Oil sector regulation crimps oil marketer’s revenues

Government‘s stranglehold on the oil and gas sector is taking a continuing toll on the economy, with companies in the downstream sector seeing a hit to their revenues.

The major players which include Total Nigeria Plc, Mobil Nigeria Plc, MRS Nigeria Plc and Forte Oil Nigeria Plc had their cumulative revenue falling by 19.16 percent to N608.58 billion, according to data compiled by BusinessDay from their latest 2015 financials.

The firms cumulative net profits were down 7.40 percent to N15.655 billion from N16.90 billion in 2014.

Experts say government should free itself from the sector as its policies tend to impoverish the masses it claims to be protecting.

Analysts say these firms have been consistently hard hit by delays in subsidy payment which result in shortage in petroleum products and supply.

“The removal of partial financial support from public funds will make their revenue increase and they will be able to increase their market share,” said Temilade Esho, oil and gas equity research analyst with Renaissance Capital Limited.

“Revenue and profit were down due to the three-month long strike which occurred in 2015. This and the reduction in pump price, reduced the downstream players profit YoY,” said Esho.

Indeed 2015 was a watershed for these oil marketers as the cash strapped Nigerian government owed them arrears as much as $1 billion, a situation that sparked disputes which resulted in strike actions; and also caused fuel scarcity which brought the economy to its knees.

The implication was that payment of some arrears owed, helped some of these firms settle loans taken for the purported importation of petroleum products, as cumulative interest expense fell by 15.89 percent to N7.14 billion, data gathered by BusinessDay show.

While the government had saved N1 trillion since January 2016 because it has not paid subsidy on petrol, the non availability of foreign exchange to sustain the importation of products has caused the longest period of scarcity seen since the regime of the late military dictator, General Sani Abacha.

Nigeria is struggling to cope with a plunge in crude oil prices which accounted for about two-thirds of government revenue in 2014.

The uncertainty has forced the apex bank to impose capital controls such as restricting the amounts of dollars it sells to manufacturers.

The policy however is causing manufacturers pain as they cannot access dollars to pay for imports.

Experts say the only way out of  the tedious queues caused by fuel scarcity is to allow oil marketers access to foreign exchange.

“The government needs to create an enabling environment for sufficient FX provisioning for the marketers in the meantime, so as to allow for adequate import by the marketers, especially given the increase in Q2:2016 import allocation to 58% as against the 22% allocation issued to the marketers in Q1:2016.,” said Saheed Bashir, head investment and research Meristem securities in an email response to questions.

An industry expert who spoke on the condition of anonymity, said that it should be glaring to President Buhari’s regime that subsidy has overstayed its welcome.

He pointed out that government has to know how efficient the people bringing in the product are, and ascertain the landing costs of products.

“What will it take to land petrol in Nigeria? The present government should learn from the diesel industry which was deregulated by former president Obasanjo. The diesel importers source their dollars anywhere to bring in the products,” said the industry expert.   

Some downstream oil and gas firms are looking inwards by seeking organic and inorganic growth strategy with a view to ward off the impact of a weak economy.

Forte Oil Plc, which owns a power plant and sells gasoline in Nigeria, said it plans to raise as much as N100 billion ($502 million) in equity or debt this year as it aims to double profit and expand.

“The outlook for 2016 is mainly a more stable pump price. We believe NNPC will reduce their import quota as the recent strikes show they can’t handle 70% of all imports. FX sourcing challenges will also continue to be a challenge in the sector,” said Esho.

BALA AUGIE