NNPC clears $4.68bn cash call debt to IOCs following petrol subsidy removal
Onome Amuge
The Nigerian National Petroleum Company Ltd (NNPC) has announced the full repayment of its $4.68 billion cash call debt to the five international oil companies operating in the country.
This development, according to NNPC, was made possible by the complete removal of subsidies on petrol, allowing for the timely repayment of outstanding dues.
Mele Kyari, Group chief executive officer of the Nigerian National Petroleum Company Ltd, made the announcement during his address at the 42nd NAPE Annual International Conference & Exhibition held recently in Lagos.
Kyari attributed the company’s successful repayment of the $4.68 billion cash call debt to a key decision made by President Bola Tinubu to completely remove petrol subsidies.
Cash calls, in the context of Nigeria’s oil industry, refer to funding requests made by NNPCL and its joint venture partners, including Mobil, Chevron, Shell, TotalEnergies, and Agip, for capital and operational expenses related to oil projects.
Kyari explained, “This decision, although initially challenging with impacts on inflation and the cost of commodities, was necessary to halt the harmful practice of petrol subsidies. President Tinubu has effectively stopped Nigeria from ‘smoking cigarettes,’ restoring the nation’s economic health,” Kyari explained. Kyari acknowledged that, while the subsidy removal may cause temporary financial strain, he encourages more prudent energy use.
To him, “When SUV drivers realise they’re spending N100,000 per tank, they’ll reconsider their habits, and public transportation will likely see a resurgence. Now the public transportation system will return, and people will now transfer those transactions into useful ventures. In the past, the quickest way to spend was on subsidised fuel, but now Nigerians can invest their savings more productively, potentially in the stock market.”
Kyari underlined that the removal of the subsidy burden has enabled NNPCL to re-focus its attention on the upstream sector, a critical component of the oil industry. In the past, he explained, the need to divert funds for subsidy payments often resulted in missed cash call payments to joint venture partners.
Kyari stressed that the broader implications of the improved financial stability brought about by the removal of subsidy payments. He noted that NNPC can now dedicate more resources to driving energy production in a sustainable manner, generating prosperity and benefits for all Nigerians.
The issue of unpaid cash calls has long plagued Nigeria’s oil industry. Over the years, the federal government, via the NNPC, amassed a significant amount of these unpaid obligations.
Under joint venture agreements with international oil companies (IOCs) for oil exploration and production, NNPC was required to contribute its share of funding. However, due to economic and budgetary challenges, NNPC often fell behind on these payments, leading to a build-up of unpaid cash calls.
The failure of NNPC to meet its cash call obligations had a crippling effect on Nigeria’s upstream oil and gas sector. This resulted in significant operational strain, hindering the industry’s growth potential.
Over the years, NNPC’s consistent default on these payments not only weakened investor confidence in Nigeria’s oil and gas sector but also stifled exploration and development projects.
NNPC’s cash call default saga began in the early 2000s, when the company started experiencing financial difficulties in meeting its joint venture (JV) funding obligations.
By 2016, the backlog of unpaid cash calls had snowballed into a crisis, with the government establishing a $5.1 billion debt repayment plan to cover the accumulated arrears. After intense negotiations, the amount was reduced to $4.68 billion in December of that year.
Despite the government’s commitment to resolving the issue, NNPC’s debt to JV partners remained a significant challenge in 2023, with the company yet to clear the entire balance. This continuing burden not only weighed heavily on NNPC’s finances but also strained its relationship with IOCs, who became increasingly frustrated with the delays in payment.
The unpaid cash calls, as reported by some IOCs, represented a substantial financial gap that significantly impaired their ability to make essential investments in new projects and conduct vital maintenance activities.
This debt overhang not only affected the financial health of the IOCs but also had a broader impact on Nigeria’s efforts to increase oil production, particularly in light of the fluctuating global oil prices and the growing pressure to adapt to the energy transition.