Major Oil Marketers Association of Nigeria (MOMAN) and Depot and Petroleum Products Marketers Association (DAPPMA) have notified the federal government that the debt of N800 billion owed to their members have almost crippled their businesses and stands to worsen the ongoing fuel crisis in the country. The situation, they added, also threatens 30,000 jobs in the downstream sector.
The two associations gave the notification in a letter addressed to Dr. Ibe Kachiukwu, Minister of State for Petroleum. Dated 30 January and jointly signed by Messrs. Obafemi Olawore and Olufemi Adewole, Executive Secretary of MOMAN and DAPPMA respectively, the two organizations said they are constrained to draw the Dr. Kachiukwu’s attention to the outcome of the unclear timelines for the settlement of overdue payments to them under the Petroleum Support Fund (PSF) in respect of their subsidy, foreign exchange differentials approved by the Federal Executive Council since last July.
The organizations said the efforts of the Professor Yemi Osinbajo, then acting president, and the approval of the payment by the Federal Executive Council gave them assurance that the funds would be released, using financial instruments, before the end of last July. They also stated that the Central Bank Governor, Mr. Godwin Emefiele, promised to ensure that interest charges were frozen before 30 June 2017.
They stated that they were further assured by the Finance Minister, Mrs. Kemi Adeosun, who promised that necessary supplementary budget instruments would be forwarded to the National Assembly. This, they said, raised expectations of a great reduction in capital difficulties and debt overhang as well as improved product supply.
To their amazement, however, the organizations said they were told by the Chairman of the Senate Committee on the Downstream Sector that no request for a supplementary appropriation in respect of their outstanding payments, as approved by the Federal Executive Council, was received by the Senate.
MOMAN and DAPPMA stated that the outcome of the delay in effecting the payment has almost paralyzed the businesses of their members.
“The fallout of the prolonged wait for payments has been dire, with many tottering on insolvency with the attendant redundant oil reception, storage and retail assets leading to massive, albeit unpublicized job losses across the Downstream value chain. Bank depositors’ funds are currently trapped in unproductive facilities nationwide due to unpaid loan obligations, thereby adding to liquidity challenges in the banking sector. The effect is the very low lending to the downstream due to diminishing sectoral lending limits and ultimately severe working capital constraints,” the two bodies said.
MOMAN and DAPPMA explained that the rising subsidy debt has been brought about by the foreign exchange differentials, which arose as a result of the initial devaluation of the naira by the immediate past administration, that was approved by the federal government from the initial N165 to a dollar to N195 to a dollar. They equally explained that the interest component arose because of the delayed reimbursement, approved by the last administration, for payment to marketers, but which were not fully settled by the appropriate federal government agencies. In addition, they said, the foreign exchange differential, which makes up the largest slice because of the interest component, has been aggravated by the devaluation of the naira from N195 to N305 to the dollar, while federal government agencies had based their reimbursement on N197 to a dollar, a development that saddled oil marketers with N300 billion additional and unplanned debt.
“As a result of the above, the downstream sector as a whole has been saddled with a debt of over N800 Billion, which keeps rising alongside previous debts because the banks keep charging interests and will continue to do so until the debts are liquidated. With these unpaid interests and foreign exchange differentials, petroleum marketers have gradually become insolvent and financially handicapped to continue operating profitably. Thousands of retail outlets and tank farms have not received a single litre of fuel due to the difficulties in sourcing funds for required quantities to keep our filling stations all over the country wet and as such most marketers are at sub-optimal capacity utilization in addition to carrying the attendant fixed and overhead costs,” stated the marketers.
They added that they have been under pressure from banks to pay up outstanding principal and interests, especially with the banks’ financial year end approaching and the conflicting signal from the National Assembly in respect of the promised 2017 supplementary budget as well as the non-inclusion of the matter in the 2018 budget presentation. The associations lamented that despite participating in various verification and reconciliation exercises with various government organs, they have had no respite. As a result, they called on Dr. Kachiukwu to personally intervene on their behalf with the appropriate government organs to ensure the outstanding payments are made to them.
They further stated that the intervention will save the system from collapse, as their members currently have a combined storage capacity of over 2 billion liters, 6000 retail outlets and a 30,000-strong workforce that are in the danger of ending up redundant.
DAPPMA and MOMAN warned that its members, effective from 21 days after the date on their letter, will begin massive retrenchment of staff.
“The implication of this is that many companies may not be able to keep our depots and filling stations open without essential staff and this will have an obvious effect on distribution and retailing of products. We also wish to bring to your notice our inability to pay our transporters freight earnings, which has grievous implications on the distribution of products nationwide,” stated the bodies.