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Delayed subsidy payment increases marketers’ debt

By on April 24, 2015

Constant delay in subsidy reimbursement by the Federal Government has led to increase in oil marketers’ debt exposure, driving their finance charges higher, industry analysts have said.

According to analysts at Ecobank Capital, the sustained delay in subsidy reimbursement is forcing the marketers to seek additional debt funding.

They noted that the Federal Government addressed some of the issues regarding the subsidy payment few weeks before the general election, adding that “the impending change in administration remains a challenge and can lead to further delay if the outstanding subsidy bill is transferred to the incoming administration.”

In a report on ‘Total Nigeria Plc 2014FY Earnings’, the analysts said the company’s finance charges increased by 32.29 per cent year-on-year, triggered by the delay in subsidy payments.

According to the report, the uncertainty regarding the new government direction on subsidy is restraining marketers from importing large volume of products, a situation which could significantly affect revenue in 2015.

Total’s earnings are said to be further affected by the increase in finance charges as the company’s income before tax dipped by 32.29 per cent y/y.

“Earnings after tax declined by 17.07 per cent y/y to settle at N4.24bn. Our earnings outlook for 2015 is positive as the company continues to strive to minimise cost; however exposure to unpaid subsidy remains a challenge. Further delay in subsidy payment leading to increased exposure to debt financing could exert more pressure on earnings in 2015,” the Ecobank analysts said.

In their outlook on Mobil Oil Nigeria’s earnings this year, analysts at FBN Capital including Mr. Uwadiae Osadiaye, said, “Mobil’s 2015 earnings are likely to be hit by a weakening naira and delayed subsidy reimbursements by the Federal Government.

“In the absence of any real estate property sales, we expect adjusted-Earnings Per Share to come in lower by around 22 per cent y/y.

“Although Nigeria’s President-elect has stated plans to end the subsidy regime on petrol, we believe the industry will need some time to adjust fully to a sector driven primarily by market forces.”

Given the risk of a further devaluation of the naira (even if modest) and persistent subsidy payment delays this year, the analysts forecast an adjusted-EPS decline of around 22 per cent for 2015E.

The PUNCH had last week reported that petroleum product marketers under the aegis of Major Oil Marketers Association of Nigeria had warned of a looming scarcity of fuel following the inability of the Federal Government to pay the subsidy arrears for the importation of PMS (petrol).

MOMAN had in a letter addressed to the Minister of Finance, Dr. Ngozi Okonjo-Iweala, through its Executive Secretary, Mr. Thomas Olawore, stated that despite previous assurances from the government to reimburse the marketers for under recovery as verified by the Petroleum Products Pricing Regulatory Agency, it had failed to honour the agreement.

The association said the industry to date had only received approximately N30bn in foreign exchange differential claims out of the N100bn owed.

“In the same vein, only N345bn has been received in core subsidy payments, covering payments up to the second quarter of 2014.

“Specifically, only three companies out of the six MOMAN companies received payments for forex differentials and no company, MOMAN or Depot and Petroleum Products Marketing Association, has been paid interest charges on delayed payments.”

 

[Punch]

4 Comments

  1. Proud Yoruba

    April 24, 2015 at 4:21 pm

    Why don’t these people go to their legislators and have them summon the finance minister to come and account for why they have not been paid despite her saying that she took $1billion from ECA to pay them? Jona will not hold her accountable.

    • Patrick

      April 24, 2015 at 4:42 pm

      These allegations are spurious, you should not make wild allegations and absolute statements like these

      • Proud Yoruba

        April 24, 2015 at 5:03 pm

        What is spurious about it? Has she paid them? NO Did she promise she would pay by April 28? YES.

        What is wrong with going to the NASS, let them have an open hearing about the whole affair so Nigerians will know the whole truth!

      • Proud Yoruba

        April 24, 2015 at 8:38 pm

        Culled from NOI 2015 Budget Presentation of Dec 17, 2014:

        20.Now several of these critics are coming to ask why there are no savings in
        the ECA, why we need to tighten our belts now. They criticized saving
        now they wonder why we didn’t save. They criticized borrowing and now
        they want us to rush out and borrow. They want us to depend on others
        for solutions rather than on ourselves. I say Nigeria has outgrown this and,
        against all odds, we still had $4 billion in the Excess Crude Account as a
        buffer. It is far from enough since we have already used $1 billion to pay
        oil marketers but it can help us manage our way for a couple of months,
        enough for short- to-medium term measures typically used to deal with
        this kind of situation to kick in. By the way, two papers today, Guardian,
        Nation & Premium Times, say $1 billion is missing from the ECA. It is a lie.
        We used it to pay oil marketers and published the same in the papers on
        December, 2, 2014. So many lies and misinformation are being peddled
        now to scare people and smear the government. Please beware. Yes, times
        will be tough but if we work together we will weather the storm. Ladies
        and Gentlemen, what we need to tell ourselves is that “Panic is not a
        7
        strategy”. What is necessary is a systematic and focused approach and that
        is what we propose to Nigeria.