When in April 2016 the Nigerian National Petroleum Corporation (NNPC) announced plans to make forex available to fuel importers through a support scheme from some International Oil Companies (IOCs), many heaved a sigh of relief, believing that the initiative would help address the twin challenge of scarce forex and the high cost of sourcing it. But four months after the initiative, the situation is not getting any better.
The effect of the intervention has not really impacted on their operations as a lot of money denominated in naira is still in their bank accounts waiting to be converted to dollars, without much success recorded in this regard. The Executive Secretary of Major Oil Marketers Association of Nigeria (MOMAN), Mr. Obafemi Olawore, hinted that from April till date, only $400 million had been made available to MOMAN and others in forex through the intervention of the IOCs. According to the Executive Secretary of Depot and Petroleum Products Marketers Association (DAPPMA), Mr. Olufemi Adewole, some foreign suppliers of petrol had suspended sale of refined fuel to Nigeria over its inability to settle about $985 million debt.
The Chief Operations Officer in charge of Downstream at the NNPC, Mr. Henry Ikem-Obih, had, during a tour of petrol stations in Abuja in April, disclosed that a number of IOCs in the upstream oil and gas sector have agreed to provide foreign exchange for oil marketing companies for the importation of premium motor spirit also known as petrol. Ikem-Obih had identified paucity of foreign exchange (forex) as one of the major reasons for the scarcity witnessed across the country, stating that with the decision of upstream oil and gas companies to provide foreign exchange to oil marketers, there would be significant improvement in the second quarter and beyond.
Forex was one of the prime reason the downstream sector did not do well in the first quarter. Most marketers, who had allocation could not import because they did not have forex. The Minister worked very closely through his initiative with the upstream oil companies. So, the sector has a number of them on board to support local entities. They could help provide foreign exchange for them to import and meet their Petroleum Products Pricing Regulatory Agency (PPPRA) allocations, though the CBN, NNPC would support importation of fuel in the second quarter. “ These oil companies also would work with us, including the CBN and these combined efforts, we hope, would enable us meet a 100 per cent of import requirement for the second quarter and beyond,” Ikem-Obih had said.
Last month, Shell shut the Trans Niger pipeline, which is one of the pipelines that carry crude to the Bonny Light Export Terminal, following a leak in Ogoniland.
Global oil giant, Royal Dutch Shell, had said its liquids production available for sale in Nigeria plunged by 41 per cent in the second quarter of this year. Shell equally announced a 72 per cent drop in second quarter earnings amid the continued weakness in global oil and gas prices. Currently, Forcados, Qua Iboe and Brass River crude oil grades are under force majeure, while Escravos and Bonny Light are facing significant loading delays. “Earnings could be further impacted if the security conditions continue to deteriorate,” Shell had said in its second quarter 2016 report. The oil major’s liquids production available for sale in Nigeria was put at 37,000 barrels per day (bpd) in the second quarter of this year, down from 63,000 bpd in the same period of 2015. Already, total production by Shell Petroleum Development Company of Nigeria Limited, its local subsidiary, stood at 128,000 barrels of oil equivalent per day, down from 163,000 bpd in the same quarter of last year. The force majeure on Forcados has caused the country a lose over $1.6 billion (N356.6 billion) in revenue while Nigeria is losing about N2.79 billion daily following the closure of ExxonMobil operated Qua Iboe terminal. The Director General, Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf, said that as long as onslaught to oil and gas assets by agitators continue unabated, revenue projections of the IOCs will continue to dip, thereby making it difficult for them to fulfill their promises to fuel marketers in order to ease the forex challenges. “ It is only when you are in good business that you can think of supporting others in need. But when your own business is at risk that would be the least thing on your mind. You have to first device a strategy to get out of the logjam before thinking on how to provide help for others.” According to him, the insecurity situation in the Niger Delta region is seriously impacting on their operations because a lot of them are producing far below their projections. On his part, the Director, Centre for Petroleum Economics, University of Ibadan, Prof. Adeola Adenikinju, said the forex demand for petroleum products import is huge while the distortion in the country’s foreign exchange market is not helping matters. “ Why would the IOCs who equally need the forex for their own operations offer it to marketers at a lower rate when they can equally get higher value for it. The economic sense is just not there. Once there is a huge margin between the interbank rate and the parallel market, what you have simply done is the creation of a distorted market because an incentive has already been created for speculators to take advantage of. Also, it should be noted that the IOCs cannot dispense off all the forex at their disposal because they would also need same for the day to day running of their businesses and as such, won’t want to run into crisis by resorting to the parallel market,’’ he said. Head of Energy, Ecobank Transnational Corporation, Mr. Dolapo Oni, said only 18 per cent of the forex demand of fuel marketers was made available to them by the CBN, hence the challenge of liquidity squeeze.