A survival of the fittest struggle is emerging in Nigeria’s downstream petroleum sector as dollar shortage and banks’ reluctance to lend to firms with weak balance sheets- meaning only the large firms with international contacts are thriving.
The Central Bank of Nigeria (CBN), last week expressed willingness to set up a secondary foreign exchange (FX) window that will be supplied largely by independent sources with the naira trading closer to a market rate.
Consequently, major oil marketers are more disposed to the arrangement than their independent marketers due to the vantage position by virtue of their affiliations with International Oil Company (IOC) partners.
The movement to a flexible exchange rate comes after the removal of the cap in petrol prices that saw prices rise to as much as N145 a litre from N86.5.
“Government said they based the cap on Premium Motor Spirit (PMS) at N285/$1, if I get it at N350/$1, are you expecting me to sell my product at N145? That’s why we are saying we need foreign exchange, we are trying to be creative in sourcing for forex and we are speaking with probable financiers but for us to be able to sell within the band provided by the government, we must be able to source at the same rate the government was able to source it,” said Olufemi Adewole, executive secretary of Depot and Petroleum Products Marketers Association of Nigeria (DPPMAN).
BusinessDay checks reveal that while the major oil marketers are securing forex through affiliation with their IOC partners, independent oil marketers who have no such arrangements are struggling to get foreign exchange at the parallel market where rates are as high as N350/$1.
Mobil oil Nigeria recently announced at its recent Annual General Meeting (AGM) that the company has improved its storage capacity for petrol by increasing the size of their tank farm by 10,000 metric tons.
Other oil marketers affiliated with different IOC’s have products and are selling at the recommended retail price cap of N145, while some have products in their storage or awaiting import they ordered BusinessDay enquiries reveal.
Meanwhile, independent oil marketers are struggling to get forex, maintaining that the current pricing template is unrealistic for them because they cannot get forex at N285/$1.
“The solution of this fuel problem does not necessarily end with the so-called gradual deregulation because the policy failed to address the issue of forex availability for import. The announcement does not provide for easier means for accessing forex in the market,” said Humphrey Okoh, general manager operations of Integrated Oil and Gas.
“We are all experiencing excruciating pains assessing forex almost at over N320/$1, the cost benefit analysis shows it has not solved the problem. Right now, NNPC is selling most of the product to marketers,” Okoh added.
An independent oil marketer with connections extending beyond Nigerian shores told BusinessDay that the recent price change is helping separate those who are serious about the business from those who just stumbled into it while admitting the challenge of securing forex is real.
“We are importing, though, sourcing the forex is still a challenge but we have managed to get product; we have connections to get it. One of our import vessels just came and we just finished discharging. Since May 11, this is first cargo we have brought in,” he said.
He further stated that with the new petrol price increase, there are no more incentives to hoard the product or smuggle it out of the country because the risks outweigh the benefits.
“Supply has been very high and demand has not been high as before. It is no longer profitable to take it outside the borders with our own price, or to hoard the product and the higher price has also led to reduction in consumption.”
He further stated, “To the best of my knowledge, our members still have not been bringing in products because we are still trying to source for FX.”
ISAAC ANYAOGU
