Lockdown: Fuel Marketers Threaten To Shutdown Over Low Sales

Despite having had its fair share of the economic turbulence prior to the outbreak of COVID-19, the downstream industry remains one of the most fragmented industries in the Nigerian economy, competing with both a regulator and an operator-the Nigerian National Petroleum Corporation for its share of the market size.

But amidst this fragility, last week’s announcement by President Muhammadu Buhari, of a total lockdown on three major cities; Abuja, Lagos and Ogun created huge panic in the shaky industry. That decision according to the industry stakeholders turned out to be one that will further deprive marketers of the already low margins, thus making it more difficult for them to service their financial obligations to financial institutions.

The industry has equally been battling for a policy shift which has seen the Petroleum Industry Bill (PIB) stuck in the woods for over 10 years.

The non-passage of the PIB has seen several investments in the downstream sector stunted as operators are currently battling with payment of salaries, inability to service bank loans, leading to huge assets stripping.

They have constantly called for the deregulation of the sector as the only solution to the myriad of challenges confronting it.

Doing so according to the Chairman of Major Oil Marketers Association of Nigeria (MOMAN), Mr Tunji Oyebanji, will help the country free up funds used in the payment of fuel subsidy to support infrastructure development in the country, help the industry to make fresh investments and employ more Nigerians.

Since the outbreak of COVID-19, oil price drop at an all-time low of less than $25, leading also to a drop in the retail pump price of petrol.

The drop in crude oil prices has had an adverse effect on downstream operators, with the Petroleum Products Pricing Regulatory Agency(PPPRA) adjusting retail pump price of petrol twice in three weeks First from N145 to N125 and from N125 to N123.80 without carrying the stakeholders along. He said the development has led to a loss of about N3.8 billion on the part of marketers.

Effect of Lockdown on 3 cities

The socio-economic lockdown directive given by Buhari on; Lagos, Abuja and Ogun State is already taken a negative toll on the activities of the downstream sector.

Oyebanji said most of its prime outlets selling large volumes of fuel are now struggling to meet up with sales needed to break even, lamenting that most marketers will be challenged meeting their financial obligations in the coming weeks as sales volume continues to drop drastically due to the lockdown.

He argued that payment of salaries and other overhead costs will pose a problem as most fuel stations cannot boost of exhausting 33,000 litres of fuel at this period.

Meanwhile, Daily Sun findings across some fuel stations showed a very low level of patronage both at major marketers’ fuel station and those of independent marketers.

Some fuel attendants who spoke to Daily Sun lamented the low level of patronage, saying sales recorded as at 4 pm yesterday does not in any way justify their coming to work.

They said, should the situation continue, they may be forced to shut down operations in a bid to minimize their running cost.

‘‘In a situation where there is no public power supply, we are forced to run on generators. But how do we continue to run on generators under a low patronage regime? It is simply not sustainable. We will monitor the situation till the weekend, but if it does not improve, we may not open from next week (This week).

They lamented that the sit-at-home directive which has affected the movement of vehicles was a major reason for the low patronage because both private and commercial vehicles are all grounded at home.

Adjustments in fuel prices

Also commenting on the price adjustment, Oyebanji lamented that matter is rather becoming too frequent after a second in a spate of one month, thus leading to distortions and imbalance for market operators because it comes in a sudden manner.

He lamented that the last adjustment by the PPPRA from N145 per litre to N125 cost its members about N3.8 billion in revenue loss because the timeframe given for compliance was with immediate effect.

‘‘A lot of our members still had fuel in their underground tanks while those that don’t have already placed orders that were in transit. Now with these two sudden changes, who bears the shortfall. The PPPRA should not only be concerned with political considerations but should also consider the economic and financial implications of some of these pronouncements?

He regretted that most members of the public do not understand the downstream market dynamics, hence whenever there is a downward review of prices, marketers bear the brunt because they are not always given a moratorium, it has always been with immediate effect.

The MOMAN boss said the association and other critical stakeholders have always advised PPPRA that whenever plans for a price review or adjustment, is being made its should endeavour to give stakeholders a three-month notice ahead of implementation so that those that have placed orders would have received same and exhausted sales, before the new price regime takes effect, otherwise, they may sooner than later run marketers out of business with the frequent changes in fuel price.

Online fuel retailers hard hit

For online oil and gas marketplace, PETROHUB, this is a time for sober reflection since most of its orders from clients could not be supplied.

According to its Head of Marketing, Mr Emmanuel Ademola, conveying petroleum products from point A to B has been very difficult because of the lack of understanding of most security personnel.

He said despite the directive by the President and the Group Managing Director of NNPC, Mr Mele Kyari, that those involved in petroleum products marketing and supply be exempted, law enforcement officers appear to be defying the order.

He lamented that the lockdown has equally affected supplies to some of its corporate clients in banking and telecommunications as they have shut down their office while those to confirm the product supplied that are actually in conformity to quantity and standards are all at home.

Ademola said his fear was that some of those orders by clients are not cancelled, saying should that be the case, the company will run into losses running into several millions of Naira.

‘‘Lockdown or not, we must pay our workers. And where do we get the resources to do that, when we cannot make supplies to clients. We have other overhead costs to pay, just as we need to service our loans. So in effect, it is a difficult time for some of us operating in the downstream sector.’’

IPMAN laments

For their part, the Independent Petroleum Marketers Association of Nigeria (IPMAN) have called on the government to adhere to due process by carrying stakeholders along when making fuel price changes.

The Zonal Chairman, Independent Petroleum Marketers Association of Nigeria (IPMAN), South West, Mr Dele Tajudeen, said the reduction would also see the business capital used by petroleum marketers reduced.

Tajudeen however, regretted that the failure of the Federal Government to follow due process in announcing petrol price changes will lead to untold hardship and loss of profit margins.

‘‘The negative aspect is that we were not formally informed about the directive, because at any given time, we have products in our underground tanks because we do not wait to exhaust our products before we make fresh orders.’’

According to him, many petroleum marketers loaded petroleum products on Wednesday when the directive was announced, adding that it would be impossible to sell the products in a day as some petroleum products are still in transit as at the time the pronouncement was made.

“The question is what will happen to those products that were loaded on Wednesday that are yet to get to their destinations. The communication from NNPC is unlike other federal government agencies that give a time frame for you to get prepared.

This will translate to great loss for our members because a truckload of 33,000 litres will mean losing N660,000 and if it is a 45,000 litres truck, we will be losing N900,000 on a truck. These lose are for trucks loaded on Wednesday not to talk of products in our underground tanks,” he said.

He added that the implication is that the product they have right now would be sold N20 below the cost price, saying this will translates to more than a billion naira loss across the board.

‘‘Our appeal to NNPC and to the federal government is that people who loaded last Wednesday and some days ago, should be considered by giving them credit notes because, at this point in time, we need to be encouraged because we cut across every nook and cranny than others who operate in city centres NNPC should consider those who just recently loaded because there is no way the products would have reached to their stations.’’