These coronavirus pandemic has indeed shaken Nigerian’s downstream industry to its very foundation.
having had its fair share of the economic turbulence prior to the
outbreak of COVID-19, the downstream industry remains one of the most
fragmented industries in the Nigerian economy, competing with both a
regulator and an operator-the Nigerian National Petroleum Corporation
for its share of the market size.
But amidst this fragility, last
week’s announcement by President Muhammadu Buhari, of a total lockdown
on three major cities; Abuja, Lagos and Ogun created huge panic in the
shaky industry. That decision according to the industry stakeholders
turned out to be one that will further deprive marketers of the already
low margins, thus making it more difficult for them to service their
financial obligations to financial institutions.
The industry has
equally been battling for a policy shift which has seen the Petroleum
Industry Bill (PIB) stuck in the woods for over 10 years.
non-passage of the PIB has seen several investments in the downstream
sector stunted as operators are currently battling with payment of
salaries, inability to service bank loans, leading to huge assets
They have constantly called for the deregulation of the sector as the only solution to the myriad of challenges confronting it.
so according to the Chairman of Major Oil Marketers Association of
Nigeria (MOMAN), Mr. Tunji Oyebanji, will help the country free up funds
used in the payment of fuel subsidy to support infrastructure
development in the country, help the industry to make fresh investments
and employ more Nigerians.
Since the outbreak of COVID-19, oil
price drop at an all -time low of less than $25, leading also to a drop
in the retail pump price of petrol.
The drop in crude oil prices
has had an adverse effect on downstream operators, with the Petroleum
Products Pricing Regulatory Agency(PPPRA) adjusting retail pump price of
petrol twice in three weeks First from N145 to N125 and from N125 to
N123.80 without carrying the stakeholders along. He said the development
has led to a loss of about N3.8 billion on the part of marketers.
Effect of Lockdown on 3 cities
socio economic lockdown directive given by Buhari on;Lagos, Abuja and
Ogun State is already taken a negative toll on the activities of the
Oyebanji said most of its prime outlets
selling large volumes of fuel are now struggling to meet up with sales
needed to break even, lamenting that most marketers will be challenged
meeting their financial obligations in the coming weeks as sales volume
continues to drop drastically due to the lockdown.
He argued that
payment of salaries and other overhead costs will pose a problem as
most fuel stations cannot boost of exhausting 33,000 litres of fuel at
Meanwhile, Daily Sun findings across some fuel
stations showed very low level of patronage both at major marketers’
fuel station and those of independent marketers.
attendants who spoke to Daily Sun lamented the low level of patronage,
saying sales recorded as at 4pm yesterday does not in any way justify
their coming to work.
They said, should the situation continue, they may be forced to shut down operations in a bid to minimize their running cost.
a situation where there is no public power supply, we are forced to run
on generators. But how do we continue to run on generators under a low
patronage regime? It is simply not sustainable. We will monitor the
situation till weekend, but if it does not improve, we may not open from
next week (This week).
They lamented that the sit-at-home
directive which has affected movement of vehicles was a major reason for
the low patronage because both private and commercial vehicles are all
grounded at home.
Adjustments in fuel prices
commenting on the price adjustment, Oyebanji lamented that matter is
rather becoming too frequent after a second in a spate of one month,
thus leading to distortions and imbalance for market operators because
it comes in a sudden manner.
He lamented that the last adjustment
by the PPPRA from N145 per litre to N125 cost its members about N3.8
billion in revenue loss because the timeframe given for compliance was
with immediate effect.
‘‘A lot of our members still had fuel in
their underground tanks while those that don’t have already placed
orders that were in transit. Now with these two sudden changes, who
bears the shortfall.The PPPRA should not only be concerned with
political considerations but should also consider economic and financial
implications of some of these pronouncements?
He regretted that
most members of the public do not understand the downstream market
dynamics, hence whenever there is a downward review of prices, marketers
bear the brunt because they are not always given a moratorium, it has
always been with immediate effect.
The MOMAN boss said the
association and other critical stakeholders have always advised PPPRA
that whenever plans for a price review or adjustment, is being made its
should endeavour to give stakeholders a three month notice ahead of
implementation, so that those that have placed orders would have
received same and exhausted sales, before the new price regime takes
effect, otherwise, they may sooner than later run marketers out of
business with the frequent changes in fuel price.
Online fuel retailers hard hit
online oil and gas marketplace, PETROHUB, this is a time for sober
reflection since most of its orders from clients could not be supplied.
to its Head of Marketing, Mr. Emmanuel Ademola, conveying petroleum
products from point A to B has been very difficult because of the lack
of understanding of most security personnel.
He said despite the
directive by the President and the Group Managing Director of NNPC, Mr.
Mele Kyari, that those involved in petroleum products marketing and
supply be exempted, law enforcement officers appear to be defying the
He lamented that the lockdown has equally affected
supplies to some of its corporate clients in banking and
telecommunications as they have shut down their office while those to
confirm the product supplied that are actually in conformity to quantity
and standards are all at home.
Ademola said his fear was that
some of those orders by clients are not cancelled, saying should that be
the case, the company will run into losses running into several
millions of Naira.
‘‘Lockdown or not, we must pay our workers.
And where do we get the resources to do that, when we cannot make
supplies to clients. We have other overhead cost to pay, just as we need
to service our loans. So in effect, it is a difficult time for some of
us operating in the downstream sector.’’
their part, Independent Petroleum Marketers Association of Nigeria
(IPMAN) have called on government to adhere to due process by carrying
stakeholders along when making fuel price changes.
Chairman, Independent Petroleum Marketers Association of Nigeria
(IPMAN), South West, Mr Dele Tajudeen, said the reduction would also see
the business capital used by petroleum marketers reduced.
however, regretted that the failure of the Federal Government to follow
due process in announcing petrol price changes will lead to untold
hardship and loss of profit margins.
‘‘The negative aspect is
that we were not formally informed about the directive, because at any
given time, we have products in our underground tanks because we do not
wait to exhaust our products before we make fresh orders.’’
to him, many petroleum marketers loaded petroleum products on
Wednesday when the directive was announced, adding that it would be
impossible to sell the products in a day as some petroleum products are
still in transit as at the time the pronouncement was made.
question is what will happen to those products that were loaded on
Wednesday that are yet to get to their destinations. The communication
from NNPC is unlike other federal government agencies that give a time
frame for you to get prepared.
This will translate to great loss
for our members, because a truck load of 33,000 litres will mean losing
N660,000 and if it is a 45,000 litres truck, we will be losing N900,000
on a truck. These loses are for trucks loaded on Wednesday not to talk
of products in our underground tanks,” he said.
He added that the
implication is that the product they have right now would be sold N20
below the cost price, saying this will translates to more than a billion
naira loss across board.
‘‘Our appeal to NNPC and to the federal
government is that people who loaded last Wednesday and some days ago,
should be considered by giving them credit notes, because at this point
in time, we need to be encouraged because we cut across every nook and
cranny than others who operate in city centres NNPC should consider
those who just recently loaded, because there is no way the products
would have reached to their stations.’’
Source : The sun