Fuel Crisis Imminent As importers groan under delayed payment and accumulated bank charges

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By Orelomo Giwa

Unless the Federal Ministry of Finance reviews its strategy and adopts a new approach which will enthrone a faster method of paying oil marketing and importing companies their accumulated arrears, and then starts complying with the 2010 guideline for the administration of the Petroleum Support Fund, PSF, which stipulates payment within 45 days of submitting complete documents by importers to the Petroleum Products Pricing Regulatory Agency, PPPRA, the nation may soon be plunged into another round of fresh fuel crisis.

Downstream sector watchers weekend were unanimous in their contentions that the enthronement of a culture of delayed payments to genuine importers in the last three years has truly put many marketers’ operations in a serious fix, as many concerned marketing companies are groaning under the yoke of huge accumulated bank interest charges which the loans sourced from these financial institutions to import products continue to attract. The foreign exchange differential losses which these marketers are also incurring owing to the government snail speed approach to effecting payment is equally mind boggling.

Industry sources last week had estimated that over N145 billion is outstanding to marketers and some of the overdue payments are for 2011 and 2012 and some N50 billion as outstanding for 2013.

While the Ministry of Finance has continued to justify the delay in payment to its resolve to painstakingly verify claims of the marketers to ensure the nation is not short changed, particularly given the discovery, in the wake of the January 1st 2012 fuel subsidy protest, of huge fraudulent claims paid to some unscrupulous companies, observers are, however, of the view that the ministry’s approach is hurting importers badly and could be counter-productive in the final analysis.

The view of most marketers today is that it is wrong and unacceptable for the ministry of finance to hide under the guise of forensic auditing and thorough verification of claims as justification for these delays which had drained them of resources to do their business, made them to incur avoidable huge bank charges and putting their credibility and credit rating on the line before their banks.

The situation as at now is that not just that many marketers are finding it difficult to source for fund to import products even when they win allocation from PPPRA, many marketers’ infrastructure, which cost billions of naira, are idle and most of the affected companies are set to drastically reduce their workforce. More importantly, these companies’ inability to source funds to import product could throw the nation into another round of energy crisis which a top major marketing company Executive last Friday said was inevitable.

Ordinarily, if the Ministry of Finance and the Central Bank of Nigeria, CBN, comply with the 2010 Guidelines for the administration of Petroleum Support Fund, PSF, the nation should not find itself in a situation of endless delay in payment for products imported.

The PSF import cycle as laid out in the guidelines states that once a marketer is issued a license to import products by PPPRA, the marketer imports the volume allocated it, and delivers to a depot approved by the Department of Petroleum Resources; the product so imported and delivered is verified and confirmed by PPPRA, DPR and government appointed external auditors.

The marketer will then submit complete and verified documents to PPPRA who, after verification and batching, issues a Sovereign Debt Statement, SDS to the marketer. The marketer goes ahead to submit the SDS to CBN who then issues a Sovereign Debt Note, SDN to the marketer. Going by the guideline, the marketer is to get value for the SDN within 45 days of submission of complete and verified documents to PPPRA.

Obafemi Olawore, Executive Secretary, Major Oil Marketers Association of Nigeria, (MOMAN) while fielding questions on Energy Thisweek, the weekly Energy news magazine programme on Channels Television, said the government has consistently failed to adhere to this guideline even when the importers/marketers have consistently kept their own side of the bargain.

Mr. Olawore wondered why the ministry of finance only pays whenever marketers cry out and threaten to discontinue importation.

Truly so. By August last year, many oil marketers had discontinued importation of products in protest against the accumulated arrears owed them by the government.

At issue was some N100 billion which the Minister of Finance and the Co-coordinating Minister of the Economy; Ngozi Okonjo-Iweala was yet to sign off on. Though a sum of N888 billion had been earmarked for fuel subsidy in that year’s budget, Mr. President; Goodluck Jonathan was to later request for an additional N161 billion naira three weeks to the end of the year which was given expedite approval by the National Assembly, bringing the total subsidy figure for 2012 to N1.042 trillion naira. Out of the 888 billion naira initially allocated, some N500 billion had been paid before mid 2012 for the 2011 outstanding. The accumulated arrears due to the oil marketing and trading companies by then had risen to N179 billion naira.

Following subtle threat to scale down on importation, the ministry paid seventy nine billion naira, leaving a balance of one hundred billion naira.

Disturbed by the foot dragging by the Ministry of Finance and distressed by the increasing interest on borrowed funds from financial institutions, most marketers had by August ending either scaled down on import or completely discontinued.

And before long, another round of fuel crisis started rearing its head; in parts of the country and Abuja, long queues at the gas stations resurfaced. it soon spread to Lagos, the nation’s commercial nerve centre.
Initially the official line was that the development was as a result of vandalization of the major supply channel- the pipelines at Arepo, Ogun State.

But it was not long before it became a common knowledge that it was only NNPC and a few marketers that were importing products. Most marketers halted further importation and pressure was brought to bear on government to pay the one hundred billion naira outstanding.

To reverse the trend, the Finance Minister who had warned earlier that she would not be stampeded into paying the marketers as she was embarking on forensic auditing of the marketers’ claims had to quickly make more payments. This development also led to the President requesting for an additional N161 billion naira appropriation from the National Assembly to enable government meet the marketers’ request.

But the normalcy which the nation has witnessed over the months appears to be under threat once again.
By mid-June this year, the marketers’ discomfort with another round of overdue payment from the subsidy support fund had come into the open.

Indeed, the marketers, who collectively import close to 70 per cent of the nation’s fuel requirement, are threatening to put a halt on importation of products if something was not done about their predicament soon.
At issue again is another N100 billion outstanding for the first two quarters of 2013. While the marketers acknowledge that they have been paid twice this year, the payments, according to them, were for the 2012 outstanding.
By Orelomo Giwa
Following marketers’ outcry and threat to discontinue importation, the Federal Ministry of Finance released about N48 billion to about 25 oil marketers to cover what the ministry said was the verifiable claims. Again had the marketers not protested loudly, the payment probably would not have been made.

But this time around, the marketers, according to sources, are saying that they are no longer ready for the piece meal payment; they are asking the government to pay their arrears standing at over N145 billion.

Their position is that forensic auditing and verification by the ministry of finance which commenced in 2012 cannot be an endless exercise.

“Our position is that even if the government pays all the outstanding today, our losses are huge already; refusal to pay can only paralyze fuel imporation as we are no longer in position to source funds given our records with the banks; a top Executive of a marketing company disclosed on Friday.

One can hardly fault that submission.

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