In a landmark shift on Friday, October 13th, the Nigerian National Petroleum Corp (NNPC) commenced the purchase of gasoline through cash tenders, veering away from the nearly decade-long practice of oil swaps, according to Reuters. This transition, confirmed by four sources familiar with the matter, marks a significant stride towards economic transparency and is the first of its kind in almost ten years. The NNPC’s latest tender to buy gasoline for delivery in November has already closed, and it is anticipated that the last debts owed under the long-standing oil swaps will be settled by the end of the following month.
This shift is a direct result of efforts by President Bola Tinubu, who was inaugurated in May, to eradicate costly fuel subsidies as part of broader reforms aimed at bolstering the fragile finances of Africa’s largest oil exporter. Cheta Nwanze, the lead partner with Lagos-based SBM Intelligence, commented on the move, stating, “It is a positive thing,” but also posed a critical question: “The question is whether it can be sustained.”
In the previous year, even amidst surging oil prices, NNPC sent nothing to government coffers, as oil-for-gasoline swaps consumed all the crude oil it had available to sell – and even more. According to two sources, NNPC owed traders up to $3 billion worth of oil this year, debts that will be paid in November. Tinubu’s reforms in May more than tripled petrol prices and virtually eradicated cross-border smuggling that drained millions of liters per day out of Nigeria to neighboring countries with higher pump prices.
Despite being the largest oil producer in Africa, Nigeria refines little and is almost entirely dependent on fuel imports to sustain its 200 million population. The last round of swaps involved more than a dozen organizations, including foreign oil traders such as Vitol, TotalEnergies, Mercuria, and local companies like Sahara. Despite the reforms, NNPC remains the sole gasoline importer; sources said that, due to ongoing foreign exchange shortages and an effective pump price cap, private importers can’t profit from bringing in fuel.
Bringing the official naira rate closer to the parallel market is another top priority for Tinubu. However, the black market saw the naira hit a record low beyond 1,000 compared to the United States dollar last month. While promising on the surface, Nigeria’s economic pivot will be closely watched by international observers and stakeholders alike as the full implications of this shift on the nation’s foreign reserves and fiscal dynamics are yet to be fully realized and will likely unfold in the coming months.