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Fuel importers embargo modular refinery investments

As ties with lenders hit all-time low

Major privately-owned fuel importing, trading and marketing firms in Nigeria have embargoed investment plan in modular refinery.

This decision, which, according to checks by New Telegraph, came after the ties between the investors and lenders hit all-time low, has been blamed on liquidity in the downstream sub-sector.

Managing Director of 11 Plc, a leading private importing and trading firm, Mr. Adetunji Oyabanji, who declared this to this newspaper on the side-line of a conference in Lagos, stated that the credit rating of most private importers has also dropped drastically.

“One thing that is certain is that we are business men and you cannot invest in any venture where return on your investment is not guaranteed. As we speak, many businesses in the sub-sector are folding up. Based on the financial crisis we had, we are no more banks’ favourite customers,” Oyabanji who doubles as the Chairman of Major Oil Marketers Association of Nigeria (MOMAN), said.

On refining, he said: “You need between $1 billion and $10 billion funding for the refining business and because of our history with the lenders, it is extremely difficult to get loans from lenders for this venture. Therefore, we cannot continue with any investment in refinery for now.”

He stated that NNPC is now the major importer of fuel with over 90 per cent margin. The Corporation has been bearing the under recovery emanating from this.

“NNPC did not ask anyone of us to stop importation of fuel, what we only found out is that the market is extremely unfavourable to fuel importation by private investors,” Oyabanji said.

Under-recovery of premium motor spirit (PMS), also known as petrol, recently dropped to N20 per litre from over N80 in the last quarter of 2018.

NNPC, which confirmed this in a document sighted by this newspaper, however, noted that the Federal Government was still committed to bearing the additional cost above the regulated price of N145 per litre.

Meanwhile, the Corporation spent N144.53 billion in subsidizing petrol in 2017, translating to an average of N366 million per day.

The amount spent on subsidy, the document showed, represented 16.85 per cent of the N857.36 billion remitted to the federation account in the whole of 2017.

NNPC described the subsidy as under recovery, which is a situation whereby it is incurring the cost of the differential between the official pump price of petrol and the actual cost of the commodity, especially as presently, the official price is lower than the actual market price.

The difference with this current system of subsidy payment is the fact that NNPC is making the payments to itself or deducting the amount as cost from its revenue and not paying it to other oil marketers as was the case in past subsidy regimes.

This is because NNPC had been the major importer and supplier of PMS for some months now.

Breakdown of amount spent on subsidizing petrol on a monthly basis showed that in January, February, March, April, May and June 2017, N37.26 billion, N6.3 billion, N8.207 billion, N8.207 billion, N7.743 billion and N11.79 billion was spent incurred by the NNPC respectively; while for the months of July to December, NNPC incurred subsidy of N10.25 billion, N7.939, N7.522 billion, N6.849 billion, N16.785 billion and N15.677 billion respectively.

Also, the report stated that from January to December 2017, payments by NNPC to the federation account , Joint Venture and Federal Government for debt repayment stood at N857.36 billion, N644.05 billion and N19 billion respectively.

NNPC had, earlier in March 2018, disclosed that it was incurring an under recovery of N774 million daily based on the questionable increase of Nigeria’s fuel consumption to 50 million litres per day.

Group Managing Director of NNPC, Dr. Maikanti Baru, had blamed the high value of under recovery to rising fuel consumption, which he attributed to massive smuggling of petroleum products to neighbouring countries.

Baru insisted that the activities of smugglers had led to recent observed abnormal surge in the evacuation of petrol from less than 35 million litres per day to over 60 million litres per day, which was in sharp contrast to established national consumption pattern.

He had also raised an alarm on the proliferation of fuel stations in communities with international land and coastal borders across the country, insisting that the development had energized unprecedented cross-border smuggling of petrol to neighbouring countries, making it difficult to sanitise the fuel supply and distribution matrix in the country.

He revealed that detailed study conducted by NNPC indicated strong correlation between the presence of the frontier stations and the activities of fuel smuggling syndicates.