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Fuel importers under pressure from devalued naira

By on December 5, 2014

As the country continues to rely on importation for most of its fuel needs, the recent devaluation of the naira is taking a toll on marketers as the cost of importing fuel has increased.

This is coming on the heels of the delay in the payment of subsidy arrears by the government, for which marketers were said to be groaning as they could not make fresh order for the product.

Following the weakening of the naira by the decline in crude oil prices, the Central Bank of Nigeria was last week forced to devalue the currency by 8.5 per cent from N155 to N168 to the United States’ dollar.

Nigeria, Africa’s largest oil producer, relies heavily on imported refined petroleum products for the servicing of the economy, creating a lucrative market for refiners in the United States, Europe and other African countries such as Cameroun and Cote d’Ivoire.

The Chairman, Nigeria Union of Petroleum and Natural Gas Workers, Lagos Zone, Alhaji Tokunbo Korodo, in a telephone interview with our correspondent, said, “The devaluation of the naira is part of what may lead to scarcity. Most of the fuel importers are having a serious setback.”

“Apart from that, some of the importers are not willing to import fuel as a result of non-payment of subsidy arrears. According to information some of them are peddling around, the money will not be paid until after elections. Some of the marketers are seriously complaining about their subsidy payments and that is why some of them are not even going into fresh importation. The ex-depot price of the fuel at the depots is also increasing on a daily basis because some of them are running out of stock.

“So, we are likely to face a lot of challenges this festive period if urgent steps are not taken by the government or the relevant authorities,” Korodo added.

An energy specialist at Ecobank, Mr. Dolapo Oni said as a result of the devaluation, the cost of importing fuel had increased, especially since the country operates on landed cost.

“So the Letter of Credit opened by a bank is not paid until the goods land, by which time the dollar rate is often higher,” he said.

In its latest briefing note on energy, oil and gas, Ecobank Research said the combination of high dollar rates and non-payment of fuel subsidies had put the petroleum marketers in a situation where they were running low on reserves of key fuels.

“Delay in payment of fuel subsidies in Nigeria continues to impose financial costs on petroleum marketers, even as security challenges in the northern part of the country also affect operations,” according to the report.

The amount spent on fuel imports to the country in the second quarter of this year increased by 50.2 per cent to $4.01bn from $2.67bn in the first quarter, according to the data from the Central Bank of Nigeria.

The CBN said “the growth in oil sector imports was mainly facilitated by the low domestic refining capacity which induced increased importation of fuel to meet domestic demand.”

The country’s refineries have long been operating well below installed capacity as they are in different states of disrepair. They operated at an average of 10.46 per cent of their combined nameplate capacity of 445,000 barrels per day in June, according to data from the Nigerian National Petroleum Corporation.

The Ecobank report noted that the lower crude oil price had actually benefited refiners in Middle Africa who are now able to afford more quantities of the previously expensive light sweet crude grades.

Refineries such as Cameroon’s 42,000 bpd SONARA refinery and Cote d’Ivoire 80,000 bpd SIR refinery which typically refine Nigeria’s Bonny Light and Brass River crude grades, among others, are said to have been able to boost production.

“As these crude grades yield more middle distillates demanded by West African countries, the higher output could potentially also boost petroleum product trading between the two countries and Nigeria. The SONARA, which, as of June was owed nearly $600m by the government in fuel subsidy payments, is expected to witness a major turnaround in its operations.”

According to the report, the higher yield from processing more light sweet crude and likely higher output of petroleum products could even increase its trade in petroleum products with Nigeria, where oil importers are yet to place orders with European refiners over unpaid subsidies.

“The SIR in Cote d’Ivoire was equally owed around $95m by the government but has been able to secure lines of credit from its bankers to take up more crude oil feedstock. As a key fuel supplier to the Nigerian market, the

SIR could strengthen its relevance to Nigeria as output increases,” said Ecobank Research.

 

[Punch]