Ejiofor Alike and Aliogo Ugochukwu
The President of Nigerian Stock Exchange (NSE), Aigboje Aig-Imoukhuede and other stakeholders in the downstream sub-sector of Nigeria’s oil and gas industry have decried the increasing complexity of the market distortions in the sector.
In their separate remarks at the recently concluded 2016 Oil Trading and Logistics (OTL) Conference held in Lagos, the stakeholders blamed the reluctance of the Nigerian banks to fund long term investment in the sub-sector on the market distortions caused by the numerous challenges in the operating environment.
Aig-Imoukhuede described the downstream as a simple industry from legal basis and understanding but added that regulation and subsidy have distorted the market.
“Now, you throw all of that into a very simple value chain. Then, it becomes very complex. This is why the risk is real and may not be attractive to bankers. In countries that don’t have subsidies, their downstream sector tends to work relatively well. Therefore, we need to understand that for players in this sector, for a subsidy to operate there are certain conditions that must be present. For Nigeria, to run a subsidy in the downstream we must have refineries that will work for them because no foreigner is going to pay the cost of your subsidy. We have to find out if subsidy is sustainable when you are importing refined petroleum. In Ghana I don’t think subsidy is an issue. They have dealt with that,” Aig-Imoukhuede explained.
In his contribution the debate, the Group Executive Director/ Chief Operating Officer in charge of Downstream at the Nigerian National Petroleum Corporation (NNPC), Mr. Henry Obih stressed that the downstream sector requires long term investment.
“Therefore, if any bank is looking at financing any investment in the downstream sector, it should focus on a long term investment. I am sure that the Nigeria Banks don’t have the appetite for long term investment. This is one of the challenges facing the sector,” Obih said.
“What we have had in Nigeria is a distorted market, where everybody comes into the sector and believes he can make money. People have made money, but the truth here is that as the market evolves over time, and as we deregulate, we will see a lot of consolidation. What you will see is that a lot of big to size medium entrepreneurs will emerge, they will buy out entities and that is when the game starts because you need skills to make money in the downstream sector,” Obih explained.
According to Obih, deregulation has pampered players in the sector, adding that this has created distortions in the market.
“The market is evolving today, but the biggest constraints we have is the liquidity issues, not just the FX even on basic things such as the Pro-forma Invoices (PFIs) a lot of companies cannot afford to pay for them in naira. We sell PFIs to people and they cannot afford it,” Obih added.
Obih argued that the days of government funding shortages or losses market are over and urged the players to be ready.
“Once we tackle the issues of Niger-Delta, improve the volume of FX in the system and address the finance issues which is facing the nation (a lot of them on subsidy), I think the market will develop and start to correct itself,” Obih said.
In his speech, the Speaker of the House of Representatives, Hon. Yakubu Dogara, represented by the Chairman of the House Committee on Petroleum (Downstream), Hon. Joseph Akinlaja stated that each of the players in the sub-sector has challenges that need to be overcome in order to optimise the value chain.
“For example, low capacity utilisation of the refineries, fuel shortages and its sharp practices, pipeline vandalism, cost of funds and exchange rate issues, decaying infrastructures, among others,” Dogara said.