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Downstream oil: A sub-sector in crisis

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Downstream oil: A sub-sector in crisis

The liquidity crisis rocking downstream sub-sector of the oil industry degenerated with fuel depot owners and marketers sacking workers and executing 75 per cent slash in their salaries. ADEOLA YUSUF examines what this portends for the industry

 

The $600 million banks’ debts recovery in the downstream oil sub-sector took a new twist last Wednesday as depot owners and fuel marketers resorted to workers’ mass sack and 75 per cent salary cut.

 

The lenders had earlier confiscated and placed on sale 13 tank farms, scores of filling stations, landed properties and exotic cars used as collateral by debtors in the downstream sector. Other debtors – marketers and owners of tank farms – who are yet to pay up their debts to banks also resorted to mass sack of workers and slash of their workers’ salaries.

 

Trouble long forecast

 

Long before the financial crunch in the downstream subsector reared its ugly head, Executive Secretary of the Depot and Petroleum Products Marketers Association of Nigeria (DAPPMAN), Mr. Olufemi Adewole, had called attention to the impending danger to investors in the sub-sector. The federal government, Adewole said, was responsible for the trouble being faced by investors in the sub sector.

 

From the last fuel subsidy regime, the government owed marketers an accumulated sum of N650 billion and failure to meet the payment deadline would compel marketers to disengage their workers. He alleged that a letter was written to the Presidency on January 24, 2018 but the government had allegedly failed to respond to the plight of the petroleum marketers.

 

Lenders’ threat

 

Interestingly, the banks and other lenders are threatening to declare more depot owners and marketers insolvent. Some of them confirmed that they adopted what they called ‘rightsizing of workforce’ as a strategy to overcome unbearable financial hardship rocking their sector.

 

Confiming that banks had sent correspondences to some of them informing them of taking over more of their collateral assets, the marketers blamed the Federal Government’s inability to pay outstanding N650 billion debts it owed them as a major cause of their inability to pay banks. “Tell me any other option you think we can adopt to control the increasing debt burden on our members,” a member of the Depot and Petroleum Products Marketers Association of Nigeria (DAPPMAN) told this newspaper after his anonymity was guaranteed.

 

“Should we be borrowing to pay salaries when we can easily ask workers that are not productive to go,” he added.

 

“This retrenchment became unavoidable because even as we speak more depots are being closed due to zero activities. Even some of us have also reduced workers’ salaries by as much as 75 per cent due to gross inability to sustain the salary payments.”

 

Assets’ confiscation

 

Head of Energy, Ecobank Plc., Mr. Dolapo Oni, had recently confirmed the confiscation of the oil marketers’ collateral as a part of strategy by banks to recover unserviceable debts. He lamented that the sale, which began since last year, suffered low patronage and undervalue. “We have placed assets, including tank farms, filling stations and some landed properties obtained from the loan recovery efforts of banks for sale,” he said.

 

 

This newspaper had earlier reported that banks were making moves to declare more tank farm owners bankrupt and take over their collateral.

 

Stating that the liquidity challenge in the system has also constituted a threat to the banks’ efforts to secure buyers for the seized assets, Oni said that most of those who have the financial muscle to buy the assets on sale could not come forward because of fear of anti-graft agencies.

 

“The major challenge we now have is that the assets are suffering very low patronage because no one wants to bring out the huge amount needed to purchase these assets without fear of being trailed by anti-graft agencies,” he said. The Asset Management Company of Nigeria (AMCON), which, according to him, is prepared to take over the assets is, on the other hand, under-valuing the assets.

 

“Where we place N100 million on some of them, the commission usually values them at around N30 million,” he said.

 

 

The lenders, a manager at the oil and gas unit of one of the Tier 1 banks, told this newspaper, have earlier scaled down the number of debtors in the tank farms investments from 34 to the 13, who have shown no signs of recovery.

 

The banks could no longer bear the brunt of harsh liquidity problem “occasioned by their overexposure to oil and gas industry,” he said after his anonymity was guaranteed. The source added that the banks have “scaled down their hunts for debtors and collateral take-over in the depot and jetty business peopled by about 34 investors to the 13, whose loans are irrecoverably bad.”

 

Bad loan recovery

 

Noting that this was even a tough terrain for banks and other lenders now, Oni maintained that the bottom line, however, is that the bad loans recovery moves in the downstream sector had gone beyond collateral/ assets take over in most cases where the debts are considered irrecoverably bad.

 

The debt figure in the oil and gas sector, he added, is still very large, and other measures that are now being taken by banks is the deal struck to get some of the debtors to sell some of their assets.

 

The debt recovery approach, he said, “is now happening,” adding that the banks, which are now feeling the heat more than before were acting fast.

 

“The banks’ exposure to oil and gas sector is high and the debts are huge because they are in dollars and you will understand this when you look at the difference in the exchange rate then and now.

 

“The loans were issued at 24.7 per cent, which is more than the 20 per cent requirement by the Central Bank of Nigeria (CBN),” he told this newspaper on the sideline of a conference in Lagos.

 

About 34 owners of private tank farms and depots for petroleum products scattered across Apapa in Lagos, Nigeria’s commercial capital, had earlier been slated to be declared bankrupt as the $600 million loans they got from banks went bad. This newspaper gathered that these firms that account for 75 per cent of all tank farm and depot owners in Nigeria, are on the cliff of losing vital assets including, in some cases, their depots to banks over bad loans.

 

 

An appeal to debtors

 

Consequently, the depot owners have urged the federal government to expedite action on the payment of outstanding debts owed to marketers in order to help them to sustain their businesses.

 

“We are under continuous pressure from their banks and the Asset Management Corporation of Nigeria (AMCON), with looming threats of imminent take-over of our petrol stations and tank farms,” DAPPMAN said on Feb. 20 when it gave the government a 14-day ultimatum to settle the N650billion debts owed to its members.

 

“In the light of the above and after exhausting all formal avenues to secure payment of these debts, we have notified the federal government of the likelihood of disengaging our personnel. We are told that President Muhammadu Buhari has signed for the payment of the debt but it is yet to get to the National Assembly for their consent. We hope this will be addressed to salvage the situation.”

 

NNPC’s monopoly

 

The problem facing the subsetor has been blamed on the monopoly of the NNPC in the importation of fuel.

 

The corporation, which resorted to importation of the product due to inefficiency of refineries had, hitherto, been sharing the importation allocation with private marketers/importers. However, the Turn Around Maintenance (TAM) of refineries remains a new episode in the grand corruption rocking the country.

 

The nation’s three refineries located in Port Harcourt, Warri and Kaduna, documents of the NNPC showed, had gulped up to $1.746 billion or N264 billion using a 16 year average USD/Naira exchange rate of N150.99/$1.

 

The four refineries located in Port  Harcourt (two), Warri and Kaduna have a combined capacity to refine 445,000 barrels of crude per day. Inefficiencies of these refineries had worsened the deficit in supply of petroleum products and raised dependence on importation of the products.

 

The $1.746 billion TAM investments were different from the $308 million reportedly spent for the same purpose by the military governments of late General Sani Abacha ($216 million) and General Abdusalami Abubakar (rtd) $92 million.

 

 

The former GMD of NNPC, Funsho Kupolokun, had, according to report, said that over $1 billion was committed to refineries’ repairs between 1999 and 2007.

 

After the late President Musa Yar’Adua stopped the sale of the refineries in 2007, the NNPC reportedly announced it had awarded contract to a Nigerian firm to carry out a comprehensive TAM on all the refineries.

 

The contract sum as revealed by the then NNPC boss, Abubakar Yar’Adua, was $57 million. In 2009, the then GMD of NNPC, Alhaji Mohammed Sanusi Barkindo, also announced that the corporation spent $200 million on the maintenance of the Kaduna refinery. In 2012, NNPC was reported in local media to have planned repair of the refineries with N152 billion.

 

Former minister Alison- Madueke was quoted to have said $32 million had already been paid for the materials needed for the said refineries repairs. NNPC, in January 2015, had in a statement, said it took decision in 2011 to rehabilitate all refineries, using the Original Refinery Builder (ORB) of each of the refineries.

 

To sustain the current uninterrupted fuel supply in the country in the last two years, the minister petroleum, Ibe Kachikwu, said the government spent about N3.4 trillion on the importation of about 20 million metric tons of petroleum products between January and December last year.

 

 

Besides, he said about 30 per cent of the total foreign exchange allocation from the Central Bank of Nigeria (CBN) went into importation of petroleum products, apart the logistics of the importation and distribution programme.

 

Last line

 

The Federal Government should, in the short term, pay marketers their backlog and encourage more participation and competition in the sub-sector. In the long term, government must address the nation’s over dependence on importation of fuel by fixing the refining challenges facing the country.

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