Nigeria amasses $3 billion debt to traders for oil swaps

Nigeria has accumulated up to $3 billion in debts to trading houses such as Vitol and oil majors such as BP (BP.L) for fuel supplies and is trailing four to six months behind schedule in repaying them with cargoes of crude, four traders and executives told Reuters.

Nigeria will likely take months to clear the debt, which will complicate reforms by new President Bola Tinubu aimed at weaning Africa's largest economy and most populous nation off costly fuel subsidies that have contributed to growing debt and foreign exchange shortages.

In his first two weeks in office, Tinubu removed petrol price caps and restrictions on the naira currency – liberalisation changes that investors have been awaiting for more than a decade.

As part of those reforms, Nigeria, Africa's top oil producer, plans to scrap an old scheme by which it swaps its crude for gasoline imports. Nigeria for years sold the gasoline, bought at the open market price, to its population at a discount, and the government paid the difference.

The subsidy costs about $10 billion last year. The last time the government tried to end the scheme, the move led to protests. Nigeria needs imports because it lacks the refinery capacity necessary to meet domestic demand.

The head of Nigeria's state oil firm NNPC, Mele Kyari, said earlier this month it was ending the swaps - known as Direct Purchase Direct Sale (DSDP) - after years of criticism by civil society groups including the Nigerian Extractive Transparency Initiative for a lack of transparency and corruption.

Kyari said payments would be now made in cash but traders say NNPC is still importing gasoline via swaps for July delivery and has to pay for those cargoes in crude as well as the pending payments for previous months of swaps.

The arrangement has for years involved more than a dozen foreign and local trading consortia and backpayments are expected to continue until at least October 2023, according to the four traders involved in business with NNPC.

NPPC, which claims the government owes it $6 billion for subsidised fuel sales, declined to comment. The government declined to comment. Swaps participants including Vitol, Mercuria, BP and TotalEnergies (TTEF.PA) also declined to comment.

"Swaps will ultimately stop but not yet. We are getting our swaps crude cargo in October at the earliest," one major player said.

NNPC had made a rare cash payment in May to some partners of around $200 million, two trading sources said, but no further payment has taken place since amid the government's cash struggles.

Nigeria's falling oil production has exacerbated the country's fiscal problems, because it reduces the revenue that could be used to repay debt.

Nigeria used to produce 1.8 million barrels per day of crude but output has fallen in recent years to as little as 1.1 million during due to lack of investment.
 

PRIVATE IMPORTERS

Paying for fuel deliveries with crude cargoes means there is less crude for Nigeria and NNPC's to export, and so less revenue.

NNPC's contribution to state coffers went from a peak of more than $30 billion a year in 2011 to zero in 2022 as it retained revenues to cover gasoline sale losses.

International monetary experts have long suggested Nigeria remove fuel subsidies and liberalise its foreign exchange to address its fiscal crisis.

In recent years, Nigeria's central bank kept the naira fixed at an artificially high rate that gradually rose from 200 to 450 naira to the dollar that only a few players, including the NNPC, could access. That shut out potential private gasoline importers from the market.

President Tinubu allowed the naira to fall steeply in recent weeks, and eliminated preferential naira rates, a move that means all potential importers get the same forex costs and could compete in fuel imports.

But the naira volatility, which makes it tough to calculate potential profits, and uncertainty over whether firms will be able to get money out of the country due to continued dollar shortages, has for now deterred private firms from importing fuel.

Besides private importers, Nigeria will also depend on businessman Aliko Dangote's refinery to cover fuel demand in the future. Nigeria's first major oil plant is unlikely to start full-scale operations before next year.

By Julia Payne, Reuters

8 Killed, 10 Abducted by Islamic Extremists in Nigeria

Islamic extremists killed eight farmers and abducted 10 in an attack in northeastern Nigeria, officials said Friday — the latest in a volatile region that is a key part of the country's breadbasket and where militants have threatened food supplies.

The farmers were ambushed in the bush in the Borno state's Mafa district Thursday. The attackers slit their throats, authorities said.

Babagana Zulum, the state governor, said the attack was an attempt to "sabotage the successes of the government" as it struggles to have those displaced in Borno return to their villages and rebuild their lives.

He said the security forces need to rise to the challenge but also urged residents to take individual precautions.

"We must rise to our responsibility and address the situation," Zulum said. "I've told the people to be resilient, and they should be security-conscious and avoid remote locations."

Islamic extremist rebels launched an insurgency in Borno in 2009 to establish their radical interpretation of Islamic law, or Sharia, in the region. At least 35,000 people have been killed and more than 2 million displaced because of the violence by the militant Boko Haram group and a breakaway faction backed by the Islamic State group.

Borno's farming communities have been frequently targeted in recent months, raising fears of extreme hunger as U.N. agencies continue to warn of famine.

On Friday, local villagers are mourning the slain farmers while also decrying inadequate security measures in remote and volatile areas.

Modu Ibrahim, a resident, said there were no security forces where the farmers' bodies were found. The extremists spared one teenager whom they asked to "deliver the message" about the attack to other villagers, Ibrahim said.

The Islamic insurgency in the northeast has also overstretched Nigeria's security forces as they continue to battle other crises across the country, including continuing clashes between nomadic cattle herders and farming communities in northwest and central regions of the West African nation.

AP

Black market collapses in Nigeria due to fuel subsidy removal

Things have been topsy turvy lately on the roadsides of West African nations where cheap contraband petrol from Nigeria has abruptly doubled in price, upending an informal sector that is central to the region's economic activity.

Since Nigeria scrapped a state fuel subsidy on May 31, black market fuel vendors and commercial drivers in Cameroon, Benin and Togo who were heavily reliant on petrol smuggled from Nigeria have seen their businesses collapse.

With supplies dwindling, queues have been forming at official petrol stations, where fuel is now competitively priced.

In Garoua, a town in northwest Cameroon about 60 km (37 miles) east of the Nigerian border, a litre of petrol on the black market used to sell for about 300 CFA francs ($0.48). Now the minimum is 600 CFA francs, vendors said.

"Supply has become scarce and customers think we're ripping them off with this high price, yet it's from Nigeria that prices have soared," said Perevet Dieudonne, a black market seller.

The knock-on effects on motorcycle-taxis, a form of public transport ubiquitous in West Africa, include conflict between riders who often live hand-to-mouth and customers who demand cheap fares no matter what.

Ousmanou Mal Djoulde, a rider in Garoua, said he had been forced to more than double his fares. Many customers were refusing to pay and business was agonisingly slow.

The trade in black market fuel is so central to the local economy that authorities either turn a blind eye or are complicit. A Reuters reporter in Garoua saw a Cameroonian customs officer sitting on a motorcycle-taxi that was being refuelled with smuggled Nigerian petrol.
 

RAMPANT SMUGGLING

There is no reliable data on the amount of fuel that is smuggled from Nigeria.

The head of Nigeria's state-controlled oil firm NNPC, the sole supplier, said early this month 66 million litres of petrol left its depots daily but could not say how much was consumed locally, though he admitted smuggling was rampant.

Independent energy experts and Nigeria's Dangote Petroleum Refinery - which expects to start producing petrol from early August to alleviate chronic fuel shortages - put Nigeria's total daily consumption below 40 million litres.

In Benin and Togo, small nations to the west of Nigeria, contraband fuel vendors have lost both supplies and customers while formerly sleepy official petrol stations are suddenly busy.

At Hilacondji, a border crossing between Togo and Benin, some black market fuel stalls were shut, while at others vendors waited among rows of empty plastic jerricans for potential deliveries.

"While we wait for the situation to improve, some have gone into fishing or other small businesses," said Ayi Hilla, who had been making a living from selling contraband fuel for 10 years but was now focusing on running a small roadside bar.

Some informal fuel depots were being demolished, and men who used to work there unloading and carrying petrol were now unemployed.

More than 80% of employment in Africa is informal, according to the United Nations, making the informal sector a key driver of economic activity.

In Cotonou, the commercial capital of Benin which is about 60 km from Nigeria, queues have been building up at official petrol stations and some have been unable to meet the sudden surge in demand, especially from "zemidjan", the local word for motorcycle-taxis.

"Before, we were selling about 2,000 litres per day, but now we're selling up to 7,000 litres per day," said a worker at the JNP fuel station who gave his first name, Janvier. He had just turned away four customers because supplies had run out.

"The zemidjan-men are even fighting to get served," said Janvier.

By Desire Danga Essigue, Reuters

Fight between telcos, banks hurts financial inclusion in Nigeria

Lagos, Nigeria – Comfort Oluwaseyi has a time-tested shortcut for sending money to everyone.

For the 40-year-old fruit trader at Ikeja, in the heart of Nigeria’s commercial capital Lagos, all it takes is dialling *737# on her Itel 2160, a non-smartphone which costs 7,000 Nigerian naira ($15).

Within seconds, the operation is concluded and recipients, usually her suppliers, are sorted. The fee? Only 6.98 naira per transaction, deducted directly from her bank account.

“I cannot afford a smartphone but the phone I use still serves me well,” Oluwaseyi told Al Jazeera. “This phone helps me operate this business which in turn supports my family.”

In Nigeria, feature phones, because of their relative affordability and longer battery life, are a popular choice in low-income households – 133 million people according to a 2022 report from the National Bureau of Statistics (NBS) – especially among older or illiterate citizens.

Furthermore, three things stand out: half of all phones shipped into Nigeria are still feature phones; only half of the country is connected to the internet according to the World Bank and, as per Lagos-based Enhancing Financial Innovation and Access (EFInA), only half of the adult population use formal banks.

For this reason, *737 is one of the most popular short codes on the Unstructured Supplementary Service Data (USSD) platform for millions in Nigeria.

USSD short codes – first introduced by the European Telecommunication Standards Institute (ETSI) in 1994, and in Nigeria for banking purposes in 2015 – help users with or without smartphones or internet connections perform multiple features.

Every day, millions of Nigerians use different short codes to pay for a range of services, from purchasing airtime to tracking sales from customers who prefer cash transfers and paying suppliers for new stock.

The ease of access also helps people like Oluwaseyi focus on business and avoid bank queues during business hours.

Even smartphone users rely on USSD services when their bank apps malfunction or banking services are poor – a routine complaint. A third of all consumer complaints filed in 2020 were against poor banking services, the most recent data from Nigeria’s Federal Competition and Consumer Protection Commission (FCCPC) shows.

During a cash shortage in February that halted operations of many small businesses, USSD allowed Oluwaseyi to keep hers running, she said.
 

Dispute over bank fees

But a dispute between telecommunication companies and banks about the appropriate pricing model for USSD-powered financial transactions could cut off access to financial services for as many as 17 million people like Oluwaseyi.

Gbenga Adebayo, chairman of the Association of Licensed Telecoms Operators of Nigeria (ALTON) traced the dispute to 2019 when bank CEOs pleaded with the state-run Financial Inclusion Steering Committee (FISC) to make USSD services free of charge to accelerate financial inclusion.

Until October 2019, banks billed users directly for the service using their airtime. To ensure that even users who had no airtime could use it, banks introduced corporate billing; they calculated the number of 20-second USSD sessions (each pegged at 3.5 naira) customers used, deducted it from their bank accounts and remitted to telcos at the end of each month.

Because telcos were also billing for failed sessions and refusing to extend the 20-second session cap, banks baulked at this arrangement and asked telcos to charge their customers directly.

At a point in the dispute, MTN, Nigeria’s largest telecom company announced plans to directly bill users 4 naira for every 20-second USSD transaction.

Central bank governor Godwin Emefiele criticised the move, saying direct user billing would hurt financial inclusion. The Nigerian Communications Commission (NCC) then suspended the new charges.

Thus began a tussle between banks and telcos over who shoulders the cost of USSD sessions for end users. The former insist that they provide the latter, who want payment for supplying infrastructure powering the USSD technology, with customers.

Today, the banks owe a cumulative 100 billion naira ($214m) to the telcos who are threatening to cut off access to the technology.

On May 12, ALTON said it had received approval from the NCC, Nigeria’s telecommunications regulator, to disconnect the banks.

And experts fear that this could have a significant impact on many Nigerians.

“If you turn off USSD the most vulnerable Nigerians will suffer because they don’t have smartphones or if they have smartphones they are using ancient and cheap smartphones that can’t work with the latest operating system,” Adedeji Olowe, CEO of Lagos-based fintech startup Lendsqr, and a trustee of Open Banking Nigeria, a nonprofit championing financial inclusion.

Even Adebayo, the telcos’ representative, believes that too.

“The average Nigerian relies on USSD, and a lot of those who use it for financial transactions will be affected. It will affect the entire financial institution … and the entire digital ecosystem,” he told Al Jazeera.
 

Chasing financial inclusion

Some bankers have described the USSD as a clumsy technology that cannot serve as Nigeria’s answer to its financial inclusion problems, arguing that the best path to financial inclusion is making data subscriptions more affordable.

A senior executive at a leading Nigerian bank told Al Jazeera anonymously that USSD is an overrated banking channel as bank hall walk-ins still carry the bulk of the financial transactions traffic, with intelligent banking systems such as WhatsApp banking slowly becoming more popular.

On the surface, the data seems to agree.

Data from the CBN reveals that USSD accounts for only 2.3 percent by volume and 0.29 percent of the value of all electronic transactions in Nigeria in 2022. Conversely, smartphone and internet-enabled channels make up 60 percent of such transactions. Additionally, the value of USSD transactions dropped by 13.2 percent or 685.45 billion naira ($1.47bn) in the same calendar year.

But experts like Olowe argue that even if internet subscription cost is zero, the cost of smartphones and expertise to operate them present barriers for the demographic of Nigerians who need financial inclusion the most.

“Except the economy improves a lot of people won’t be able to access smartphones and these are the exact people we are trying to expand financial services to,” he said.

In a country where only 3.7 million Nigerians spend more than $10 daily as of 2021 and most of that goes to food and transport, only a few people can afford to purchase smartphones.

“Nigeria’s economy is in a fragile place currently … another big, disruptive hit to consumer spending is the last thing that the country needs,” John Ashbourne, emerging market economist at Fitch Solutions, a London-based financial intelligence company, told Al Jazeera.

But disconnection of the service is also a difficult task because of bureaucracy surrounding approvals and resistance from the telcos, industry insiders say.

“The major source of their income, which is airtime vending, comes from these channels, if they [telcos] shut it down, they are the ones that would lose,” the bank executive said.

Two of Nigeria’s leading telcos, MTN Nigeria and Airtel made 1.25 trillion naira ($2.68bn) from airtime and data in the first 6 months of 2022, according to data from the NCC.

And that development could force innovation on the part of the telcos, Emmanuel Ido, a technology lawyer at Lagos-based law firm Aluko and Oyebode, told Al Jazeera.

“One possible outcome [of the dispute] is that telcos and banks will attempt to redefine their relationship and operate independently, with telcos providing banking functions independent of traditional banks,” he said.

For end users like Oluwaseyi, the disconnect would be detrimental to her business if the telcos went ahead with their threats to disconnect USSD services.

“All I had during this [cash shortage] period was my small phone,” she told Al Jazeera. “With it … I was able to make money transfers to my suppliers.”

Al Jazeera

16 dead in herders and farmers clash in Nigeria

Sixteen people have been killed in two attacks in north-central Nigeria in a region struggling with inter-communal violence, the army said.

Clashes between nomadic herders and farming communities often flare in Plateau State, which sits on the dividing line between the mostly Muslim north and Nigeria’s predominantly Christian south.

In the latest violence on Tuesday, half a dozen members of a local farmers’ self-defense group were killed by gunmen in Riyom district while another 10 people were killed in an attack in Mangu area, an army spokesman said.

“Six lives were lost in Riyom,” said army Major Ishaku Takwa told AFP on Wednesday.

“Another attack took place in some communities in Mangu and 10 persons died.”

Plateau state assembly member representing Mangu South, Bala Fwangje, said 14 people had been killed in that area.

“We heard that about 14 people were killed, houses destroyed, property burnt. I am yet to get the full details,” he said.

Since May, nearly 200 people have been killed in clashes between the Berom farming communities, who are mainly Christian, and the cattle breeding communities of Fulani Muslims in the Riyom, Barkin Ladi, and Mangu areas of Plateau.

It was unclear what exactly triggered the recent attacks in Plateau, but tit-for-tat killings between herders and farmers often spiral into village raids by heavily armed gangs who kidnap, loot and kill villagers.

The Plateau crisis is one of the many security challenges facing President Bola Tinubu who took the helm of Africa’s most populous nation at the end of May. 

AFP

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