Oil marketers raise the alarm over $1 billion bank debt (Nigeria)


By Bernard Busulwa | This Day, Nigeria January 11, 2017

Major and independent marketers of petroleum products have raised alarm over outstanding subsidy claims incurred during the subsidy regime, saying their indebtedness to banks is now a whopping $1 billion.

They also warned that unless the claims were paid, they could kill not only their businesses but also worsen the liquidity crisis in the banking sector with the attendant unsavoury implications for fuel supply nationwide.

In a communiqué issued at the end of their meeting in Lagos yesterday, the marketers under the aegis of Independent Petroleum Products Importers (IPPIs) noted that the $1 billion outstanding debt was money borrowed from banks to fund importation during the subsidy regime and has accumulated an interest of N160 billion because of the failure of the federal government to pay the interest on the loans as agreed.

The marketers, comprising Major Oil Marketers of Nigeria (MOMAN), Independent Petroleum Marketers Association of Nigeria (IPMAN), and Depot and Petroleum Products Marketers Association (DAPPMA), said their inability to pay or service the loans, has not only stalled importation of fuel by the private marketers but is also threatening the operations of the affected banks and the country’s financial system.

“Government through the Central Bank of Nigeria (CBN) has initiated intervention programmes for strategic sectors such as agriculture, manufacturing, petroleum products importation, and aviation. The CBN’s intervention programmes are primarily to stimulate growth in Nigeria’s foreign exchange (forex) earning capacity, and to prevent collapse of the banking system due to the huge exposure of the banks. The CBN has also offered foreign exchange to IPPIs under a special window aimed at liquidating outstanding matured Letters of Credit at an exchange rate of N305. However, the exchange rate of N197 when Letters of Credit were initially opened for IPPIs and transactions concluded and the current CBN offer rate of N305 is an increase of 55 per cent and a significant rate differential,” the marketers explained.

They said: “This means that for every 15,000 metric tonnes of petrol imported by the IPPIs at a rate of $500 per MT and whose foreign exchange differential claims have not been paid then it means that the cargo of 15,000MT imported at the N197 rate will now be given foreign exchange at the rate of N305. By implication a cargo of 15,000MT at $500 per MT is S$7,500,000 or N1, 477,500,000 at N197 rate or N2, 287,500,000 at N305 rate. If these outstanding payments to IPPIs are made at N305 they would suffer a loss of N810, 000,000 per 15,000MT cargo of petrol. Government’s delay in paying debts to IPPIs and the difficulty they face in procuring forex at equitable rates will likely see the extinction of many of the IPPIs in 2017 thereby creating petroleum products shortages and attendant insecurity,” the marketers added.

The marketers said the problem of the banks was compounded by the fact that they provided billions of dollars to finance the importation of cargoes of petrol by IPPIs.

“They opened Letters of Credit at approximate exchange rate of N197 per dollar. Petrol cargoes were supplied and sold by the IPPIs at the selling prices approved and subsidised by government and the subsidy payments were calculated using the above exchange rate. Now at the beginning of 2017, the banks have not liquidated the Letters of Credit from 2014 because of lack of foreign exchange from the government. The outstanding matured Letters of Credit are currently over $1billion. The Nigerian banks involved and the entire Nigerian banking system is at risk on account of these transactions,” said the marketers.

The communiqué, which was signed by their Legal Adviser, Mr. Patrick Etim, added that there is little evidence that the government has seen the risks in further delaying the payments under the subsidy scheme.

“The exposed situation of the banks is exacerbated by the current trends in the petrol market. When the fixed pump selling price of petrol was increased from N97 to N145 per litre in May 2016, it was based on an exchange rate of N285 resulting in a 45 per cent increase. On June 20, 2016 the Naira was devalued from N285 to N305, which is an increase of seven per cent but the fixed pump selling price of petrol has not been increased. This means that petrol must be subsidised,” the marketers added.

“A key term of the government’s contract with IPPIs is that the subsidy payments shall be paid to IPPIs within 45days of discharge of petrol cargo. It was also agreed that after 45 days the government shall pay the interest charges on the loans taken by the IPPIs to finance the importation of cargoes of petrol. The outstanding interest payments owed to IPPIs is currently over N160 billion,” said the marketers.

The communiqué added that the outstanding claims arose largely from importation of petroleum cargoes authorised by the administration of President Goodluck Jonathan’s government, stressing that since government is a continuum, the contracts of the President Jonathan’s government will remain binding on successive governments.

The marketers appealed to the government not to allow its inactions in handling the critical issues facing banks, airlines, manufacturers, electricity companies and other businesses expose consumers to suffering, adding that honouring contract agreements would help boost local and foreign investments.

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