Major petroleum marketers in the country are currently in a tight spot due to the Federal Government’s inability to pay them arrears of their subsidy claims amounting to over $2 billion. The sum includes the loans taken from banks to fund petroleum product importation, interest charges and a refund on exchange rate differentials.
Why was there a subsidy in the first place?
A lack of working refineries, has led to Nigeria depending on imported refined petroleum products. When crude oil prices spike up in the international market, Nigerians are forced to pay more. Government in a bid to shield citizens from the impact, instituted a subsidy system where it paid marketers a particular amount in order to maintain price stability. In addition, government regulates the price at which petrol can be sold in the country. The system was scrapped by the Buhari administration due to corruption surrounding it.
Why hasn’t government paid?
The Federal Government is in a tight financial spot due to a sharp fall in crude oil revenue last year. There were no provisions in the 2017 budget for subsidy payments as the scheme had been scrapped.
Implications of the debt
In addition to staff who may lose their jobs, as the companies engage in cost cutting, their shareholders will also be hard hit by a likely drop in dividends. The companies could decide to embark on a strike to put pressure on the government to pay up. Banks are also affected by the delayed payment as making provisions on the debt which puts pressure on their balance sheets. An increase in provisions means banks will have to raise more capital and could decide to cut dividend payments.
Major marketers are the companies with the largest number of petrol stations in the country. They include Forte, Oando, Mobil, Total, and Total. Petroleum marketers not in this list are called independent marketers.
