Alarm over IOC’s, oil marketers forex deals

Stakeholders have raised an alarm that the agreement the Nigerian National Petroleum Corporation (NNPC) reached with international oil companies (IOCs) in the upstream oil and gas sector on foreign exchange for oil marketers for the importation of fuel will disrupt the efficient pricing of the local currency, the naira, currently facing pressure, with the attendant depletion of external reserves.

The stakeholders further warn that it will  worsen the opaqueness inherent in the pricing of the naira, as the  marketers would have preference for proceeds from IOCs as against competitive bidding from other end users.

The NNPC had on Monday, announced the agreement with some international oil companies (IOCs) in the upstream oil and gas sector to supply the oil marketers the forex, in response to the lingering fuel crises in the country.

Henry Ikem-Obih, Chief Operations Officer, in charge of Downstream at the NNPC,  had also stated that before the end of this month, all the refineries would resume production and begin to contribute positively to improving the fuel supply situation.

Ikem-Obih 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 a significant improvement in the second quarter and beyond.

  “As you know, forex was one of the prime reasons we did not do well in the first quarter. Most marketers, who had allocation, could not import because they do not have forex,” he said.

Market watchers are of the opinion that the naira is not appropriately priced; but the  Central Bank thinks otherwise, hence allocating the already scarce resources to a segment on a “non-transparent” basis would reinforce the belief of the mis-pricing of the naira and give less credence to the market.

In their view, the action

would increase the imbalance of forex supply and demand in the economy, giving a wrong figure for the liquidity of the market. They claim that allocating to a particular segment would definitely bleed other industries.

However, some are calling for caution. Obadaih Malaifa, former deputy governor of the Central Bank, fears it may create oligopolies.

“Both IOCs and oil marketers are cartels, if CBN supervises the process of their foreign exchange operations then it’s all right, if not, I would smell a big, stinking rat.”

Dan Magnowski, Senior Analyst, Control Risk. A risk consultancy firm said that “If IOCs are having to act as forex suppliers, this is further evidence that forex restrictions in Nigeria are exerting more pressure on a struggling economy. More fundamentally, the impact of the structural weakness of being an oil exporter that does not refine sufficient quantities domestically, plus more recent currency rules, are being felt by busineses and households in the form of these fuel shortages. We are already seeing the adverse impact on local business operations. For international investors looking inwards, this is another source of concern about the operating environment.”

Some industry leaders who expressed misgivings about it, tell BusinessDay that “marginalising the financial system in the allocation of resources (forex) would have dire impact on the economy.  Transactions in the FX Market are meant to be between the public and Authorised Dealers or Authorised Buyers, says a concerned analyst.”

To some other stakeholders, the Federal Government appears not serious about ending the lingering fuel scarcity, as the action amounts to sideling major oil  marketers against Depot and Petroleum Products Marketers Association(DAPPMA).

Besides, they say the template reveals that the Depot and Petroleum Products Marketers Association (DAPPMA) has taken the lead again in the second quarter, with the association given priority in terms of fuel import allocation, as it was given 44 per cent of the allocation.

It is not only this, the government is also to support  DAPPMA to source for foreign exchange with which it would bring in the product.

This is against 16 per cent allocation for the Major Oil Marketers Association of Nigeria (MOMAN) which has to source its foreign exchange from their upstream parent companies.

The DAPPMA members, majorly have depots but not distribution outlets and are a bit constrained when it comes to sourcing foreign exchange for the importation of fuel product.

Olusola Bello & Isaac Ayanogu