Nigeria’s downstream industry is getting unsettled as major oil marketers are increasingly becoming disillusioned and jaundiced as government begins review of the N800 billion subsidy claim. CHIKA IZUORA looks at options being considered by government to resolve the quagmire.
Tension is gradually building up between government and oil marketers following unresolved payment of petroleum products imported on behalf of government by the marketers under the controversial subsidy regime.
The oil marketers operating by the name, Major Oil Marketers Association of Nigeria (MOMAN) and Depot and Petroleum Products Marketers Association (DAPPMA), have been passionately seeking federal government understanding for prompt payment of over N800 billion outstanding subsidy debts.
The marketers have informed the government through correspondences that timely settlement of the debt will save them from total shut down of operations.
Both parties have dialogued at different times to proffer solutions on the issue which could threaten effective products supply and distribution if not resolved.
As part of intervention, the Senate Committee on Petroleum (Downstream), in October in its resolution, directed the Ministry of Finance and Debt Management Office (DMO) to hold a meeting with the oil marketers and other stakeholders to agree on the grey areas and report back within one week.
It was learnt that in March this year, the federal government requested for the appropriation of N650 billion from the national assembly to clear the backlog of subsidy arrears owed marketers.
The request to the national assembly came after a 14-day ultimatum issued to the government by DAPPMAN, to commence staff disengagement over the N650 billion debt owed it.
As a result, government was prompted to facilitate series of engagements and meetings between the Nigerian National Petroleum Corporation (NNPC), the Ministry of Labour, the Presidency and DAPPMAN/MOMAN to agree on how to avert another phase of petroleum products scarcity across the country.
After wide consultation, the government showed commitment to paying the debts, which eventually calmed frayed nerves and return of normalcy in the product supply chain.
Subsequently, in July this year, the Senate approved the payment of N348 billion as outstanding subsidy claims to 74 petroleum marketers which included Oando, Total, Honey Well, Capital Oil, Conoil, A.A. Rano, Folawiyo, Eternal oil, Aiteo, Forte Oil, Bovas, Mobil (11 Plc), MRS Oil and Gas, among others.
The Senate said the payment was to enable them update all outstanding liabilities and clear all debts, interest accrued and foreign exchange differential once and for all.
The approval was sequel to the adoption of the interim report of the Committee on Petroleum Downstream on the Promissory Note Programme and a Bond Issuance to Settle Inherited Local Debts and Contractual Obligations to Petroleum Marketers.
Our Correspondent however gathered that the process of payment is presently stalled as Debt Management Office, DMO, is yet to finalise the process that will lead to release of the fund.
An industry source told our Correspondent that government made a promise for issuance of promissory notes to offset inherited local debts, but that has not been effected.
The chairman of the committee, Kabiru Marafa, had advised that continuous delay of the approval of the promissory note request will affect the liquidity of the oil companies and undermine their crucial role in the development of the economy.
In the report, the committee recommended that the 55 oil marketers be paid 100 per cent of their claims. It said of the said amount, 55 oil marketers are to receive N276 billion (N275,750,415,108) while 19 others will get N73 billion (N73,452,639,866).
The committee also called for the payment of 65 per cent claims to some marketers due to contentions in their figures.
Marafa explained that the marketers made claims to the tune of N670 billion (N670,497,543,15), as of June 30, 2017, but the Petroleum Products Pricing Regulatory Agency (PPPRA) verified and approved the sum of N429 billion (N429,054,203,228) to the Federal Ministry of Finance.
He said while the verified figure was approved by the Federal Executive Council, further verification by the Presidential Initiative on Continuous Audit (PICA) reduced the amount to N407 billion (N407,255,263,288).
The chairman further explained that the controversies including the determination of the terminal date of the subsidy programme, amount to be paid to the OMCs and the interest accrued from June 30, 2017 to date will be taken up and resolved in the final report.
He said the committee will submit the final report in due course and the “submission should be able to reconcile and bring to the conclusion all issues in respect of petroleum subsidy programme implementation and payments.”
He added that further verification needs to be made to ascertain the discrepancies between the oil marketers and the recommendations for payment made by the ministry of finance.
The Committee was of the opinion that interim payments should be effected to the marketers pending full verification is done.
But with the settlement timing yet not feasible, the Executive Secretary, MOMAN, Mr Cement Isong cautioned government to hasten payment of the outstanding debts of fuel imports subsidy arrears owed them (marketers) as the continued non-payment has severely limited their access to credit and negatively impacted their working capital leading to their inability to pay their banks and their service providers.
Isong, urged the government agencies concerned to address the bureaucratic bottlenecks causing the delay in the payment process, adding that the delay in payment of the debt has resulted in the degradation of the downstream subsector of the oil and gas industry, and affected the marketers’ business operation.
He said that MOMAN is a downstream oil and gas group made up of six major marketers which include 11 Plc (formerly Mobil Oil Nigeria), Conoil Plc, OVH Energy Marketing Limited, Forte Oil Plc, MRS Oil Nigeria Plc and Total Nigeria Plc which has progressively gained a reputation in the Nigerian petroleum industry as a key player.
According to him, the major challenge the Nigerian downstream petroleum sector is facing is the non-payment of the long outstanding fuel subsidy to oil marketers.
“We appreciate the efforts of the National Assembly and the Federal Executive Council in approving payment but the non-payment creates a significantly negative impact on the operational efficiency of the downstream sector of the oil industry, thereby placing a severe strain on its efforts to continually invest in infrastructure and raise industry standards. We hope that the debts will be paid in full to the oil marketers as soon as possible,” he said.
The MOMAN scribe said that the debt owed MOMAN members alone stood at over N130.7 billion as at August 2018, and that once reconciliation has been done and a particular figure was agreed as debt, he couldn’t understand why settlements had not been made.
Similarly, the Executive Secretary, Deport and Petroleum Products Marketers of Nigeria, Olufemi Adewole, said the processes highlighted for payment by the government were inimical to the operations of their businesses.
Adewole said: “The processes they have highlighted is killing our businesses. Immediately the banks read in the media that the National Assembly had approved, they went to court, got injunction and seized our assets.”
Adewole said that 60 per cent of marketers have been forced out of business as banks have taken over their depots, assets and properties due to their inability to pay back monies borrowed to import fuel.
He said many marketers were forced out of business, while others are struggling to survive due to the government’s inability to settle the subsidy arrears, saying the development is threatening investment in the downstream subsector.
The DAPPMAN scribe said, although, the Federal Government has earmarked money to clear the debts, the marketers were yet to be paid.
“The debt has had very adverse effects on our operations. I am aware of two depots that have been forcibly taken over by banks because they got injunctions from the courts. They did so the moment they heard that the National Assembly approved payment of the debt to marketers. Unfortunately, as at today the money was yet to get into our accounts.”
He said the other challenge is that many of the marketers have laid off more than 90 per cent of their staff because of financial constraints.
Adewole however said that the government has promised that part of the money would come as promissory note and cash saying the information gathered was that the government may pay only in promissory note.
It means you have to go back and discount this promissory note in the bank. This means we are losing because the money has been delayed and this adds to the interest to be charged on our accounts.
Chairman of the committee, Sen.Kabiru Marafa, said the oil marketers had earlier submitted a bill of N650 billion but government later reviewed the bill to N429 billion and eventually gave an approval of N386 billion.
However, the N386 billion as approved by the Federal Executive Council (FEC) came with a condition that subjected its implementation to the appointment of an international audit firm that would comprehensively review and ascertain the veracity of the claims by the oil dealers.
Also, the payment was said to be made not in cash, but by a promissory note and the Debt Management Office (DMO) on October 31, said it has commenced the accelerated implementation of settlement of government arrears through promissory notes to oil marketers.
The DMO made this known in a statement it issued in Abuja, when it met with the Senate Committee on Downstream Petroleum Sector to discuss the issue of the outstanding payments to oil marketers.
According to the statement, the implementation is in line with the process approved by the Federal Executive Council (FEC).
It also quoted Sen. Kabiru Marafa, the Chairman of the Senate committee, as calling the meeting to ascertain the status of the implementation of the approvals given by the National Assembly for the settlement of arrears to oil marketers.
The meeting was attended by representatives from the Ministry of Finance, DMO, Central Bank of Nigeria (CBN), Petroleum Products Pricing Regulatory Agency (PPPRA) and representatives of oil marketers.
The obligations due to the oil marketers represent interest accruals and foreign exchange differentials, it said.
“The committee also requested the CBN to confirm the position on a statement by oil marketers that there was an agreement to stop the accrual of interest on loans owed by the oil marketers to banks.
“The Senate committee had earlier approved an amount to be paid to the oil marketers in July, but the complete approval of NASS, required by law for the issuance of government debt securities, was only received when a resolution conveying the approval of the House of Representatives was issued on September 26.
“On the strength of the provisions of the law, therefore, implementation could not have commenced prior to September 26.”
The DMO said that the current administration as one of its strategies to address inherited arrears to various contractors, approved the issuance of promissory notes to various categories of creditors.
It added that after the approval by FEC, President Muhammadu Buhari presented a request to NASS, as required by the Fiscal Responsibility Act, 2007.
“The categories of creditors for whom the settlement of arrears was approved by FEC include pensioners and staff, contractors, construction companies, exporters, DisCos, GenCos, State Governments, Judgement Debts and the petroleum marketers.
“To ensure transparency and value for money to the Federal Government in the settlement of these arrears, FEC had specified the processes to be adopted in the issuance of the promissory notes, one of which is the validation of the claims by an international accounting firm operating in Nigeria.
“The benefits of this initiative by the current administration include the return by contractors to project sites, thereby improving infrastructure and creating jobs.”
The DMO noted that another benefit was that there would be an improvement in the ability of banks to lend to the real sector.
This is because since some of the creditors to be settled are indebted to banks, the issuance of the promissory notes will enable them to repay their debts to the banks.
The DMO also said at the hearing that it would meet with the oil marketers in November.
New Emerging Friction
As Christmas draws close, a fresh disagreement is on the horizon.
This time the marketers are beginning to suspect lack of commitment on the part of government to resolve the problem
In a telephone discussion with our Correspondent, DPPMA secretary, Olufemi Adewole said government is now asking for discount from the marketers on the money owed.
He said apart from the recruitment of an international Accounting Firm to review the subsidy calculation done by marketers, government through the promissory note it promised is asking for discount.
“I wonder how this will play out because significant part of the debt belongs to the banks, and then you have the Petroleum Products Pricing Regulatory Agency, PPPRA and Petroleum Equalization Fund, PEF are all being owned, so where will such discounts come from”, Adewole asked.
He said the review exercise is billed to commence in the first week in December, and the outcome would determine the action the marketers would take going forward.
DMO To The Rescue
LEADERSHIP Sunday however, gathered that the Debt Management Office (DMO), is accelerating implementation of the Promissory Note Programme and Bond Issuance to settle the oil marketers’ arrears.
The DMO which gave this indication recently affirmed that the programme was to address inherited local debts and contractual obligations due to various categories of creditors.
It also said that the programme would be implemented in accordance with the process approved by the Federal Executive Council (FEC).
“It is to be noted that the claims by oil marketers are for accrued interest and foreign exchange differentials.
“These were unpaid obligations carried over from previous administrations.
“Whilst some of the issues involved in the implementation of the programme have been explained to representatives of the oil marketers, the DMO has invited them to a meeting to explain the process to them and provide a status report.”
The statement said that the amounts presented to the Federal Executive Council (FEC) and subsequently to NASS were derived by simply collating figures from various Ministries, Departments and Agencies (MDAs) to begin the process.
“Given that these were largely unverified amounts, it became prudent on the part of government to include processes that would be adopted in the implementation of the programme.
“These processes would ensure transparency and value for money before the promissory notes are issued.
“One of such processes is the validation of the amounts against each creditor by an international accounting firm operating in Nigeria.”
It said that based on the approval by FEC, the DMO initiated steps towards the implementation of the programme, one of which was the appointment of advisers using the provisions of the Public Procurement Act, 2007.
It however, said that since the programme involved the issuance of sovereign debt instruments, which require the approval of NASS as provided in the Fiscal Responsibility Act, 2007, there was a limit to what the DMO could do without NASS approval.
The statement said it was on record that the required NASS approval was only received on September 26, through a letter from the Clerk of the National Assembly.
It will be recalled that in October, the Senate Committee on Downstream Petroleum Sector met with the Ministry of Finance, DMO, Central Bank of Nigeria (CBN), Petroleum Products Pricing Regulatory Agency (PPPRA) and representatives of oil marketers to discuss the issue of the outstanding payments to oil marketers.
The categories of creditors for whom the settlement of arrears was approved by FEC include pensioners and staff, contractors, construction companies, exporters, DisCos, GenCos, State Governments, Judgement Debts and the petroleum marketers.