Tinubu approves use of NNPC dividends for petrol subsidy

President Bola Tinubu has authorized the Nigerian National Petroleum Company (NNPC) Ltd to utilize the 2023 year-end dividends owed to the federation to cover petrol subsidy payments.

In addition, the president has approved a temporary halt of 2024 interim dividend disbursements to bolster NNPC’s financial liquidity.

The NNPC notified President Tinubu that it could not transfer taxes and royalties to the federation account because of the financial shortfall caused by subsidy payments.

According to a forecast by NNPC, the petrol subsidy expenses may escalate to N6.884 trillion by December 2024, resulting in the company being unable to remit N3.987 trillion in taxes and royalties.

NNPC will suspend the payment of interim dividends from May to December 2024. Normally, these dividends are distributed monthly and divided among the three tiers of government, while the final dividends are disbursed at the end of the year following reconciliation.

NNPC is required to fulfill its financial obligations under the Petroleum Industry Act (PIA) by paying taxes, royalties, and dividends to the federation, which is its sole shareholder.

In June 2024, NNPC informed President Tinubu about the adverse effect of subsidy payments on its cash flow, posing a threat to its viability as an entity.

The company also raised worries about maintaining petrol imports because of the increasing subsidy bill, which has been made worse by forex pressure.

NNPC CEO Mele Kyari briefed the president that by eliminating the subsidy in June 2023, the federation was initially saving N400 billion monthly. This enabled the company to transfer N2.032 trillion in taxes and royalties to a segregated account at the Central Bank of Nigeria (CBN) by January 2024.

Due to the devaluation of the naira, there was a significant hike in the exchange rate, causing NNPC’s fuel importation expenses to shift from a surplus to a deficit by August 2023. By April 2024, the subsidy expenses had surged, compelling Kyari to urgently request assistance from the president.

Even with efforts to boost cash flow, like combating oil theft, restructuring debts, and postponing non-essential projects, NNPC’s financial condition has still deteriorated.