Nigeria Faces Prolonged Fuel Shortages on Importers’ Woes

Nigeria, Africa’s top crude producer, may face prolonged fuel shortages with importers hindered by a lack of credit and the state oil company unable to meet demand, a retailers’ association said.

Many fuel importers are no longer credit-worthy and can’t finance new orders, Taofik Lawal, a Lagos-based spokesman for the Independent Petroleum Marketers Association of Nigeria, said on Nov. 13 in a phone interview. “The current fuel scarcity may not be over soon since there’s still disruption in supply.”

Nigeria depends on fuel imports to meet domestic needs because of inadequate refining capacity. It pays importers the difference between regulated prices and import costs. President Goodluck Jonathan’s attempt to end the subsidies in January provoked a week of strikes and protests, forcing a partial restoration.

Since then, transactions with importers have come under increased scrutiny after a parliamentary probe said about $7 billion was paid illegally as subsidies to importers. The government suspended payments for further verification and halted fuel-import authorizations, saying that many importers made false claims to collect payments.

“No bank will want to give you access to funds if they know that you have problems with government with regards to your previous imports,” Lawal said.

Payment Delays

Africa’s most-populous nation with more than 160 million people depends on imports for about 70 percent of domestic supplies, funded by loans from banks which must be repaid within 90 days. Importers are unable to meet lenders’ loan requirements because the government’s verification process takes longer than stipulated repayment deadlines.

Gasoline rose 0.8 percent to $270.03 a barrel as of 2:02 p.m. in London, gaining for a second day. Bonny Light crude, Nigeria’s main export grade, fell 0.1 percent to $110.15 a barrel.

Lenders are trying to cut their exposure to the risk arising from payment delays related to fuel importers, said Bunmi Asaolu, head of equity research at FBN Capital Ltd.

“The backlog of unprocessed claims is crowding out a lot of the legitimate importers,” he said. “Banks don’t want to lend to sectors riskier than what they would have liked.”

Outstanding Loans

In September, the Central Bank of Nigeria barred 113 companies, including fuel importers, from taking further credit after they defaulted on repayments of outstanding loans. Importers accounted for 754 billion naira ($4.8 billion) from a total of 2.7 trillion naira of non-performing loans that threatened the country’s banking industry in 2009, prompting regulatory intervention, according to the central bank.

The chief executive officers of eight of the country’s 24 banks were fired by the central bank for their handling of the crisis, and the lenders bailed out with 620 billion naira. The Asset Management Corp. of Nigeria was set up to acquire the banks’ bad debt.

Zenon Petroleum & Gas Ltd. owed 141 billion naira to a group of banks, MRS Oil Nigeria Plc owed 91.6 billion naira and Capital Oil & Gas Ltd owed 48 billion naira, according to the list released by the central bank.

“If a company is on that list, then banks would not want to go against the central bank,” Asaolu said.

Long lines of cars that intermittently form at fuel stations in Abuja, the capital, Lagos and several major cities have continued for several weeks. Fuel stations have shut down, citing lack of supplies from the state-owned Nigerian National Petroleum Corp.

Some Anxiety

Only NNPC, as the company is known, has been importing fuel this year, Thomas Olawore, executive secretary of Major Oil Marketers Association of Nigeria, grouping six retailers including Total Nigeria Plc, Mobil Nigeria Plc and Oando Plc, said today by phone from Abuja. The group says it accounts for 50 percent of the country’s fuel distribution.

“NNPC alone can’t import all we need,” he said. “Marketers are not importing because the subsidy probe created some anxiety in the financial sector, as almost everybody couldn’t pay back the loans they took to finance imports in 2011.”

The state oil company has enough gasoline to meet domestic demand for at least 30 days, Fidel Pepple, NNPC spokesman, said by phone yesterday from Abuja. “As far as we know the products are available” and “we’re doing the distribution to the best of our abilities,” he said.

“The government needs to fully deregulate the industry otherwise the long queues will continue,” said Bismarck Rewane, chief executive officer of Financial Derivatives Co., a Lagos-based business advisory.

Four state-run refineries built to meet domestic demand are in disrepair and are producing well below installed capacity of 445,000 barrels of crude a day. Nigeria exchanges 60,000 barrels a day of crude for products with Trafigura Beheer BV and a similar amount with Societe Ivoirienne de Raffinage’s refinery in Ivory Coast, according to NNPC.

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