Report: President Tinubu Approves NNPC’s Use of Federation Dividends to Cover Petrol Subsidy Costs

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 offset the rising costs of the petrol subsidy, according to an exclusive report by The Cable.

In addition to this approval, President Tinubu has also allowed the suspension of the 2024 interim dividend payments to the federation, a move aimed at improving NNPC’s cash flow amid mounting financial pressures.

NNPC has informed the president that due to these subsidy payments, which the company referred to as “subsidy shortfall/FX differential,” it will not be able to remit taxes and royalties to the federation account at this time. A financial projection obtained by The Cable indicates that from August 2023 to December 2024, the cumulative petrol subsidy bill is expected to reach N6.884 trillion. Consequently, NNPC anticipates that it will be unable to remit approximately N3.987 trillion in taxes and royalties to the federation account.

While the exact amount of dividends being withheld or suspended has not been confirmed, it is understood that NNPC will pause the payment of interim dividends from May to December 2024. These dividends, usually remitted monthly into the federation account, are typically shared among the three tiers of government, with final dividends being paid at the end of the year following a reconciliation process.

Under the Petroleum Industry Act (PIA), NNPC is required to pay taxes, royalties, and dividends to the federation, its sole shareholder.

NNPC’s Struggles Amid Subsidy Payments

NNPC raised the alarm in June 2024, notifying President Tinubu that the subsidy payments were severely impacting its financial stability. The company warned that it might not be able to sustain petrol imports due to the escalating costs, which it attributed to “forex pressure.”

NNPC’s Group CEO, Mele Kyari, informed the president that the removal of the petrol subsidy in June 2023 initially resulted in monthly savings of N400 billion to the federation. This allowed the company to remit N2.032 trillion in taxes and royalties into a special account at the Central Bank of Nigeria (CBN) by January 2024. However, the situation deteriorated following the devaluation of the naira, leading to a rapid increase in the NAFEX exchange rate and, consequently, in the subsidy bill.

Kyari revealed that NNPC’s costs for fuel importation turned negative in August 2023, starting with a subsidy bill of N52.73 billion. By November 2023, the subsidy bill had ballooned to N665.60 billion, driven by a sharp rise in the exchange rate. The bill continued to fluctuate, reaching a peak of N833.68 billion in April 2024, which prompted Kyari to send an urgent appeal to the president.

Efforts to Mitigate the Crisis

Despite implementing several strategies—such as improving oil production, rescheduling debts, deferring payments to suppliers, and postponing non-critical projects—the financial outlook for NNPC remains dire. The company forecasts a persistent cash flow deficit, primarily due to the volatile exchange rate.

By December 2024, NNPC is expected to owe the federation account N2.897 trillion after accounting for its obligations and the subsidy shortfall. In response to this situation, Kyari requested presidential approval to use the 2023 final dividends and defer the 2024 interim dividends to cover the subsidy costs, a request that was granted on June 6, 2024.

Admission of ‘Subsidy’

The approval comes amid an apparent shift in the government’s narrative. Despite the administration’s official stance that “subsidy is gone,” internal communications between NNPC and the presidency now openly refer to the subsidy. This marks a notable change, as the term “subsidy” has been politically sensitive, particularly given its role in the 2015 election campaign that brought the All Progressives Congress (APC) to power.

While the administration continues to maintain that the subsidy has been eliminated, NNPC’s projections suggest that the subsidy will cost over N5 trillion in 2024 alone, exacerbated by a significant devaluation of the naira and high crude oil prices. To keep petrol prices within the N600-N700 per litre range, NNPC has been using a “derived FX rate,” with the gap between this rate and the official exchange rate representing the subsidy or FX differential.