is the result of efforts by President Bola Tinubu, inaugurated in May, to eliminate costly fuel subsidies as part of broader reforms aimed at shoring up the struggling finances of Africa’s largest oil exporter. “It is a positive thing,” Cheta Nwanze, leader partner with Lagos-based SBM Intelligence, said of the move to pay for oil with cash, rather than valuable oil cargoes. “The question is whether it can be sustained.”

Last year, NNPC sent nothing to government coffers, even amid surging oil prices, as oil-for-gasoline swaps consumed all the crude oil it had to sell – and more; NNPC owed traders up to $3 billion worth of oil this year, debts the two sources said would be paid in November. Tinubu’s reforms in May more than tripled petrol prices, and virtually eliminated cross-border smuggling that drained millions of litres per day out of Nigeria to neighbouring countries with higher pump prices.

While it pumps more oil than any other African nation, Nigeria refines little and is almost totally reliant on fuel imports to keep its 200 million people moving. The last round of swaps included more than a dozen consortia including foreign oil traders such as Vitol, TotalEnergies and Mercuria and local companies such as Sahara. Despite the reforms, NNPC remains the sole gasoline importer, sources said, due to ongoing foreign exchange shortages and an effective pump price cap that has meant private importers can’t make money bringing in fuel. Bringing the official Naira rate closer to the parallel market is another top Tinubu priority, but the black market saw the Naira hit a record low beyond 1,000 versus the dollar last month.