As NNPC Schemes Out Oil Importers By Lekan Sote

To appreciate the plight of erstwhile downstream oil importers, you may have to take a time machine, back to the Goodluck Jonathan Presidency, when the combined forces of MOMAN, IPMAN, DAPPM, and JEPTON morphed into one menacing fire-belching dragon.

In asking for reimbursement of their claims, the oil importers claimed that banks were insistently asking them for repayment of both capital and service charges on loans whose interest rates were as high as Mount Olympus!

MOMAN means Major Oil Marketers Association of Nigeria; IPMAN, Independent Petroleum Marketers of Nigeria; DAPPM, Depot and Petroleum Marketers Association; and JEPTON, Jetties and Petroleum Tank Farm Owners of Nigeria: Collectively, they and the Nigerian National Petroleum Corporation imported the shortfall of petrol that the inefficient local refineries couldn’t produce.
In a newspaper advertorial ominously titled, “Imminent Fuel Crisis in Nigeria,” the cartel threatened to inflict petrol scarcity on Nigeria if President Jonathan failed to settle the N200bn outstanding fuel subsidy reimbursements owed to them.
In a show of force, the oligopoly listed some intimidating statistics to demonstrate members’ capacity to inflict such damage. Between them, they owned about 25, 000 petrol retail outlets nationwide; about 2.5 billion litres storage capacity; directly employed more than 500,000 personnel, and several millions more indirectly.

With more than 90 per cent of facilities and market share of the industry, they could bring Nigeria down on wounded knees. They merely needed to fail to import petrol, and everything would go tumbling down. Government took note of that.
Also, the importers alleged that the government planned to pay a measly N21bn, or one-tenth of money owed, to some handpicked few. You must realise that this motley includes those who fleece the Nigerian economy with fake or over-invoiced import claims, while posing as unappreciated do-gooders.

Their scam rested on a simple plank whereby the unsuspecting (?) Petroleum Products Price Regulatory Agency reimbursed the oil importers of the differential between both the landing cost and profit allowed, and the unprofitable price that the retail outlets were to sell the products.

This differential or subsidy, led to sundry accusations and counteraccusations of corruption, bribe scandals, probes by the National Assembly, arrests, detentions, and alleged clandestine audio and video recordings of actors on opposing camps.
Government stoutly justified its selective payment and swore that those indicted in the oil subsidy scandal won’t be reimbursed. Accordingly, the Debt Management Office was instructed to pay only importers with genuine claims.

Dr. Ngozi Okonjo-Iweala, the immediate past Minister of Finance, in an appearance before the Special Joint Committee of the National Assembly on the 2012 Budget, argued that Nigeria only had cash flow constraints, but was not broke. Government paid bona fide oil importers with Sovereign Debt Notes, a kind of I.O.U., to be exchanged for cash on the Money and Capital Markets.

All these led to a very vicious cycle on the petrol supply chain. Government, with its own cash flow problem, justifiably weeded out wayward importers, but used the Central Bank of Nigeria’s big stick to compel bank loan recovery which included debts owed by some oil importers whose legitimate claims government was unable to pay.

Today, the importers are gentler, as their debts, more than an albatross, weighs down heavily on them. Worse is that their suspicion that the government was planning to appoint a sole importer of petroleum products manifested in 2016 when the NNPC somehow emerged default sole importer of petroleum products.

In what appears like a sponsored story, the Independent Petroleum Products Importers recently whined that members’ unpaid interests had ballooned the N305bn original bank debt by roughly 50 per cent to a scary N465bn!

With N285 exchange rate, government fixed pump price of petrol to somewhere between N135 and N145 in May 2016. By June, government raised exchange rate by seven per cent to N305. Even now, January 2017, the CBN is unable to consummate the 2014/2015 Letters of Credit opened at N197 to the dollar.

With further depreciation of the naira, an inflation rate that is inching towards 20 per cent, the inexplicable multiple exchange rates orchestrated by the CBN, recent rise in international price of crude oil that must be factored into the price of imported fuel, and the possible sabotage of crude oil production by the Niger Delta militants, the resulting government cash flow constraints further harm the oil importers.

Though the importers have not quite said so, they may be implying that by defaulting on payment of their accrued bank interest and foreign exchange differentials, and thereby hampering their ability to service their loans, government compromised their ability to play in the oil import business.

A proof that hell hath no fury like a MOMAN scorned, is in the body’s revelation that government, whose agency, PPPRA, recommended the current N145 price cap must be subsidising petrol. This shoots down the pretence that government neither subsidises nor regulates the price of petrol.

By openly asking where the NNPC gets the foreign exchange to import petroleum products, MOMAN is indirectly asking why the government cut them out of the juicy crude oil swap deal. Would you say that what is sauce for the NNPC goose that is paying for petroleum products with crude oil, and not with dollars, must be sauce for the MOMAN gander?

By suggesting that the NNPC pays N750m daily on oil subsidy, the IPPC is hinting that the pump price of petrol, for instance, may rise beyond N160 per litre. Already, landing cost of the NNPC-imported petrol is N138.

When you add sundry costs, including the N6 for retailers, N3.36 allowance for internal transport, dealers’ N2.36, bridging fund of N6.20, marine transport of N.05, and N.11 administrative charge, it adds up to N156.32 per litre. If true, then government is subsidising petrol by at least N11 per litre.

As long as local refineries are dilapidated and inefficient, the Federal Exchequer may continue to accommodate the subsidy that comes with the importation of sorely needed petroleum products, in the face of a continuously depreciating naira-as long as the price mechanism operates by government fiat.

If government no longer needs the fuel importers, the apposite and decent thing to do is to pay their legitimate outstanding bills. Loan rescheduling isn’t working, and the value of collateral held by banks is lower than the debts owed.

As Lamido Sanusi used “Too Big To Fail” to justify injecting the CBN funds into some failing Nigerian banks in 2009, the Federal Government can use another round of Sovereign Debt Notes to gradually liquidate legitimate claims of the oil importers, and restore their capacity to import petroleum products.

As the gains of the “fluke deregulation” of downstream oil operations are reversed with the NNPC as “sole provider” of imported petroleum products, an NNPC snafu may overwhelm the seemingly smooth petrol supply chain. Then, the people will suffer, just as the NNPC is currently unable to supply enough kerosene whose “black-market” price is hitting the roof.

As  the effete, half-way house, oil sector deregulation runs its course, the ding dong dogging the Petroleum Industry Bill, fuelled by lobbyists lurking between government’s Executive and the Legislative arms, is taking its ruinous toll.

If the bill is enacted, and the market is allowed to drive the petroleum products value chain, maybe what fuel subsidy cannot provide will come from Adam Smith’s invisible hand of the deregulated market.

Twitter @lekansote1

Punch

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