A Review of the Nigerian Energy Industry

Delayed subsidy payment increases marketers’ debt

23 April 2015, Abuja – Constant delay in subsidy reimbursement by the Federal Government has led to increase in oil marketers’ debt exposure, driving their finance charges higher, industry analysts have said.

Fuel scarcityAccording to analysts at Ecobank Capital, the sustained delay in subsidy reimbursement is forcing the marketers to seek additional debt funding.

They noted that the Federal Government addressed some of the issues regarding the subsidy payment few weeks before the general election, adding that “the impending change in administration remains a challenge and can lead to further delay if the outstanding subsidy bill is transferred to the incoming administration.”

In a report on ‘Total Nigeria Plc 2014FY Earnings’, the analysts said the company’s finance charges increased by 32.29 per cent year-on-year, triggered by the delay in subsidy payments.

According to the report, the uncertainty regarding the new government direction on subsidy is restraining marketers from importing large volume of products, a situation which could significantly affect revenue in 2015.

Total’s earnings are said to be further affected by the increase in finance charges as the company’s income before tax dipped by 32.29 per cent y/y.

“Earnings after tax declined by 17.07 per cent y/y to settle at N4.24bn. Our earnings outlook for 2015 is positive as the company continues to strive to minimise cost; however exposure to unpaid subsidy remains a challenge. Further delay in subsidy payment leading to increased exposure to debt financing could exert more pressure on earnings in 2015,” the Ecobank analysts said.

In their outlook on Mobil Oil Nigeria’s earnings this year, analysts at FBN Capital including Mr. Uwadiae Osadiaye, said, “Mobil’s 2015 earnings are likely to be hit by a weakening naira and delayed subsidy reimbursements by the Federal Government.

“In the absence of any real estate property sales, we expect adjusted-Earnings Per Share to come in lower by around 22 per cent y/y.

“Although Nigeria’s President-elect has stated plans to end the subsidy regime on petrol, we believe the industry will need some time to adjust fully to a sector driven primarily by market forces.”

Given the risk of a further devaluation of the naira (even if modest) and persistent subsidy payment delays this year, the analysts forecast an adjusted-EPS decline of around 22 per cent for 2015E.

The PUNCH had last week reported that petroleum product marketers under the aegis of Major Oil Marketers Association of Nigeria had warned of a looming scarcity of fuel following the inability of the Federal Government to pay the subsidy arrears for the importation of PMS (petrol).

MOMAN had in a letter addressed to the Minister of Finance, Dr. Ngozi Okonjo-Iweala, through its Executive Secretary, Mr. Thomas Olawore, stated that despite previous assurances from the government to reimburse the marketers for under recovery as verified by the Petroleum Products Pricing Regulatory Agency, it had failed to honour the agreement.

The association said the industry to date had only received approximately N30bn in foreign exchange differential claims out of the N100bn owed.

“In the same vein, only N345bn has been received in core subsidy payments, covering payments up to the second quarter of 2014.

“Specifically, only three companies out of the six MOMAN companies received payments for forex differentials and no company, MOMAN or Depot and Petroleum Products Marketing Association, has been paid interest charges on delayed payments.”

– Punch

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