NNPC Ltd, the Nigeria state oil firm, is winding down crude swap contracts as its chief executive announced decision to henceforth pay cash for gasoline imports.
The NNPC Ltd has been importing petrol from consortiums of foreign and local trading firms and repaying them with crude oil via what is known as Direct Sale Direct Purchase (DSDP) contracts since 2016 because it does not have enough cash to pay for the purchases.
“In the last four months, we practically terminated all DSDP contracts. And we now have an arm’s-length process where we can pay cash for the imports,” Mele Kyari, group chief executive officer, NNPC told Reuters in an interview late on Saturday.
“This is the first time NNPC has said it is terminating crude swap contracts. By importing less gasoline as private companies import the bulk, NNPC will be able to pay for its purchases in cash.”
Reuters on Sunday reported that NNPC boss Kyari told its correspondent that private companies could begin importing petrol as soon as this month (June).
This development is in furtherance efforts by the new President, Bola Ahmed Tinubu, to Nigerian President Bola Tinubu’s plans to deregulate the import-dependent petrol market and reduce the burden on government finances. The greater part of this year’s budget, beginning from July, has no allocation for subsidy which has been a vexatious matter in National discourse at the rebirth of Nigerian democracy in 1999.
Scrapping the costly fuel subsidy, effective from last Tuesday, Tinubu had made a case for market-driven prices of the essential product whose import and distribution in the face of dilapidated local refineries has been fraught with corruption allegations.
His inauguration day announcement angered labour unions who threatened to embark on nationwide strike unless the decision is reversed.
Tripling Petrol Prices
The NNPC Ltd on Wednesday hiked petrol prices to as much as N557 (about $1.21) per litre from N189. This came just two days after the new President said announced the scrapping of fuel subsidies.
The increase signals an end to the fuel subsidy regime that the NNPC says costs it $867 million every month.
Nigerians will have to brace for higher transport fares while businesses which rely on petrol generators because the grid electricity supply is meagre, face higher costs.
Promising Economic Reboot
Upon his swearing-in on Monday May 29, Tinubu had also vowed to expand the economy by at least 6% a year by lifting barriers to investment, creating jobs and unifying the exchange rate, just as he would tackle rampant insecurity.
President Tinubu is taking on a struggling economy with high debt, inflation rate of over 22% and a weak naira currency. The economy is also struggling with skeletal power supplies and falling oil production due to crude theft and low investment incentives.
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