Tinubu Approves Use of 2023 Dividends for Fuel Subsidy Payments
President Bola Tinubu has reportedly authorized the Nigerian National Petroleum Company (NNPC) Ltd. to use the 2023 final dividends owed to the federation for covering fuel subsidy payments. This decision, according to a report by The Cable, also includes the suspension of the 2024 interim dividends to alleviate NNPC’s cash flow challenges as the company grapples with the financial strain of the subsidy.
NNPC had informed the president that due to the substantial costs associated with the petrol subsidy—referred to as the “subsidy shortfall/FX differential”—it would be unable to remit taxes and royalties to the federation account. The company’s financial projections indicate that from August 2023 to December 2024, the cumulative subsidy bill will reach ₦6.884 trillion, making it impossible for NNPC to remit ₦3.987 trillion in taxes and royalties.
The NNPC had earlier warned President Tinubu in June 2024 that the ongoing subsidy payments were severely impacting its cash flow, complicating the ability to sustain petrol imports due to pressure from foreign exchange rates. Although the removal of the petrol subsidy in June 2023 initially resulted in monthly savings of ₦400 billion for the federation, enabling NNPC to remit ₦2.032 trillion in taxes and royalties by January 2024, the subsequent devaluation of the naira significantly increased the NAFEX exchange rate. This spike in the exchange rate led to a sharp rise in the subsidy bill, with NNPC’s fuel importation costs turning negative in August 2023 and escalating to ₦833.68 billion by April 2024.
Faced with this financial strain, NNPC sought the president’s approval to use the 2023 dividends to cover the subsidy expenses. Despite previous official statements that the fuel subsidy had been removed, the NNPC’s internal communications with the president now explicitly refer to ongoing financial support as a “subsidy.”
Although the administration maintains that “subsidy is gone,” NNPC projects that subsidy costs will surpass ₦5 trillion in 2024, with a “derived FX rate” being used to keep petrol prices between ₦600 and ₦700 per litre. The difference between this rate and the official exchange rate constitutes the subsidy/FX differential.
