Resolving finance burden in downstream sector hinge on full deregulation
The drive to attract the needed finance for the downstream sector of the oil and gas industry in Nigeria can only be achieved when the entire sector is fully deregulated. Experts and industry operators have warned.
They observed that access to traditional banking facilities remain constrained by systemic issues.
Dolapo Oni, Head, Energy Research, Ecobank in his presentation at the 11th edition of Oil Trading Logistics expo in Lagos observed that Oil and gas share of loans to private sector has risen to 30 percent as at Dec 2016.
Oni maintains that to resolve the hiccups hindering the financing of the downstream sector, corporate governance is a major requirement and government must ensure full sector deregulation segment as these are incentives to turn around the sector.
To him, refinery expenditure over the next five years alone is over $5bn, adding that Oil and Gas is N4.9trn ($16.04bn), outstanding payment to marketers is $2bn.
Adebowale Olujimi, chief executive officer, Emadeb energy serv. Limited said funding strategies in Downstream sector are shaped by combination of the policy direction of the government; Nature of transaction and corporate objectives of financial institutions.
Olujimi while making a presentation on finance for downstream trading and infrastructure projects-opportunities and challenges opine that for oil marketers to fully take advantage of the opportunities in this sector, funding has to be made available at a competitive rate, preferably at a single digit repayable over a longer period depending on the nature of the transaction.
According to him, “International funding is the most competitive option; however specialised banks locally could also focus on such credit facilities in order to boost economic development”.
He observed that among the challenges of petroleum products distribution and retailing in Nigeria include high cost of funding and other operational expenses; price cap by the Petroleum Product Pricing Regulatory Agency (PPPRA) for gasoline which accounts for over 65% of total industry volume.
According to him, “The low capacity utilisation of Nigeria’s state-owned refineries and petrochemicals plants also increase the cost of sourcing products”
He further observed that the sorry state of Petroleum Product infrastructure Nationwide -deplorable state of the road; limited access to funding as a result of the huge gap suffered by oil marketers after devaluation thus resulting into non performing loans.
“Bureaucracy and bottlenecks in Government agencies thus resulting in delays and increased cost of doing business; Foreign Exchange risk attributed to the importation of products and continuous drop in margins thus making it difficult for operators to remain in business”, he said.
The Ceo of Emadeb energy is of the view that despite the challenges, the Oil and Gas Industry will continue to play a major role in the economy, accounting for more than 6% of GDP and 44% of the energy needs of the economy.
He stated that ownership of retail outlets and other infrastructure in the downstream value chain will increase margins for operators on the long run adding that it will also create employment opportunities thus improving economic development.
KELECHI EWUZIE