Nigeria
has
pledged to pay billions of dollars in long-overdue bills this month for fuel
imports, but its uneasy European trade partners aren't exactly holding their
breath.
Nigeria imports almost all of its required oil products--despite being one of
Africa's largest oil exporters--because its four refineries are barely
operational, due to poor maintenance, theft and fire, according to the U.S.
Department of Energy's statistics and analysis branch.
Imported fuel is needed not only for transportation, but also to fuel private
power generators for all but the biggest companies and institutions because of
the country's patchy power generation and transmission networks.
A spokesman for
Nigeria
's
state-owned Nigerian National Petroleum Corp., or NNPC, declined to comment on
the debts, but said fuel suppliers weren't nervous. "In our business,
balance sheets and debts are normal parts of life," he said. "There's
no cause for concern...we value our business with the suppliers and we assure
them that we will not fail them."
Sellers of refined products are becoming increasingly concerned about the
country's outstanding payments--estimated at $2.5 billion to $3 billion--which
have been delayed in some cases by more than 280 days. Late payment costs and
shipping delays could tack on several billion dollars to the original bills.
Nigeria
's
state oil company's mounting bills for fuel shipments are taxing the limit of
some European companies' credit, analysts say. These firms, which include
private trading houses Vitol Group, Trafigura Group, Glencore International AG
and Mercuria Energy Group, and major oil companies Royal Dutch Shell PLC
(RDSB), BP PLC (BP) and Total SA (TOT), and are reluctant to take additional
risk upon themselves as a result of Nigeria's poor cash management, but they
also don't want to spite a big oil-products customer.
The companies declined to comment.
The latest payment woes could also drive up costs for European companies
looking to sell fuel to
Nigeria
. CITAC
Africa, a London-based consultancy which focuses on the downstream African
energy market, estimates payment delays are already adding $60 a metric ton to
suppliers' costs, mostly incurred from extended credit lines. CITAC Africa pegs
the value of a typical 30,000-metric-ton gasoline cargo for delivery to
Nigeria
at around
$22 million to $23 million.
The amount owed is roughly equivalent to a full year's worth of oil product
imports for
Nigeria
. According
to the International Energy Agency, the energy policy adviser to many of the
world's most industrialized nations, oil product imports combined with
subsidized consumption cost the Nigerian government between $3 billion to $4
billion a year. This accounts for almost 25% of the country's annual budget,
says political risk consultancy Eurasia Group.
Nigeria
's
higher outstanding bills and any resulting premium on future gasoline imports
threaten to exacerbate the country's problems paying its bills. While
Nigeria
sits
atop some of the world's largest and most lucrative oil reserves, government
shortcomings have resulted in a failure to spread its oil wealth among its
citizenry.
The country's government and its national oil company are blaming each other
for the mounting debts, with one junior minister even recently suggesting the
company was insolvent--before Finance Minister Segun Aganga retracted the
comment. The European trading firms, however, are more interested in simply
settling the bill.
Nigeria
's
state-owned Pipelines and Products Marketing Company Ltd., or PPMC, held a
meeting in
London
in
July with its major gasoline suppliers, a PPMC spokesman said, declining to
provide further details. According to several gasoline market participants,
PPMC pledged at the July 12 meeting to reduce outstanding payments in cash by
the end of August. PPMC is a unit of the state oil company NNPC.
But market participants said they are frustrated by the situation.
CITAC Africa says the growing debts were causing "major disquiet"
among suppliers, who shipped around 19 cargoes a month to
Nigeria
in
the second quarter.
"People are running out of [risk] cover for doing Nigerian business, and
they don't want to take the risk on themselves," one gasoline trader in
London
said,
referring to additional costs or potential losses which could be incurred if
the debts remain unpaid.
A senior Nigerian oil industry executive also pegged the debts at around $3
billion, but said late payments were not unusual in
Nigeria
's oil
industry.
"Every year they run up the bill like this," the industry executive
said. "[PPMC] is extremely inefficient. The government is always forced to
give them a lifeline."
But this time they are more of a problem because oil traders, and the banks who
lend to them, have tightened their credit requirements in the wake of the
credit crisis.
The situation is further complicated by
Nigeria
's
expensive and complex fuel-subsidy system, under which a handful of Nigerian
fuel importers, including PPMC, rely on the government to subsidize their fuel
purchases on the international market.
"[Subsidies are] created as a cushion against price fluctuation in global
markets to make it more affordable for domestic consumers," said Akinola
of Eurasia Group.
Disputes over the fuel imports have led to sporadic, severe fuel shortages that
have wreaked havoc with the transport of people and goods in the West African
nation in recent years.
Critics of the subsidy system says it's an unsustainable drain on the
government's finances, and can lead to price distortions, said Rolake Akinola,
an Africa-focused analyst at Eurasia Group. Moves to trim the subsidies and
further deregulate the fuel market have spurred intermittent shortages and
panic buying in the domestic market.
But fuel suppliers are unlikely to stop shipments completely because the
country--which consumed 225,300 barrels of oil a day in 2009--is a key customer
for European oil products, despite its overdue payments.
"It's not in our interest to stop" trading with
Nigeria
, the
trader said. "The best thing would be if they started paying, [but] we're
at a bit of stalling point," where companies are unlikely to ship more
fuel to the country until they are repaid, the trader said.
Current Nigerian gasoline inventories, stored in onshore tanks and offshore in
floating tankers, are pegged at around 1 million metric tons, which would
satisfy around 50 days of consumption, CITAC Africa said. The abundant
inventories mean
Nigeria
is
unlikely to buy more gasoline cargoes in the coming weeks. Traders are also
skeptical that
Nigeria
will
repay its debts while the country's domestic fuel supplies remain plentiful.
CITAC Africa said that
Nigeria
is
tendering for 3.3 million metric tons of gasoline in the third quarter, or
roughly 110 cargoes at 30,000 metric tons each.
"I'll believe it when I see it--I think they've got plenty of
gasoline," the gasoline trader said. "I'm not expecting anything [to
be booked] in August."
The tender would depend on whether PPMC gets cash from the Nigerian government
to reduce its outstanding debts by the end of August, another London-based gasoline
trader said.
"For now, I think we're going to see more payment delays," said
Akinola at Eurasia Group. "It's pretty clear that [NNPC is] financially squeezed."