Stanbic IBTC: Regulatory Uncertainty Discourages Lending to Downstream Sector

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BY Ejiofor Alike

The Chief Executive Officer of Stanbic IBTC Bank Plc, Dr. Demola Sogunle has identified the uncertainty of the operating environment and multiple regulatory agencies as the main factors that discourage banks from lending to the downstream sector of Nigeria’s oil and gas industry.

Speaking during a special panel session at the 20th Anniversary Lecture of Rainoil Limited held recently in Lagos, Sogunle noted that banks are concerned about the inconsistent regulatory framework and policy direction of the downstream sector.

He said nothing was as difficult as trying to lend to a sector that operates in an environment of uncertainty.

“You cannot simulate; you cannot create a proper scenario. So, how do you give shareholders money - depositors’ money or tax payers’ money to an entity that is operating in an environment of uncertainty? It is a difficult decision and I cannot sit down and make those decisions,” he said.

Sogunle said banks were concerned that the subsidy removal on petrol lacked clear policy direction.

He noted that water is as essential to human beings as petrol but there is no price cap on water as those producing water are allowed to sell at their own price.

“Why should I want to lend to a sector and the price is capped? How do I evaluate the efficiency of the operator? Price discovery mechanism does not exist because we have set the price. We are saying that it is an issue,” he added.

Sogunle also identified the non-passage of the Petroleum Industry Governance Bill (PIGB) as another challenge facing banks that lend to the downstream sector.

He argued that kids that were born when the first draft of the reform bill was prepared are already in GSS 3, adding the country should deal with the bill to ensure clarity of the operating environment.

The Stanbic IBTC boss also noted that the downstream sector deals with multiple agencies, which makes it difficult for banks to lend to the sector.

“We don’t produce wheat in Nigeria; we import wheat. If you want to support an entity that produces and manufactures flour used in making bread with working capital, how many agencies do you have to deal with? But for petrol – for the downstream sector, do you know the number of agencies you will deal with? It is unbelievable! I am just saying that we need to put these things into proper perspective. From the risk point of view, those are the kinds of challenges and concerns that a banker will look at,” he explained.

He noted that low capacity utilisation of tank farms by the operators also hinders lending by the banks.

According to him, most of the tank farms in Nigeria have capacity utilisation of below 25 per cent.

“You tell me that your capacity utilisation is below 25 per cent and you want me to lend to you? With 100 per cent capacity utilisation in Nigeria, you still struggle to survive because you still have so many other issues to deal with. Then, you are talking about 25 per cent. The point is that I have visited some companies in the petrochemical industries and I can tell you that it is possible to have 99.9 per cent capacity utilisation in Nigeria. But when you go to these tank farms, when you go to these key players in the downstream sector, you see capacity utilisation of below 25 per cent. It is tough because these are assets that are on ground but they are not generating cashflow,” Sogunle added.