Nigeria's fuel scarcity looms as nation’s marketers fail to repay loans

Fuel queue at MRS filling station, Airport road Abuja on Thursday, March 10, 2016. PHOTO: NAN

• Banks’ survival threatened with N465b debts
• Why kerosene sells for N400 per litre

The inability of petroleum marketers to pay or service banks loans in the last two years is threatening further importation and could worsen the financial position of banks.

The marketers under the aegis of the Independent Petroleum Products Importers (IPPIs) said in a communiqué yesterday that members owe some banks as much as N305 billion ($1 billion) which has increased to N465 billion due to accumulated interest. They cited government’s discontinuation of the fuel subsidy regime and failure to pay outstanding arrears before the new pricing regime as reasons for their problems.

Already funding for fuel imports is affected and this could create product scarcity and raise pump prices. The scarcity of kerosene worsened yesterday in Lagos, Calabar, Kano and Kaduna states as a litre of the product sold for N400.

Unresolved issues on funds borrowed for fuel imports could also negatively impact banks’ profitability as they will be forced to make more provisions for the debts, undermining their capacity to fund economic activities in line with government’s budget implementation and job-creation strategies for 2017.

The chief executive of one of the top five banks yesterday said banks’ non-performing loans in the first and second quarters of the year could get worse before a rebound. The bank chief said the economy would then get a boost from monetary and fiscal measures, if only they are implemented as planned.

The Spokesman of the Central Bank of Nigeria, Isaac Okorafor, declined speaking on the matter, but noted that it was becoming a tradition for marketers to put claims on government and the apex bank, even on issues outside institutional control.

The marketers stated that since government could not pay them for imported products between 2014 and 2015 as agreed, the interest accumulated over time, has amounted to N160 billion. The communiqué signed by IPPI’s legal adviser, Patrick Etim, stated that some of the marketers, who include members of the Independent Petroleum Marketers Association of Nigeria (IPMAN) and Depot and Petroleum Products Marketers Association (DAPPMA), have begun to stop operations due to the debts.

“Government approved the landing cost which fluctuated as it depended mainly on the international price of petrol and exchange rate of naira/dollar. A key term of the government’s contract is that the subsidy payments shall be paid to IPPIs within 45 days of discharge of petrol cargo,” said the petroleum marketers.

“It was also agreed that after 45 days the government shall pay the interest charges on the loans taken by the IPPIs to finance the importation of cargoes of petrol,” the group said.

Analysts say the development is raising a challenge for the banking sector, which has recorded a huge debt default downstream oil operations and allied services. Some banks are currently in need of cash to boost operations.A financial analyst at Ecobank Nigeria, Kunle Ezun, said the impact is already very significant because virtually all banks are exposed to the crisis.Banks, according to him, have absorbed all the debts, except some of the loans that were restructured.

A Director at the Union Capital Markets Limited, Egie Akpata is very worried. “The reality is that some of these loans are being restructured overtime, because as the collaterals fall below value due to exchange rate and defaults set in, banks also follow up with provisions. I think the challenge is not that new, because a lot of restructuring has been done before now,” he said.

Also, a financial analyst at WSTC Financial Services Limited, Olutola Oni, said unless the Federal Government steps in, the NPL ratio would increase.“If the exchange rate differential is factored in, there would be a huge gap and the question is: who bears the loss? This is part of the causes of loan default.

“Even if banks foreclose collaterals, they can only be successful if the value is up to loan value. In exchange issues like we have, collaterals are always below. The next thing is restructuring. This is also subject to performance,” he said.

A major oil marketer said on the condition of anonymity that all the petrol importers are indebted to banks. According to him, the Federal Government is yet to pay the foreign exchange differential, which has accumulated over the years.The source said that parts of the debts and loans they owe banks are still with government in the form of foreign exchange differentials and taxes on subsidy debts of 2014 and 2015.

The marketer urged the Federal Government to ensure the payment of the two-year accumulated claims on interest and foreign exchange differentials to allow for free flow of Premium Motor Spirit in Nigeria (PMS) in the country.

The marketers said the problem of the banks is compounded by the fact that they provided billions of dollars to finance the importation of cargoes of petrol by IPPIs. They opened Letters of Credit at approximate exchange rate of N197/$1.00.

“Petrol cargoes were supplied and sold by the IPPIs at the selling prices approved and subsidised by government and the subsidy payments were calculated using the above exchange rate. Now at the beginning of 2017, the banks have not liquidated the Letters of Credit from 2014 because of lack of foreign exchange from the government. The outstanding matured Letters of Credit are currently over $1billion. The Nigerian banks involved and the entire Nigerian banking system is at risk on account of these transactions,” they added.

So far, there is little evidence that the government has seen the risks in further delaying the payments under the subsidy scheme. The communiqué stated: “The exposed situation of the banks is exacerbated by the current trends in the petrol market. When the fixed pump selling price of petrol was increased from N97.00 to N145 per litre in May 2016, it was based on an exchange rate of N285/$1.00 resulting in a 45 per cent increase. On June 20, 2016 the naira was devalued from N285/$1.00 to N305/$1.00 which is an increase of seven per cent but the fixed pump selling price of petrol has not been increased. This means that petrol must be subsidised.”

Speaking with The Guardian yesterday, the Executive Secretary of Major Oil Marketers Association of Nigeria (MOMAN), Thomas Olawore, said that members lack foreign exchange to import kerosene and petrol and therefore rely solely on the Nigeria National Petroleum Corporation (NNPC).

But he doubted the NNPC’s ability to meet domestic demand of kerosene, saying scarcity only gives room for black marketers to enrich themselves.The Group General Manager, Group Public Affairs Department of NNPC, Ndu Ughamadu, told The Guardian that the corporation remains the sole importer of kerosene, as many of the marketers are not willing to import due to the scarcity of forex.

According to him, the Kaduna refinery, which was assisting to ensure product availability, has not been producing due to pipeline vandalism.He said that the corporation was in discussion with marketers over product availability.