Friday, May 20, 2016 10:34 AM / Oando Release
On May 11th 2016, the Nigerian Federal Government announced its decision to remove petroleum subsidy, thus driving the price of petrol up to a cap of N145 per litre from the previously subsidized price of N86.5 per litre. Oando, as one of Nigeria’s premier downstream oil companies, has recognized the need to educate our stakeholders on the impact of this decision on Nigeria’s downstream oil and gas sector and the Oando downstream business.
Reason behind the Fuel Price Increase
The global decline in oil prices have shrunk Nigeria’s foreign exchange earnings by over 50%, as crude oil proceeds make up about 90% of the country’s dollar earnings. The effect has been a nationwide scarcity of dollar coupled with the Central Bank of Nigeria’s inability to meet all forex demands including that of petroleum marketers.
For the last few months, the Nation has been crippled by long fuel queues and petrol scarcity arising from the unavailability of foreign exchange for petroleum marketers to import products. This forced on the NNPC the responsibility of importing over 90% of the Nation’s fuel requirement compared to 48% in past times, unfortunately the NNPC did not have the capabilities or resources to meet the supply shortfall. Hence, the Ministry of Petroleum recognized the urgency to remove the petroleum subsidy and partially deregulate the price of PMS (Premium Motor Spirit).
The upward adjustment on fuel prices has given marketers the ability to freely import PMS at an exchange rate of N285/$ and sell within a price band of N135 – N145 per litre. We view this as an overall positive for the downstream sector, as marketers will no longer have to rely on allocations before importing petroleum products and consequently will not be burdened with the prolonged process of claiming back subsidy payments from the Federal Government. The result would be an operationally efficient downstream sector.
What it means for Oando Downstream
Oando; a leading marketer of petroleum products in Nigeria with a vast network of infrastructure and large distribution footprint, will be able to leverage on our strong export trading business and achieve operational efficiencies through economies of scale. We are positioned to gain strong financial control with the elimination of fixed allocations and petroleum subsidies, essentially improving our revenue base, cash flows and subsequently our bottom line. Deregulation reduces the company’s exposure to currency risks and the problem of delayed and unpaid subsidies. With an extensive and efficient distribution network we guarantee the constant and timely supply of petroleum products nationwide.
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