Fuel Price Hike Threatens Downstream Oil Sector: Businesses Struggle to Stay Afloat

Fuel Price Hike Threatens Downstream Oil Sector: Businesses Struggle to Stay Afloat

…By Joseph Benjamin for TDPel Media.

Since President Bola Tinubu’s removal of fuel subsidy and the subsequent increase in pump prices by the Nigerian National Petroleum Company Limited (NNPCL), the downstream oil sector has faced significant challenges.

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There are growing indications that many businesses in the sector may be forced to close down due to the higher fuel prices.

Depot Owners Facing Financial Constraints:

Depot owners are particularly feeling the strain, as they struggle to meet the new financial requirements to restock fuel.

The NNPCL has raised the price of fuel to a level where oil marketers are finding it difficult to raise the approximately N10 billion needed to lift fuel from the company’s ships for distribution.

Shortages of Fuel in Lagos State:

The impact of these financial challenges is already being felt, with reports of several filling stations in Lagos State unable to sell fuel due to the non-availability of the product.

Depot owners are finding it challenging to raise between N5 billion and N10 billion to place new orders with the NNPCL.

This additional amount is in addition to earlier payments made before the fuel price hike.

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Depletion of Stock and Financial Obligations:

Many depot owners had already exhausted their stock before the subsidy removal was announced, leaving them without products.

The situation has now worsened, requiring substantial financial resources to access new supplies.

The National Controller of Operations of the Independent Petroleum Marketers Association of Nigeria (IPMAN), Mike Osatuyi, confirmed that the affected stations faced product shortages due to the increased prices at the depots.

Financial Pressures on Smaller Firms:

The repercussions extend beyond depot owners, impacting smaller firms in the downstream sector.

Former Chairman of the Major Oil Marketers Association of Nigeria (MOMAN), Tunji Oyebanji, highlighted that the price of 33,000 metric tonnes of petrol at depots has soared to as high as N21 million.

These financial burdens may force smaller firms to shut down their operations and potentially be acquired by larger entities that can meet the financial obligations for securing new products from the NNPCL.

Difficulties in Accessing Forex:

Sources within the NNPCL revealed that the company has encountered challenges in accessing foreign exchange since the full deregulation of the sector.

They reported that the Central Bank of Nigeria (CBN) has stopped providing forex, and like other players in the downstream sector, they now have to source dollars independently.

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The import costs and other market factors, including exchange rates, influence the pricing of fuel.

Foreign Exchange Constraints:

Since the full deregulation of the downstream sector, the NNPCL and other players have faced difficulties in accessing foreign exchange.

The CBN has ceased providing forex to the sector, leaving companies to independently source dollars.

The rates and market conditions for importing fuel must be considered, along with other costs, before selling to marketers.

Market Challenges and Financial Considerations:

The complex dynamics of the market have added further strain to the downstream sector.

The increased financial obligations, including the high cost of purchasing a truck of petrol (ranging from N22.5 million to N23 million), have created significant hurdles for filling station owners.

Prior to May 29, trucks were sold for N8 million. The current prices at depots have led to a rise in fuel costs, impacting the financial viability of businesses.

Overall Impact and Concerns:

The ongoing challenges in the downstream sector, compounded by the removal of fuel subsidies and the subsequent price hike, have raised concerns about the viability of businesses and the potential closure of smaller firms.

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The lack of access to forex, coupled with increased financial obligations, threatens the operations of depot owners, marketers, and filling stations.

The economic pressures faced by these businesses may lead to market consolidation, with larger entities absorbing smaller ones.

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