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Oil Companies And Bank Loans

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Olusola Bello

The five banks which last weekend had their managing directors sacked by the apex bank are also known to have been involved in what is now called banks unusual romance with the oil and gas industry. The former bank bosses may have marched into the slippery terrain of the industry without first of all doing their home work on the vagaries of the sensitive sector. The bait which forced them to lower their guard was the fact that the oil firms continued to service their accounts a tendency which subsequently took the place of the good old collateral. Many analysis have faulted the banks’ failure to conduct due diligence on the sector before offering the companies jumbo loans that were not secured.
On their part, the oil firms selling the idea that the escalating price of crude oil would continue to point skywards, took advantage of the situation to churn out irresistible bankable proposals.
There was a sudden rise in the price of crude oil to about $140 per barrel while the price of products like Premium Motor Spirit (PMS) or petrol, Automotive Gas Oil (AGO) or diesel was sold at about N140 per litre. However, against the importers’ and their bankers’ expectations, prices started falling. Through this the importers incurred heavy losses.Again, the banks influenced by greed and their level of solvency threw so much money into the oil sector because they considered the sector as the honey pot that yielded quick and fantastic returns.
A source said that there are many factors that prompted the oil companies to also seek for loans, one of which was that some of them have no genuine intention to pay back the loans.
The loans, the source said were used for other purposes that were also hit by the economic recession and this has made it difficult for them to repay back the loans.
There have also been allegations of diversion of some of the loans by the oil companies to real estates. Unfortunately, the sector like other sectors of the economy also crashed, leaving their investments in danger.
Some of the oil companies were said to have taken loans to import products at higher prices only to sell at much lower prices in the bid to under-cut the established oil companies and gain popularity among consumers. While this was going on, the prices of the product plummeted and have not risen since that time. So, rather than make returns on their investments, the firms were recording loses.
Compounding the problems associated with the loans, was the steady upward movement of interest rates, exchange rate fluctuations and the devaluation of naira which some of the firms could hardly cope with because of their capital base.
For instance, the exchange rate was $1 to N117 as at the time the imports were made before they could arrive the country the exchange rate had risen to N150 to $1.
This situation made oil marketing companies to threaten to stop fuel importation into the country. They consequently gave conditions under which they would import products especially Premium Motor Spirit or petrol.
The private sector which imports at leat 50 per cent of the nation’s Premium Motor Spirit (PMS) requirements under the Petroleum Subsidy Fund (PSF) scheme while Nigerian National Petroleum Corporation (NNPC) delivered the balance were aggrieved that the government was not paying them what could cover their cost of importation.
The exchange rate was beyond what was provided for the Petroleum Product Pricing Regulatory Agency (PPPRA) import template. As a result, when the verified private sector subsidy claims for the third quarter of 2008 of $1,189,964,305.45 was paid in naira, on the 10th of January, 2009 at the rate of N117.91, the naira payment of N139,225,823,738.27, could only purchase $870,161,398.36 at the prevailing exchange rate thereby leaving a shortfall of $319,802,907.09, a sum equivalent to the nation’s cost of PMS import for a month.”
By virtue of the Clause 3.3 of the agreement between the PPPRA and importers on PSF, subsidy payment should be made monthly and within 15 days of submission of claim.
They argued that they were unable to recover these additional costs from the regulated pump price. The marketers had to fight for a foreign currency window to be made available for PMS importation, at current market trends. The private sector requires between $200m. $250m monthly for importation of petroleum products.
To ensure continuous supply of products, the marketers stated that they would require the following.
Immediate payment of all outstanding cost and exchange rate differential.
All payments for subsidy claims or contribution should be based on the prevailing exchange rate.
Interest on late payments of subsidy claims should be paid on past claims to enable importers recover cost of funding.
Current interest rate as a result of worldwide economic situation must be reflected in the template, PPPRA and Ministry of Finance must make payment within the period stipulated in the contract to avoid additional costs.
Foreign exchange availability is a precondition for guaranteed supply of petroleum products in some of the relatively new companies engaged in frivolous extravagance in their attempt to be heard and seen in places where ordinarily they should not be. A couple of them spend valuable time lobbying lawmakers and sponsoring government officials to international events and seminars without taking a look at the implications of the flamboyant lives on the business they are doing.
The government liberalisation of the sector which gave room to all manner of people coming into the sector with the hope of bringing in products and getting refunds through the Petroleum Support Fund (PSF) did not help matters. But this was not forthcoming on time as the government had to delay for a long while before paying up the difference between the landing cost of the products and the official price at the pump stations.
Lack of human capacity in the energy sector by most of the banks was a major snag in the way the banks transact their oil businesses. This has resulted in their inability to do due credit analysis on the various companies that were given the loans even as some of the companies that received credits did not have storage facilities. They are brokers or bulk purchasers who go about to beg fellow operators with depot to assist them with letters stating that they would be allowed to use their facility in order that federal government may give them licence to import products.
A particular company among the ones listed as owing some of the banks was alleged to have imported four ship loads of Automotive Gas Oil (AGO) without having any storage facilities. The ships were said to have stayed for 60 days on the Nigerian territorial waters without much success before they sailed back to Europe.
Culled from Business Day

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Don Advocates Diversity for Economic Growth

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A university Don, Professor Anthony U. Nnodim, has called on companies to diversify in other to be economically relevant to society.
Prof Nnodim, who made the call, Thursday, at the first National Conference of the Association for Encouraging Qualitative Functional Education in Nigeria, in collaboration with Captain Elechi Amadi Polytechnic Women Association, Port Harcourt, said any company that does not diversify will easily ‘die’.
According to him, the phrase, “diversify of die”, amounts to a warning to corporate organisations of the danger of staying the same place for too long.
He said it is “a reminder that to avoid stagnation, companies must innovate. In today’s global environment, diversity is the bedrock of innovation.
“Diverse and inclusive team is the engine room within which innovations develop through the combination of desperate ideas and desciplines in ways that look weird in the first instance, but culminate into emergence of real innovation”, he said.
Nnodim, who made the call in his Keynote address tittled, “Innovation and Diversification: Issues and Prospects in a Global Environment “, said diversification has numerous prospects.
One of the key prospects, he said, is that diversification improves critical thinking and problem-solving skills.
This, he explained, “would provoke critical thinking that provides alternative approaches to finding solutions to identified problems”.
Other prospects, he continued, include enhanced employees growth and development, unification of diversified strength, and encouragement of innovations.
In her Keynote address, Prof. Margaret E. Akpomi harped on the need for Nigeria to emulate what she called “the Australian Model of Education” christened “Technical And Functional Education (TAFE).
“What it (TAFE) does is that they first of all identify the needs of the society, and then they build-in the needs of the society into the curriculum, and it is with that they bring up their citizens to fill in various manpower positions in the society. We can borrow a leaf from here”, she said.
In her welcome address, the President, Captain Elechi Amadi Polytechnic Women Association (CEAPOWA), Dr. Victoria O. Sam-Kalagbo, explained that the conference, with the theme, “Innovation and Diversities: Issues and Prospects in a Global Environment “, is in line with the CEAPOWA’s objective of contributing to societal growth.
“The aims and objectives of CEAPOWA are, among others, to organize conferences, workshops, seminars and symposia aimed at impacting positively on Members of the association, the entire polytechnic community, and society at large.
“This conference provides a rare platform for scholars in various disciplines to examine and prescribe practical innovative and diversified strategies, approaches, and mechanisms to contain the multifarious global threats and challenges in education, economy, politics, business, technology, Entrepreneurship, etc.”, She said.
By: Sogbeba Dokubo
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NECA Wants Forex Allocation Prioritisation To Manufacturers 

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The Nigeria Employers Consultative Association (NECA) has urged the Federal Government to give priority of allocation of available forex to manufacturing and other productive sectors of the economy as forex scarcity persists.
Director-General, NECA, Mr Wale Oyerinde, while speaking on the state of the economy in Lagos, called for a holistic and multi-pronged approach towards resolving the challenges faced by the nation.
He urged the Federal Government, as a matter of urgency, to  encourage the development of modular refineries as a precursor to total subsidy removal.
Oyerinde said, “In the medium term, the Federal Government should, as a matter of urgency, fix the four national refineries and encourage the development of modular ones as a precursor to total removal of fuel subsidy.
“With over N5tn budgeted for subsidy payment in 2022, an amount larger than the budget for education and agriculture, this is unrealistic and unsustainable.
“Economic interventions aimed at improving living standards (to stimulate consumption) and enterprise sustainability (to promote job creation) should be implemented.
“While forex scarcity persists, allocation of the available forex to manufacturing and other productive sectors of the economy should be given priority.”
According to him, this was better time for the government to deepen its engagement with the Organised Private Sector, adding that the government’s efforts to salvage the economy was commendable.
He said “the nation is currently faced with multiple challenges, with dire combination of spiraling inflation, rising energy cost (aviation fuel, diesel, etc.), scarcity of forex, dwindling value of the naira, an almost comatose aviation sector, stuttering education system, rising debt, depleting foreign reserve and rising fuel subsidy expenses among others, which threatens to lay bare the country’s economy.
“There is no better time for government to reappraise current economic policies and deepen its engagement with the Organized Private Sector. While Government’s effort to salvage the economy is commendable, there is, however, need for a More holistic approach to resuscitate the stuttering economy”, he said.

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Agency Puts Nigeria’s Gas Flaring Losses At N891bn

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The Nigerian Oil Spill Monitor, a sub of the Oil Spill Detection and Response Agency (NOSDRA), has put the losses in gas flaring in Nigerian at N891 billion.
The oil spill agency in a release on Sunday said Nigeria lost N891 billion to gas flaring in 18 months.
It revealed that the country lost a total of N707 billion in 2021 and N184 billion in the first half of 2022, totaling N891 billion.
According to the NOSDRA report, oil and gas companies operating in the country flared a total of 126 billion standard cubic feet (SCF) of gas in the first half of 2022, leading to a loss of $441.2million (about N183.54 bn) in the six-month period.
On the other hand, in 2021, about 23,862.271 barrels of oil (3,770,238.864 litres/119 tanker trucks) were spilled.
Brent International was sold for an average of $71 per barrel in 2021, bringing total revenue loss in that year to $1.7million
The estimation put the equivalent of the volume of gas flared in the first half of 2022 to carbon dioxide, CO2 emission of 6.7 million tonnes in the oil producing areas, which was 4.56 per cent higher than the 120.5 billion SCF of gas flared in the second half of 2021, and capable of generating 12,600 gigawatts hours of electricity.
Also, the quantity of gas flared in the first six months of 2021 was capable of generating 14,000 gigawatt-hour of electricity, and an equivalent of 7.4 million tonnes of CO2 emission.
Giving a breakdown of the gas flared in the country in the first six months of 2022, the agency disclosed that while companies operating in the offshore oilfields flared 62.2 billion SCF of gas, companies operating onshore flared 63.9 billion SCF of gas, valued at $223.6 million.
In 2021, there were around 382 publicly available oil spill records. Out of the 382 occurrences, a total of 33 of these oil spill sites were not visited by a joint investigation team, and 122 of these had no estimated quantity of oil spilled provided by the companies involved.
Two major oil spills were recorded in 2021, with over 250 barrels spilled into inland waters, or over 2,500 barrels spilled on land, swamp, shoreline and open sea, the report said.

By: Corlins Walter

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