Oil marketing firms feel the pain of subsidies

These are not easy times for firms operating in the downstream segment of the Nigerian oil and gas industry, sources have told “Heard on the Street.” Most of the firms are struggling to stay in the business over foreign exchange scarcity and the insistence of the federal government that fuel prices should remain fixed which has disrupted their business models.

Currently, many of the major oil marketers are no longer interested in bringing in refined products into the country bring it is no longer profitable to do so. They now depend on the supply from the Nigerian National Petroleum Corporation (NNPC), which now supplies about 90 percent of Premium Motor Spirit (PMS) consumed in the country.

But sources are telling “Heard on the Street” that pressure from the oil marketers for the federal government to allow for appropriate pricing of PMS is being resisted by the Minister of State for Petroleum, Ibe Kachikwu. Even though the current landing cost of fuel is estimated at about N156 per litre, the minister is insisting that the product be sold at the capped price of N145 per litre.

However, it is understood that debts are piling up for the marketers for past products brought into the country, for which the federal government is yet to pay for. The mounting debts is beginning to impact negatively on the operations of many of the firms as the high interest rates on the bank loans they carry are rising very fast to unsustainable levels. Sources say if this is not soon addressed; the marketers may soon be forced to even stop selling the products, which would bring back the long queues at the fuel stations.

The long term solution, say players in the industry is for PMS prices to be deregulated or for the FG to implement its price modulation framework so that prices move in line with the price crude oil in the international markets and the exchange rate of the naira. Fear of the political repercussion of such a decision is preventing the government from making the move, which could see sell fuel sell at about N170 per litre.