Industry sources told Reuters on Thursday that Nigeria owes gasoline suppliers over $6 billion in outstanding debt, prompting traders to back out of deals with the state-run oil firm amid criticism that wasteful and corrupt subsidies could cause a repeat here of the riots that have consumed Kenya over tax and fuel hikes.
Since the beginning of April, Nigeria's state-run NNPC oil firm has doubled its debt to gasoline suppliers as a result of the widening gap between subsidized prices at the pump and international market prices, Reuters reported, citing six unnamed industry sources. Last year, the Nigerian government moved to end fuel subsidies that the government cannot afford, leading to a tripling of prices and the pump, and leading NNPC to cap fuel prices to avoid unrest amid rising costs of living.
In his inaugural address in late May 2023, Nigerian President Bola Tinubu said fuel subsidies were over, stating that "The subsidy can no longer justify its ever-increasing costs in the wake of drying resources. We shall instead rechannel the funds into better investment in public infrastructure, education, health care and jobs that will materially improve the lives of millions."
Since then, starting with the NNPC cap on prices, subsidies have gradually returned against the backdrop of soaring inflation.
In May this year, the International Monetary Fund (IMF) warned that Nigeria's return to gasoline subsidies would erase nearly half of its expected annual oil revenues.
In early June, Reuters reported that Nigeria was on track to spend around $3.7 billion this year on fuel subsidies, indicating a 50% increase over the previous year. At the same time, the government was expected to borrow close to $4 billion to finance those subsidies.
Analysts are concerned that while the fuel subsidies are not sustainable, the removal of subsidies could result in rioting.
In the last week of June, deadly rioting forced Kenyan President William Ruto to scrap Finance Bill 2024, which contained controversial tax hikes, including a proposed fuel tax increase. Countrywide protests left dozens dead and saw parliament set ablaze, with calls for Ruto to step down.
By Charles Kennedy for Oilprice.com
More Top Reads From Oilprice.com:
Charles is a writer for Oilprice.com More