Energy
Energy firms owe Nigerian banks N1.54trn
……Sector’s non-performing loans stands at N32bn
LAGOS – Energy industry firms, including those operating in the power and oil and gas sectors owe banks in Nigeria over N1.544 trillion, about $10 billion, while the total bad debts profile of the firms stand at N31.65 billion.
Biztellers gathered the figures from the year end, December 31, 2011 financial statements of the banks released to investors and others stakeholders last year.
Although the 2012 financial statements of the banks are still being expected, but it is expected that banks will begin to release the results from the end of March, with analysts projecting that the figures will rise.
A breakdown of the total non-performing loans shows that the bad debts of oil and gas firms currently stands at over N29.214 billion, while those from the power sector stands at N2.44 billion.
These debts, recorded in the books of 10 of the commercial banks in Nigeria, were classified as Non-Performing Loans, NPL, and might see the banks transferring the loans to the Asset Management Corporation of Nigeria, AMCON.
Despite the high non-performing loans and the challenges faced by the banks in lending to firms in the energy sector in the last couple of years, the banks still gave out loans totaling N1.544 trillion to oil and gas and power firms during the period in review.
However, a number of banks refused to disclose their exposures in their reports. They are Access Bank Plc, Union Bank Nigeria Plc and Skye Bank Plc, which made no mention of loans extended to oil and gas firms in their 2011 financial statements, while the financial statements of Standard Chartered Bank and Citibank could not be accessed, as they are not listed on the Nigerian Stock Exchange.
Also, the financial statements of Keystone Bank, Mainstreet Bank and Enterprise Bank could not be accessed due to the fact that they are not public companies.
An analyst who spoke on the condition of anonymity, said Access Bank, Union Bank and Skye Bank inability to give out loans to energy firms in their 2011 financial year, may be as a result of fear and weak risk management structure.
The analyst is of the view that the banks, coming out from the crisis in the sector without been swallowed, might decide to tread cautiously in advancing loans, so as to avoid a repeat.
The analysts further stated that most of the banks are yet to put in place a strong and effective risk management structure, a factor which might affect their advancement of loans to certain high-risk sector of the economy.
AMCON bars banks from loaning to chronic debtors
The CBN and AMCON late last year ordered banks to stop giving out loans to individuals and organisations who are indebted to banks to the tune of N5 billion and above.
In the list released by the CBN and AMCON, 20 oil and gas firms were credited with N705.885 billion while five power firms owed N114.928 billion.
It is expected that a significant reduction will be recorded in the banks’ lending to oil firms, when their 2012 financial statements are released.
The impending reduction in local banks’ exposure to oil and gas, and power firms has raised concerns about how these firms will finance their operations.
Analysts are of the view that the oil firms might have to resort to offshore financial institutions or multilateral financial agencies to finance their operations, and if the issue is not addressed soon, Nigeria’s oil output and local supply of petroleum products will likely be affected negatively.
Already, the Nigerian Association of Petroleum Explorationists, NAPE, had declared that Nigeria’s potential of generating about 2.26 million metric tonnes of liquefied petroleum gas, LPG, annually will not be achieved, unless the country addressed the issue of infrastructure deficit and lack of access to finance by players in the oil and gas sector.
In a presentation by Mr. Mustapha Jibrin, at one of its conferences, NAPE maintained that financing is critical, especially as it is evident that the country’s Vision 20:2020 objective can only be achieved with a stable power supply, with gas production playing a critical role.
He stated that recent gas discoveries in other parts of Africa were already affecting Nigeria’s natural gas potential and its global competitiveness, adding that increased access to finance and infrastructure development will help reverse this trend.
He said, “The competitiveness of Nigeria’s natural gas and the numerous opportunities to monetise it would be impacted by recent discoveries of large reserves of gas in other parts of Africa, especially offshore East Africa, as well as huge exploitations of shale gas in different parts of the world.”
Also speaking, Mr. David Adonri, an economic expert, expressed concerns over the huge exposure of the banks to energy firms in their current financial statement.
He said the Nigerian petroleum industry is not viable, especially due to the delay in the deregulation of the sector and government control of the sector.
He added that financing power and oil and gas projects with bank loans is a mismatch, due to the long term nature of such projects and the short term nature of bank loans. “It is disturbing to hear that banks are still exposing themselves to the petroleum industry in such a manner that could threaten their existence.
“Those affected have failed to learn from the past. Any bank over-exposing itself to the petroleum industry does so at its peril because government’s control of that sector is a recipe for commercial failure.
“The petroleum sector can only become viable when it is completely deregulated and privatized If the balance sheet of any bank is damaged as a result of excessive risk taking, CBN and NDIC should liquidate it and the management made to pay for their recklessness.
“Considering the short maturity profile of banks’ deposit liabilities in Nigeria, it is inconceivable that they will venture into financing Electric Power projects which by nature are long term. The mismatch in financing will definitely result in bad debt. Electric Power infrastructure rehabilitation and development requires medium to long term funds which are obtainable from the Capital Market and Development Finance institutions.”
CBN’s intervention
The challenges faced by the banks between 2009 and 2011, when the CBN sacked the management of five banks and nationalized three of the banks were brought about by the inability of the oil firms to pay their debts following the crash in the prices of crude oil in the international market. This was in the wake of the global financial crisis and the credit crunch in the global economy.
The CBN said the troubled banks had huge portfolio of non-performing loans, far above the figures allowed by law, in addition to other irregularities recorded in the banks.
The industry regulator also said the banks had difficulties in meeting their obligations to customers and other stakeholders and were constantly on ‘life support’, continuously accessing the Expanded Discount Window, EDW, for funding.
When the CBN moved against the five banks, August 2009, it said the total loan portfolio of the five banks was N2.802 trillion. Margin loans amounted to N456.28 billion and exposure to Oil and Gas was N487.02 billion, while aggregate non-performing loans stood at Nl.143 trillion representing 40.81 per cent.
The CBN said from information at its disposal, it is evident that the five banks accounted for a disproportionate component of the total exposure to capital market and oil and gas, thus reflecting heavy concentration to high risk areas relative to other banks in the industry.
After the CBN’s efforts at sanitizing the banks and cleaning up their books, the banks have resumed lending to the energy sector, however, with extreme caution.
Abdulrazaq Isa, co-founder of Waltersmith Petroman Oil Limited, has emerged as the chairman of the governing board of the Nigerian Member Committee of the World Energy Council (WEC).
The Board, inaugurated in Abuja on 7 August, is made up of nine members with a diversity of backgrounds, drawn from policy, academia, energy institutions and private enterprise.
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The Board membership consists, Dr Ainojie Alex Irune, 45-year-old, Managing Director of Oando Energy Resources and an Executive Director of Oando PLC. Bala Wunti, formerly Chief HSE Officer at NNPC Limited, serves as the committee’s chief executive, alongside Professor Wumi Iledare, Dr Mustapha Abdullahi, Mrs Aisha Farida Katagum, Dr Emmanuel Okon, Dr Victor Ekpenyong and Dr Imamuddeen Talba.
Irune’s inclusion is notable not primarily as an indication of generational change, but rather as a reflection of the extensive industry transformation evident within his comparatively early career. In many respects, his professional trajectory exemplifies the broader developments that have characterised the Nigerian energy industry over the past decade.
The attack on Saudi Arabia’s key crude oil pipeline, which led to closure and the disruption of a crucial route for avoiding the Strait of Hormuz during the US-Iran war, have pressured the global market into higher prices.
Consequently, the Nigerian oil and other major oil contracts moved northward and Brent gained as high as 3.7% to more than USD 108 a barrel.
Bonny Light traded above $115 per barrel over the weekend on macro energy strength/grand-dated Brent proxies. Light, sweet Nigerian grades maintain a healthy-to-positive quality premium over heavy/sour peers amid continued European and Mediterranean refinery appetite for low-sulfur yield.
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However, regional freight and prevailing prompt liquidity fluctuations impose a ceiling. Price metrics remain highly sensitive to macro geopolitical risk cues (Middle East supply concerns lift benchmark Brent into the $107/bbls territory).
The Nigerian National Petroleum Company Limited (NNPC Ltd) would be deploying between 50 and 70 smart, self-service filling stations across the country within the next six months.
The Executive Vice President, Downstream, NNPC Limited, Mumuni Dagazau, made the disclosure on Thursday in Abuja while speaking at the commissioning of a technology-driven service station with an electric vehicle charging facility.
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The initiative, he added, is part of a broader plan to transform its conventional retail outlets into modern energy and mobility hubs offering petrol, electric vehicle charging, liquefied petroleum gas, compressed natural gas and other services.
It was gathered that a model of the mega station is located along Bill Clinton Drive, Airport Road, Abuja.
Dagazau noted that the newly commissioned station was the first of several smart outlets to be introduced nationwide, adding that the concept was aimed at moving beyond traditional petrol retailing to provide customers with multiple energy and mobility services at a single location.
He said, “This is the first of many smart stations that we are going to have around the country. What the whole concept is, we are trying to turn from a filling station to an energy hub, and we are rolling out a lot of stations. I think even in Abuja, for this type of station, we have about four or five. We have another two that we’re launching out in Kano. This sort of smart stations that we’re doing.
“We are hoping to roll out a significant number, probably about 50 to 70 of these types of stations within the next six months. So this is what you’ll be seeing going forward from NNPC.
“So what you see here is that we are using all sorts of energy available to us, including EV, electric energy. We are going to be using gas; we are going to be using petrol. So it’s a centre where you can come, and we are going to be calling it our energy hub.”
The new model will allow customers to dispense petrol themselves, including at night, through a digital payment system, although attendants will remain at the stations to assist customers.
Dagazau dismissed concerns that the introduction of self-service pumps would result in job losses, arguing that the expanded services would require more workers to operate and support the technology.
“Well, you saw all of the pumps have attendants. So I really don’t know what they’re talking about when it comes to jobs. What NNPC does is create jobs. What this does is create a job.
“You have an energy hub today. If you look at the average filling station and you look at the energy hub, you’ll find more people in the energy hub than you would find in the filling stations, right? So what we are doing is creating jobs for that. Somebody has to support the integration.
“Somebody has to support the automation. The EVs, we have to be here to support people. So nothing really changes for us. What we’re doing is just what the delivery to the customer is. The guarantee, the comfort of the customer, that’s really what we’re after. That’s what the smart delivery is all about.”
On his part, the Executive Director, Retail Operations and Mobility, NNPC Limited, Shettima Baba-Kukawa, said the Abuja station had a storage capacity of 180,000 litres of Premium Motor Spirit (PMS) and 45,000 litres of Automotive Gas Oil (AGO).
The facility has 16 PMS pumps, two AGO pumps and six electric vehicle charging points installed in partnership with African Motor Works. It is powered entirely by solar energy through a system with a capacity of more than 200 kilowatts.
Baba-Kukawa said the outlet would also feature a quick-service restaurant, coffee shop, automated car wash, modern service bay and LPG dispensing facilities, while CNG and a vehicle conversion centre were also planned.
He said, “The station is going to run 24 hours. And it is fully self-service. So for customers who want to trust themselves and dispense themselves, they can actually do that. Transactions are done on their phone app and concluded by dispensing the exact amount of fuel they purchased into their tanks.”
Despite the digital system, he said customers unable to use the application would not be excluded, as staff would be available to assist them.
Dagazau also disclosed that the NNPC Ltd had begun plans to modernise its existing stations, stressing that the company was responding to changing customer expectations.
He said, “We’re going to modernise our station. That’s the word that we’re going to say.
“You don’t want to be going into the same station every day, every day, every day. You are demanding, so our modernisation is a demand from what the customer wants. The customer deserves a better quality of service, and we are delivering that quality of service.”
He said the company hoped that most of its stations would eventually adopt the new model, although the pace would depend on customer demand and the investment required.
Similarly, the Managing Director, NNPC Retail, Huub Stokman, said the transformation was necessary as the downstream petroleum market evolved following deregulation and the commencement of operations at the Dangote Refinery.
He said consumers were increasingly demanding quality products, competitive prices, faster services, digital payments and alternative energy options such as EV charging and CNG.
“Above all, especially the younger generation, they want us to deliver it sustainably, hence the fact that you also see that this station is completely solar-powered,” Stokman said.
In a goodwill message at the commissioning, the Comptroller-General, Nigeria Immigration Service, KN Nandap, commended the NNPC Ltd for combining conventional fuel retailing with electric vehicle charging and other modern services.
Nandap said the facility reflected Nigeria’s growing adoption of technology, cleaner energy and smart mobility, adding that such investments could create opportunities for employment, skills development and industrial growth.
The development comes as Nigeria’s downstream sector undergoes significant changes, with deregulation, increased domestic refining capacity and the emergence of alternative fuels reshaping how petroleum products are sold and consumed.
The NNPC Ltd said its smart-station programme was intended to position its retail network for the changing market by combining conventional fuel sales with cleaner energy, digital services and other consumer-focused offerings.
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