The Nigerian National Petroleum Corporation (NNPC) does not have enough money to fund its operations and is technically insolvent because of unpaid subsidies it is demanding from government, the junior finance minister, Remi Babalola said on Tuesday.
The NNPC, which oversees the country's vast oil industry, is locked in a standoff with the government, saying it is owed more than 1 trillion naira ($6.6 billion) in subsidies.
The Federation Account Allocation Committee (FAAC), which manages the distribution of Nigeria's oil revenues to the three tiers of government, says however that NNPC owes it a shortfall of 450 billion naira in unremitted crude oil receipts.
"NNPC is insolvent as current liabilities exceed current assets," Minister of State for Finance Babalola told a FAAC meeting in the capital Abuja.
"NNPC is incapable of repaying the 450 billion naira owed to the Federation Account unless it is reimbursed the 1.156 trillion naira (in subsidies) it has requested from the federal ministry of finance," he said.
Despite being Africa's biggest oil and gas producer, Nigeria is reliant on imports to meet its energy needs. Its four refineries are in disrepair, but even at full capacity they would only meet around a quarter of domestic energy demand.
Most people in Africa's most populous nation see subsidised fuel as the only tangible benefit of their nation being a major world oil producer. The government has said it wants to remove the subsidies, which cost upwards of $4 billion a year, but such a move is likely to meet with popular resistance.
NNPC buys crude oil at the prevailing international market rate but sells petroleum products to local marketers at a discount in order to keep pump prices artificially low. The government is supposed to subsidise the difference.
Urgent need for reform
NNPC's financial woes highlight the need for urgent reforms to Nigeria's mainstay oil industry, where the state-run firm's funding shortfalls have been an ongoing hindrance to the OPEC member country meeting its full production potential.
Foreign oil firms including Royal Dutch Shell, Exxon Mobil, Chevron, Total and Agip, operate onshore in Nigeria through joint ventures in which NNPC holds significant stakes.
NNPC has consistently struggled to meet its share of cash calls to fund the joint ventures, leaving some struggling to maintain existing operations or invest in future projects.
Parliament is currently considering wide-ranging legislation to reform the industry, part of which aims to solve the funding problems by splitting NNPC up and making the joint ventures independent, allowing them to tap capital markets.
Nigeria has struggled to pump much above 2 million barrels of oil per day (bpd), just two thirds of its installed capacity, partly because of insecurity in its restive Niger Delta oil heartland, but also because of the funding problems.
Babalola said NNPC was spending increasing amounts of money repairing vandalised infrastructure in the Niger Delta, where an amnesty last year has brought a period of stability, and was also suffering continued production losses from the damage.
President Goodluck Jonathan has ordered the finance ministry to audit the accounts of NNPC, which has been plagued by mismanagement and corruption over a number of years.