For the nation to attract foreign investments to the downstream sector, loans already advanced to oil & gas companies will have to be restructured in order to make them lucrative.
According to an expert, Ronke Onadeko, principal consultant DRNL Consult Limited, who stated this at a Webinar organised by the Facility for Oil Sector Transformation (FOSTER) in partnership with the Finance Correspondents Association of Nigeria (FICAN) last Tuesday, most of the banks’ exposure to the downstream sector have reached their saturation point which may make it difficult for them to secure finance in the event of deregulation..
Her words: “A lot of the banks in Nigeria have reached their single obligor limit in the oil and gas sector. Now if the sector is fully deregulated, where are the operators going to get funds to enable them participate? We have to restructure their loan portfolio so that it can become profitable and Nigeria can then become the next destination of inflow of funds.”
Onadeko also canvassed the privatisation of the government three refineries to reduce the burden of operating inefficient plants and help the government to generate resources for its expenditures.
She lamented that the government has expended about N462 billion in subsidising fuel consumption in 2019 and had projected to spend another N417 billion in the 2020 budget before the sharp drop in global oil prices and the impact of COVID 19 pandemic provided the opportunity for the deregulations of the sector.
She reasoned that the options before the government is to adopt the Liquified Natural Gas (NLG) or the Indorama model by diluting its shares in the refineries and allow the private sector to run them in order to ensure efficiency.
On the possible outcome of the deregulation , she said: “Presently there is scarcity of refining capacity locally as none of Nigeria’s three refineries are working. But once the sector is fully deregulated, a lot of international and local companies would be coming together to invest in refining.
“If we had refineries in Nigeria, when the price of oil dropped internationally, we would have refined more of our products locally to supply to the rest of West Africa and Africa at large.
Secondly, within the sector, there is going to be a lot of mergers and acquisitions and the smaller players are going to be thrown out.
“In the midst of this crisis we would get a good and competitive market out of it, the industry would develop more and even hire more people.The industry is going to see a lot of policy changes and a push for the passage of the Petroleum industry bill. The policy will engender competition in the market and create more value for customers in the long run. It is going to be more competitive among petroleum marketers, service delivery, efficiency and competitiveness will improve market and consumer will get a better deal.”
“Yes we had gone back and forth in the past 10 years but it is eminent because once funds start to flow into the continent, we don’t want all the money to go in to Ghana, Kenya or Angola so Nigeria should be positioned to bring back the investments”.