Osinbajo Orders Payment of $2bn Outstanding Subsidy Claims

• Kachikwu: Structural defects may derail 2019 target to end petrol imports

Ejiofor Alike and Chineme Okafor in Abuja

Acting President Yemi Osinbajo has directed the Minister of Finance, Mrs. Kemi Adeosun to pay oil marketers all outstanding subsidy claims, which the marketers estimated at about $2 billion, THISDAY has learnt.
This is coming as the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu has stated that structured difficulties, such as denial of approval for processes, delays by relevant government agencies, and opposition by the public could make the 2019 target to end importation of petrol unrealistic.

THISDAY had reported that the capacity of the Major Oil Marketers Association of Nigeria (MOMAN) and the Depot and Petroleum Products Marketers Association (DAPPMA) to import petroleum products had been impaired due to the huge unpaid subsidy claims and mature letters of credit (LCs) arising from the old subsidy regime.
As a result, the acting president, it was learnt, recently summoned a meeting with oil marketers, in which Adeosun, Kachikwu and the Central Bank Governor, Mr. Godwin Emefiele, were in attendance.

At the end of the meeting, Osinbajo was said to have directed the finance minister to, within two weeks, resolve the problem of the outstanding subsidy claims owed marketers.

The petroleum minister was also said to have confirmed the federal government’s indebtedness to marketers and urged the government to do everything possible to clear the debts so that marketers could commence importation of petrol, as only the Nigerian National Petroleum Corporation (NNPC) currently imports the product.
But in a communiqué issued yesterday at the end of their meeting in Lagos, DAPPMA stated that the claims, which they estimated at N800 billion, were still outstanding and appealed to the acting president to intervene urgently to ensure prompt payment.
The communiqué, which was signed by their legal adviser, Mr. Patrick Etim said the payment of the outstanding debt would enable the marketers resume importation of petrol.

Etim, who confirmed that Osinbajo held a meeting with the marketers on May 22, where he directed the finance minister to pay all verified claims, added that oil marketers actually borrowed over $1.2 billion from the banks for importation, while interest on the loans and foreign exchange differentials had accumulated over time.
“Some of our members have resorted to staff retrenchment due to inactivity, the marketers said. Besides, our worst fear is that AMCON (Asset Management Corporation of Nigeria) at some point may take over our firms as a result of the debts.
“It is for these reasons and other challenges facing the downstream petroleum sub-sector that we seek government’s intervention to approve immediate payment of the debt,” Etim said.

According to the marketers, foreign exchange differentials, which arose as a result of the initial devaluation of the naira by the last administration and the interest payable due to delayed reimbursement by the government, have not been fully settled by the appropriate federal government agencies, despite the government’s approval to pay the marketers.

“The recent further devaluation of the naira from N195 to N285 and later to over N305 to $1, while the federal government agencies based their reimbursement calculation on N197 to $1, has left members our association with additional debts in excess of N300 billion.

“The downstream sub-sector is now saddled with a debt burden of over N400 billion, which keeps rising because the banks are still charging interests on it until the total debt is fully liquidated.

“The outstanding matured letters of credit are currently over $1.2billion. Because many Nigerian banks were involved in raising the funds, the entire Nigerian banking system is at risk on account of these transactions,” Etim added.
In a related development, Kachikwu stated yesterday that he might not be able to deliver on his target to end petrol importation in 2019 if he does not get the kind of support needed to achieve the target.
Kachikwu said in his monthly podcast that while it was completely uneconomical for Nigeria to continue to import petroleum products, time was not on the side of the country to achieve the target and called on Nigerians and all the relevant stakeholders to support the plan.
He explained in the podcast that Nigeria imported approximately 20 metric tonnes of petroleum products valued at about N3.35 trillion between January and December 2016.
For this volume of petroleum import, Kachikwu stated that the CBN allocated as much as 30 per cent of its foreign exchange to the petroleum sector.
“Timing is of the essence, I cannot deliver on the 2019 deadline that I am seeking if I have difficulties in terms of approval processes. We have already been given some partial support by the president in the fast track process of this; we need to continue that fast track process.
“If we get delayed by the regulatory authorities, it will be a problem, if we get delayed by any of our agencies, which are supposed to participate in this, it will be problem,” Kachikwu said.

He further stated: “2019 will only be relevant if all of us work together to deliver it and I think that for the Nigerian people, if there is something that we need to deliver and deliver as of yesterday, it is getting these refineries to buckle up and begin to work; produce for the Nigerian people; save foreign exchange; provide labour; and stabilise the market downstream.
“Although we have obliterated the upfront payment of subsidy, there is a huge amount of job losses that arise when you do not utilise your refineries 100 per cent.

“We decided to do one thing which is target 2019 as a year when we would walk towards ceasing importation of petroleum products and therefore get more advantages in terms of FX conservation; job creation; stability of the market place in terms of pricing; stability of production; and finally gaining access on level of credibility as an OPEC member oil producing country which has been able to transit from importation to local processing.”