Since the removal of the subsidy on fuel, the oil and gas sector has been experiencing the effects of the policy. As the Federal Government policy came into effect, marketers who had been given the permission to bring in fuel have complained of difficulties in sourcing foreign exchange, particularly the dollar. Nigeria has a large deposit of crude oil, but the country has to import the refined products for consumption due to the non-functionality of refineries. This situation has made the price of petrol (premium motor spirit) more than triple in the last few months.
Recently, the marketers also announced a possible increase in petrol price due to dollar scarcity. Speaking to the media on some of the challenges that Nigeria’s oil and gas industry is facing, the CEO of Eterna PLC, Benjamin Nwaezeigwe, revealed that oil marketers are looking for clarity. The need for clarity is particularly necessary due to the situation at hand. He said that the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) wants marketers to import petrol into the country, but there is “a big elephant in the room,” which is that forex needs to be dealt with.
Offshore sourcing of funds not workable for importers.
For instance, Nwaezeigwe revealed that about $12 million is needed to bring in 15 metric tons of petrol. But forex has not been available. “I have been trying to buy just about $3-$4 million for base oil that we are bringing in, and it is taking us forever,” he stated. He insinuated that the importation of PMS is much harder. To circumvent the problem, the marketers must get a PFI from PPMC and pay them. Until marketers can easily source forex, it would be a great challenge to import these products.
When asked about how some depot owners are already seeking offshore sourcing of funds at a lower interest rate, he said that despite the interest rates of the international market being very affordable, the inflation of these days have made them very high. He said that the loan which attracted five percent before now attracts ten percent or as much as 25 percent via a local market. But borrowing from foreign markets is also not workable because of the issue of cleaning out the money. When a product of $12 million is sold for a duration of about 60 days, the money is made in naira and it becomes difficult to buy forex with the whole money at once because of the scarcity.
New government policies affecting businesses.
He said that marketers are losing on forex exposure as a result. He imagined that the exchange rate moved overnight from N465 to N700/N800 official rate. Nigerian banks that have FX exposure in multi-million dollars, for example, will almost be wiped out with the kind of loss they would record. “You don’t want to expose yourself to such risk, unless there are also techniques to manage those things, which we call benchmarking,” he said. He said that as marketers bring in those techniques to their margin, they lower that margin.
Furthermore, the CEO stated that new government policies have started impacting businesses in the sector. He gave the example of AGO importation. He said that the price at which the dollar was sourced was not commensurate with the average price of the product in the end. In the end, he revealed that the venture broke even but would have lost money. His business was proactive in buying forex on time, and that was why they narrowly escaped making a loss.
Changes expected to see inflow of Forex in the long run.
The Federal Government has said that it is trying to open up the economy to attract foreign investors. According to Nwaezeigwe, the country would begin to see the inflow of forex in the long run and things would change. Before the implementation of the policy, Nigerians consumed about 60 million liters daily. Now, it has dropped by about 50 percent in the North and 30 percent in the South. With the decrease in consumption, marketers would also need less forex to do business in the country.