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Oil and Gas:Nigeria accumulates $3 billion in debt to oil traders – Reuters

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Nigerian debts to trading companies like Vitol and oil majors like BP for fuel supplies have grown to a total of up to $3 billion. Nigeria is reportedly four to six months behind schedule in returning crude cargoes, four traders, and executives to its swap partners.

Nigeria’s debt repayment process will probably take months, which will make it more difficult for the country’s new president, Bola Tinubu, to implement reforms aimed at weaning the most populous and largest economy in Africa from high fuel subsidies that have fueled rising debt levels and currency shortages.

Tinubu removed the naira currency’s restrictions and petrol price caps in his first two weeks in office, liberalization changes that investors had been waiting for more than ten years.

Nigeria, the largest oil producer in Africa, intends to discontinue a long-standing practice of exchanging its crude for imported gasoline as part of those reforms.

For many years, Nigeria’s government made up the difference by offering its citizens a discount on gasoline that it had previously purchased at a discount on the open market.

Last year, the subsidy cost about $10 billion. Protests broke out the last time the government attempted to put an end to the plan. Nigeria cannot meet domestic demand because its refinery capacity is insufficient.

Mele Kyari, the CEO of Nigeria’s state-owned oil company NNPC, announced earlier this month that the Direct Purchase Direct Sale (DSDP) swaps would come to an end after years of criticism from civil society organizations such as the Nigerian Extractive Transparency Initiative for their lack of transparency and corruption.

While traders claim that NNPC is still importing gasoline through swaps for July delivery and must pay for those cargoes in crude in addition to the outstanding payments for previous months of swaps, Kyari claimed that payments would now be made in cash.

According to the four traders who conduct business with NNPC, the arrangement has for years involved more than a dozen foreign and local trading consortia, and back payments are anticipated to continue until at least October 2023.

The government opted not to respond. Participants in the swaps, such as Vitol, Mercuria, BP, and TotalEnergies, likewise opted not to comment. “Swaps won’t stop for good, but not yet. At the earliest, October will bring our swapped crude cargo, according to a significant player.

According to two trading sources, the NNPC made a rare $200 million cash payment to some partners in May, but due to the government’s cash flow issues, no additional payments have been made since. Nigeria’s fiscal issues have gotten worse as a result of the country’s declining oil production because less money is available to pay off debt.

Nigeria used to produce 1.8 million barrels per day of crude, but due to a lack of investment, production has dropped to as low as 1.1 million in recent years.

Paying for fuel deliveries with crude cargoes results in less crude being exported by Nigeria and the NNPC, which decreases revenue. As it held onto revenues to make up for lost gasoline sales, NNPC’s contribution to state coffers decreased from a peak of more than $30 billion annually in 2011 to zero in 2022.

By eliminating preferential naira rates, Tinubu allowed the naira to fall sharply in recent weeks, giving all potential importers access to the same exchange rates and allowing them to compete in the import of fuel.

But for the time being, private companies have refrained from importing fuel due to the unstable naira, which makes it difficult to estimate potential profits, and uncertainty over whether businesses will be able to get money out of the country due to the ongoing dollar shortage.

Nigeria will rely on Aliko Dangote’s refinery in addition to private importers in the future to meet its fuel needs. Before next year, Nigeria’s first significant oil plant is unlikely to begin full-scale operations.

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