Before last week’s bombshell by the CBN, the Federal Government had announced intention to discontinue with the uniform pricing mechanism and also abolish the Petroleum Support Fund, the stripping of Petroleum Products Pricing Regulatory Agency with the powers to determine the price of fuel and a phased removal of subsidy
With the rising exchange rate against the naira and over N70 billion owed oil firms by the Federal Government through the Petroleum Products Pricing Regulatory Agency (PPPRA), oil industry players are in a state of dilemma over their rising debt in the banks. As a result of lingering financial meltdown worldwide, the CBN as part of its risk management policy, last month compelled banks operating in the country to submit their level of exposure to oil firms and also directed them to make immediate and full provision for their toxic assets and bad loans in their books. At the end of the finding from 10 banks, five of them, namely Finbank, Union Bank, Afribank, Oceanic and Intercontinental Banks have over 40 per cent of their loans exposed to the oil companies.
With the sack of the five banks top shots, banks are not only moving aggressively to recover loans given to customers, they are also now shying away from financing fresh imports of petroleum products – a development that may spark off another round of scarcity of petroleum products in the country since oil marketers account for over 70 per cent of the country’s import leaving the remaining 30 per cent to the Nigeria National Petroleum Corporation (NNPC).
The naira, which had been stable at N118 to one dollar till the end of 2007, began a steady depreciation last November following the crash in the prices of oil at the international market. But critics also chided some of the oil chiefs whom they allege diverted some of the loans to finance ostentatious living. Some are said to have been living flamboyant lifestyles, acquiring private jets and exotic mansions in major capital cities across the world.
Last week, Intercontinental Bank Plc took a bold step in a bid to recover over N36 billion owed it by fuel importers. The bank in a petition to the President, Musa Yar’adua, named three oil companies which have failed to meet their repayment obligations to the bank.
The companies are, Capital Oil and Gas Industries Limited, owned by Patrick Ifeanyi Uba, is said to be owing N4,350,080,676.00; Rahamaniyya Oil and Gas Limited, owned by Abdulrahaman Musa Bashir, N12,858,892,054.00; and Tanzilla Petroleum Company Limited, promoted by Alhaji Shehu Badamasi, N18,589,143,492.37.
The petition is believed to have been prompted by the Central Bank of Nigeria (CBN)’s directive asking all banks to submit all their exposures to all companies
Intercontinental Bank, in the petition, expressed sadness at the attitude of the borrowers.
“It is said that facilities running into several billions of naira are made available to institutions and individuals of perceived high net worth, to trade or carry out businesses having direct impact on the fiscal and economic policies of the country, yet these facilities are neither serviced nor repaid in line with the terms of the contract. Not that the businesses do not yield the envisaged profits or dividends, rather the same have been diverted for other selfish and less than altruistic purposes,” the bank said.
The total exposure of Intercontinental Bank to the three firms translates to almost N36 billion. This excludes loans to other sectors and margin loans for which eight banks have already made provisions of about N124 billion.
Exposures of banks to margin loans are put at over one trillion naira. The managing director of the bank, Erastus Akingbola, together with four other bank executives and their management were sacked last Friday as a result of their loans exposure to oil companies and the capital market
Before the petition by Intercontinental Bank, four associations operating in the downstream sector had jointly written to government, lamenting the Petroleum Products Pricing and Regulatory Agency’s (PPPRA’s) non-performance of the statutory and contractual obligations to importers.
The letter was signed by the Executive secretaries of Major Oil Markers Association of Nigeria (MOMAN) representing major marketers, Femi Olawore, Micheal Osatuyi, representing Independent Marketers, (IPMAN), Ikem Ohia, representing Depot Owners (DAPPMA) and Bashir Adamu, representing Independent Petroleum Products Importers (IPPI), all constituting the private sector importers of petroleum products (operators).
According to the letter marked “urgent”, PPPRA is in default of payment due marketers up to the tune of N70 billion, which is in turn owed to financial institutions most of which are already experiencing their own challenges. The operators are lamenting the delay in the payment of subsidy from 2007 to date. The PPPRA has consistently been late in repaying the subsidy element due on the importation of regulated petroleum products. Marketers insist that no payment has ever been made within the period stipulated in the contract or guidelines. Specifically, they said, at the time of writing, no payment had been made in 2009 in respect of the subsidy element due regulated products imported and delivered in 2009.
These delays, they said, have the following effects: Operators incur considerable additional finance (interest and charges) due and payable to their financiers; they are exposed to and incur additional costs due to foreign exchange risks whereby the naira subsidy payment becomes insufficient to fully repay the outstanding foreign currency component of the cost of the product as was the case when the rate moved from N118:$1 at the time of purchase, to over N134:$1 at time of payment. This is said to be happening again. Operators are unable to optimise the utilisation of credit lines and facilities they have for importation as substantial portions are blocked by unpaid debts from PPPRA – thereby reducing the importation ability of the nation.
The marketers insist that the N70 billion currently owed its members is legitimate entitlements of the operators based on the principle of restitution, which simply states that importers are entitled to be recompensed for all costs incurred to import petroleum products at the international market price and reselling same at prices regulated by the government. The PPPRA on behalf of government is obliged by contract and law to make good this difference.
“The above situation is presently the greatest threat to the continued existence of operators in the downstream sector. There is no incentive to continue to import while the capacity to import has been greatly reduced as the operators and financiers doubt the PPPRA’s ability to deliver on its obligations. The operators owe the financial institutions substantial sums and the financial institutions are not willing to continue to fund imports without a certain route to repayment. There is general scepticism as to the ability of government agencies and institutions to execute on government’s policy, the financial situation of most operators as a result of the amounts due from PPPRA threatens their ability to continue as going concerns,” said one of the marketers.
Oil workers on their part, are not taking the issue lightly. Last week, the union rejected plans by the government to remove subsidy and deregulate the downstream sector of the oil industry, saying that the decision by the NEC is not in tandem with resolutions reached with them recently. The National Deputy President of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), Comrade Mustapha Nuhu Wali, said the union vehemently rejects import driven deregulation. Removing uniform prices is not deregulation. That is not our understanding.”
The NEC on Tuesday last week, approved a recommendation for the discontinuation of the uniform pricing mechanism and also abolished the Petroleum Support Fund, the stripping of Petroleum Products Pricing Regulatory Agency of the powers to determine the price of fuel and a phased removal of subsidy. What government announced was only part of the deregulation policy but not the entire process, saying that the removal of uniform pricing of petroleum products was not the only thing in the policy discussed with the workers.