Mass Purge Looms In Oil Sector Over $2bn Debt

Image result for Major Oil Marketers Association of Nigeria (MOMAN)

Yemisi Izuora 

Oil marketers in the country have raised alarm over plans to embark on mass retrenchment of workers as Federal Government failed to pay their outstanding debts owed on petroleum importation, accrued interest and exchange differential which runs over $2 billion to date.

The marketers under the aegis of Major Oil Marketers Association of Nigeria (MOMAN) Independent Petroleum Marketers Association of Nigeria (IPMAN), Depot and Petroleum Products Marketers Association (DAPPMA)  and  Independent Petroleum Products Importers (IPPIs)

This was contained in a joint communiqué issued by the marketers after their joint meeting in Lagos on Tuesday, signed by their legal adviser, Patrick Etim Esq and made available to energy correspondents.

According to Etim, many marketers and oil companies were owing workers over eight months salaries due to inability of Federal Government to pay the huge debts been owed on products imported since from 2015 , the interest cost and the foreign exchange differential which has accrued to over $2 billion.

The marketers appeal for urgent intervention of government and authorisation to pay outstanding interest and foreign exchange differentials owed marketers to date to save their business from total collapse.

The marketers stated that they currently owe some Nigerian banks over $2 billion, which they took as loans to import fuel, and because the government is yet to  them or pay the banks interest on the loans as agreed, the interest accumulated over time an is still accruing.

They said that government is in violation of the agreement reached with marketers on payment schedule as many commercial banks that lend money to oil marketers for the importation of premium motor spirit (PMS) are still in a despair following the weight of the mounting indebtedness from the oil marketers even as the operations of the marketers nationwide is fast grinding to a halt.

“ The hope that the outstanding debt owed marketers will be paid resulting from the intervention of  the Vice President, Professor Yemi Osinbajo appear to be dashed as the payment that was promised to happen in July 2017 is yet to materialize.

“This was devastating to marketers as we are been dragged daily by banks on debts owe and under threat of putting our tank farms under receivership”

“It was expected that the various meetings held between very senior government officials and the leadership of the oil dealers to resolve the issue of the outstanding debt owed to oil marketers will yield the desired result  as the figures were fully reconciled and there was commitment from government to pay by the end of July 2017.

“However, Nigerian banks who are carrying the indebtedness of the marketers on their balance sheet have had their hope disappointed because as it stands now the payment of all the debts by the Federal Government have not been received and this has resulted to lot of problems between the banks and marketers.

The statement stated that debts arose from arrears of unpaid petrol supplied to the country whereby the Federal Government entered a contract with marketers mandating them to import and supply petrol to the market.

The condition of the contract being that the government shall pay the difference between the landing cost of the petrol and the selling price of petrol (as fixed by government) provided that the landing cost is higher than the selling price.

The government approved the landing cost which fluctuated as it depended mainly on the international price of petrol and exchange rate of naira/dollar.

A key term of the government’s contract with marketers is that the under-recovery payments shall be paid to marketerswithin 45days of submission of documents evidencing discharge of petrol cargo and trucking out from storage.

“ It was also agreed that after 45 days the government shall pay the interest charges on the loans taken by the marketers to finance the importation of cargoes of petrol.

`The marketers said the problem of the banks is compounded by the fact that they provided billions of dollars to finance the importation of cargoes of petrol.

According to them, they opened Letters of Credit at approximate exchange rate of N197/$1.00 while petrol cargoes were supplied and sold by the marketers at the selling prices approved by government and the repayment was calculated using the above exchange rate.

According to them, the foreign exchange differentials which arose as a result of the initial devaluation of the naira (by the last administration) from the initial N165/US$1

“the interest payable due to delayed reimbursement also by the by the past administration, both of which the Federal Government had approved for payment to marketers, have not been fully settled by the appropriate Federal Government agencies.

“The markers stated that it was only in the first quarter of 2017, that the banks were able to  liquidated the Letters of Credit from 2014/ 2015 at the N360/$ as against the N176- 195/$ at the time the LC’s were opened because of lack of foreign exchange from the government leaving their accounts with the huge differential.

“ The recent further devaluation of the naira from N195 to N305 and later to over N365 to US$1, while the Federal Government agencies based their reimbursement calculation on N197 to US$1, left petroleum marketers within our association with additional debt burden in excess of N600bn. This is in addition to the over N250bn arrears owed.

“The downstream sector as a whole, is now saddled with a debt burden of over N850bn which keeps rising because the banks are still charging interests until the total debt is fully liquidated,’’ the marketers claimed..

The marketers said that petroleum marketers, as a result of these unpaid interest and foreign exchange differentials have gradually become insolvent and financially handicapped to continue operating profitably.

“ Commercial banks, the original and actual owners of these funds are already hard hit by marketers’ inability to return these funds within the ‘contract tenure of 45 days’ and have, in line with the Central Bank of Nigeria’s prudential guidelines, the account of the marketers are now classified ‘non-performing’ accounts in all the banks in the federation. In addition, properties provided by marketers as securities for these funds are in the process of being auctioned.

 

“We have indeed made several spirited efforts to get the government agencies involved to pay up fully, adhering to the principle of ‘full restitution’ to all participants in the then PMS import scheme but the major challenge on the economy has impeded complete success hence we, once more, making a direct appeal for the intervention of Mr. President”

The inability to pay or service the loans, has not only stalled their further importation of fuel but is threatening the operation of the affected banks and the nation’s financial industry at large, they said

They said that it is very scary to consider consequences of bank failure in Nigeria, adding that apart from the impact on individuals and businesses some economists project that it would cost the government more than N2 trillion to revive Nigerian banks in the event of failure.

They said that the banks are in a quandary on account of their financing importation of petrol cargoes by the petroleum marketers and so far, there is little evidence that the government has seen the risks in further delaying the payments under the subsidy scheme.

“The banks are worried that financing new petrol imports when outstanding loans, interests and charges have not been paid will be foolish especially when it is clear that the imports will represent an unmitigated loss to the importers based on the landing costs.

While the oil marketers await the payment of monies owed to them as approved and announced by the Federal Executive Council (FEC), they are still unable to transact with banks because their accounts have been classified as non-performing hence cannot be used to transact business under the classification.

The effect of this is that the operations of the marketers have been halted with backlog of staff salaries remaining unpaid for about eight months now.

The workers themselves are in jeopardy of working without knowing when to get paid and losing their jobs. 

The Government should honour contract agreements to boost the confidence of local and foreign investors in both our economy and financial markets.

“ There is a need for President Muhammadu Buhari’s government to keep improving governance especially by correcting wrongs of previous governments and making government responsible to its contracts and responsibilities.

The marketers appealed to the government not to allow its inactions in handling the critical issues facing banks, airlines, manufacturers, electricity companies and other businesses expose consumers to suffering,

The marketer, however, expressed their support for Federal government’s plan to remove fuel subsidy, even as they urged the government to quickly deregulate the downstream sector of the oil and gas industry in order to save the national economy from ruin.

 

Read These Too

Add Comment