FG approves N2.7tn for fuel marketers, others
Reprieve may have come the way of oil marketers as the Federal Executive Council (FEC) on Wednesday put in motion the machinery for the payment of N2.7 trillion owed them and other contractors, pensioners and state governments.
It will be recalled that over the course of the last one year, petroleum marketers have been unable to effectively discharge their functions due to fuel subsidy arrears owed them by the Federal Government, which resulted in their inability to import premium motor spirit (PMS), also known as petrol and sell at the price cap of N145 per litre.
As a result, in order to guard against plunging the nation into another debilitating fuel scarcity, the Nigerian National Petroleum Company (NNPC) took over the importation of the product for the past one year, in an arrangement that has been described by both marketers and state officials as unsustainable.
Oil marketers claim that the Federal Government owes them outstanding debts ranging between N720 billion to N800 billion on importation of petrol products and the accrued interests on bank loans, leading to retrenchment in the banking and the oil and gas sectors.
In view of the latest move to offset the debts, experts and stakeholders have urged the Federal Government to ensure the full payment of all outstanding fuel subsidy claims to enable oil marketers resume importation of Premium Motor Spirit (PMS), in which the bulk of their businesses lie.
The Chairman, Depot and Petroleum Products Marketers Association (DAPPMA), Dapo Abiodun, said in addition to paying the marketers’ outstanding $2 billion claims, a permanent solution is to remove the cap on the pump price of petrol and fully liberalise the downstream sector.
"Today, the NNPC now imports about 90 per cent of the volumes. How are they doing it? They are doing it because they have the crude. They are giving away crude for petrol. However, whether you give away crude for petrol or whatever you do; it means there is a subsidy that is being warehoused somewhere. There is no provision for subsidy in the budget, so it is postponing the evil day"' he noted.
Abiodun added that Nigerians were not paying more than N145/litre but our neighbours in the West and Central Africa region are. "Therefore, we are effectively subsidizing our neighbours in Lome, Cotonou, Chad and Cameroon; because for as long as the pricing here is lower than that of our neighbours, it is an incentive to smuggling."
On his part, the Executive Secretary of the Major Oil Marketers Association of Nigeria (MOMAN) has welcomed the latest development and appealed to the Federal Government to pay the outstanding fuel subsidy claims to its members to pay back their bank loans.
Olawore said this was imperative because in the NNPC's role as sole importer of petroleum products, the Federal Government was implicitly paying over N300 million daily as fuel subsidy, which made it possible for it to import and sell at the price cap of N145 per litre.
Speaking on the level on banks' exposure to the downstream sector of Nigeria's oil and gas industry, Head, Energy Research at Eco Bank Plc, Dolapo Oni said that as at June 2016, banks’ exposure to oil and gas loans was over N4 trillion and at 26 per cent of the entire industry loan book.
He noted that the reason why it actually grew was because most of those loans were in dollars. As the exchange rate rose from N197 to wherever it is now, the value of the loans skyrocketed.
On the implicit subsidy being paid by NNPC, Dolapo told M&P that "Across Africa, diesel is actually less expensive than PMS but in Nigeria diesel is more expensive than PMS. That tells you the extent of difference of subsidy, both explicit and implicit, on petrol. There is a very implicit subsidy on PMS in the sense that NNPC sells to everyone at N133, whereas if you check the international price for PMS, even at the refinery point, it is more than N145/litre. So in my calculation, NNPC is paying about N40/litre on PMS so that they can sell to marketers at N133."
Reacting to renewed calls for total deregulation of the downstream sector, Executive Director in charge of Downstream Operations at NNPC, Henry Ikem Obih said that PMS accounts for over 60% of fuels consumption in Nigeria and therefore it is important that as we deregulate it we don’t make any mistakes because it has enormous capacity to ground the economy to a halt.
He regretted the fact that the NNPC is the sole importer due to a few elements of the PPPRA template that are way beyond the control of any operator in the market.
Confiding in M&P Obih said "Ideally that is not how a market should work; but under the current constraints we are doing what we can to ensure there are no disruptions to supply."
Briefing journalists at the end of the weekly FEC meeting presided over by acting President Yemi Osinbajo in the State House, the Minister of Finance, Mrs. Kemi Adeosun, said the council approved a process for the validation and payment of liabilities inherited by the federal government since 1994.
The minister gave the breakdown of the total verified N2.7 trillion liabilities to include: discounted N1.93 trillion owed contractors and suppliers as well as N740 billion outstanding pensions and promotional salary arrears reconciled by a committee set up by the Ministry of Finance on the order of the acting president in March.
She said the arrears which had accumulated over the years would be paid through bonds and promissory notes issuance after a strict validation process, explaining that clearing the liabilities would go a long way in stimulating economic activities.
“The FEC approved the Ministry of Finance’s proposed validation process and promissory note and debt issuance programme to resolve a number of inherited and long outstanding federal government obligations to contractors, state governments and employees.
“This will be followed by a request to the National Assembly to approve the programme ahead of implementation.
Stakeholders in the industry have expressed optimism that the latest attempt to offset the debts will be genuinely implemented and hope that it will not go the way of previous efforts to settle the claims.