NNPC’s woes deepen as petrol import payments are delayed

Nigeria’s dwindling crude output has forced its state-owned energy company, Nigerian National Petroleum Company Limited (NNPC), to defer payments to some local petrol suppliers by at least three months, according to a report by Bloomberg.

NNPC imports all the nation’s petrol for road transport, swapping most for crude with international traders including Vitol Group and TotalEnergies SE as well as domestic groups such as Sahara Group Ltd. and Oando Plc.

As the nation’s oil production slumped to a multi-decade low of less than 1.2 million barrels per day (bpd), NNPC has asked local importers to permit payment delays of at least 90 days, according to Mele Kyari, group chief executive officer of NNPC.

The new deals created late last year involve “a longer credit period,” Kyari was quoted as saying in an interview in Abuja.

The availability and cost of petrol are politically sensitive issues in Nigeria, especially in the run-up to elections in February. The country spent N2.7 trillion on subsidies from January to July to keep the pump price among the lowest in the world, according to NNPC data.

Read also: Fuel queues: Don’t panic, we’ve enough stock, says NNPC

The NNPC boss is confident that a rebound in Nigeria’s crude production will allow the company to cover its deferred payment obligations. Kyari expects the country to add 500,000bpd to its output by the end of November, mainly by restarting activities on the Shell Plc-operated Forcados export terminal and Trans-Niger pipeline.

If that happens, “we will meet all the deliveries and still have surplus crude production for cash,” Kyari said. “They know we can pay. Otherwise they wouldn’t supply.”

The new contracts operate alongside the original “direct sale, direct purchase” deals, under which NNPC is expected to provide crude before traders deliver the fuel.

Those local firms accepting deferred payments receive an additional premium per ton of petrol, according to people familiar with the arrangements. So far, the companies involved in those new contracts are Sahara, Oando, MRS Oil and Duke Oil, a subsidiary of NNPC.

While the original deals still account for the biggest source of Nigeria’s petrol, the new contracts represented almost a third of the deliveries in the first seven months of the year. Since December, ad hoc purchases by the state-owned firm have accounted for 13 percent of total volumes.

NNPC imports about 1.3 million tons of petrol per month, against which it commits about 320,000bpd of crude to the swaps, according to company data. However, Nigeria’s fuel imports were more than 50 percent higher in both March and April.

The government has blamed the steady decline in crude production since early 2020 on massive levels of theft on the pipelines that crisscross the Niger Delta. That has shut down wells and deterred investment, it says.

Nigeria’s oil production output for September this year fell further in September, the regulator said in a new status report, as oil theft, vandalism, and divestments continued to weaken the sector.

The Nigerian Upstream Petroleum Regulatory Commission said the country’s oil output dropped by 3.6 percent to 937,666 bpd last month.

Three months after losing its status as Africa’s biggest crude oil producer to Angola, Nigeria saw its oil output drop below that of Libya in August, according to data from the Organization of Petroleum Exporting Countries based on secondary sources.

Last week, the NNPC uncovered an illegal four-kilometre pipeline from Forcados in Delta State to the sea and a loading port that was part of an elaborate crude theft operation for the last nine years.

Kyari said while oil theft in Nigeria has been on for over 22 years, the rate it has assumed in recent times is unprecedented.

Three operational facilities of Forcados, Bonny, and Brass oil terminals have all been shut down as a result of the high rate of crude oil theft, leading to the loss of about 600,000bpd, he said.

In August, BusinessDay reported that a three-million-barrel capacity oil tanker was seized in Equatorial Guinea, suspected to be carrying stolen Nigerian crude.