Energy

OTL 2017: Downstream operators divert loans for private jets – Banks

OTL-Africa-Downstream

…Lack financing structure

By Samuel Ibiyemi

Banks have identified diversion of loans for acquisition of private jets, poor financing structure and poor corporate governance emanating from characters of downstream operators as a major reason for poor funding of downstream operations in the oil and gas industry.

It will be recalled that the Central Bank of Nigeria (CBN) under the former Governor of the Central Bank of Nigeria (CBN) had sacked 10 Chief Executive Officers of 10 banks for the inability to recover bad debts. The bad debts were acquired by the Asset Management Corporation of Nigeria (AMCON) established by the Federal Government of Nigeria to ensure stability in the financial services industry.

The panel Discussants of OTL African Downstream in a panel session chaired by the Chief Executive Officer of Mentor Energy Consulting blamed low barrier to entry and exit for operators in the downstream for the poor management skill of operators in the downstream for the inability to pay for loans provided by banks.

Managing Director of Emadeb Energy Mr Adebowale Olujimi had complained that four years is not enough  period for a marketer to pay back loan raised to finance the construction of a filling station of  about N500 to N600 million.

EMADEB MD DEBO Olujimi

Downstream is suffering because of huge loans to banks and government’s policies..

To build a filling station in a good location you need btw N500 to N600million and pay 25 per cent on the money.

He said to recover the money and pay back within 4 years is very difficult as a result of the prevailing economic downturn, products supply, infrastructure and volatility of foreign exchange thereby affecting prices.

In response during the panel discussion, the Senior Vice President, Africa Finance Corporation Tariye Gbadegesin advised downstream operators to invest in growth and sustenance of their operations instead of acquiring private jets that are liability. According to him, operators in their countries in Africa expressed worry over the poor development and mismanagement in Nigeria’s downstream sector. “It is unfortunate that beside poor financing structure, character of chief executive officers in downstream sector is a major challenge why access to funding has become a major challenge,” he said.

Managing Director Fidelity Bank Plc Mr Nnamdi Okonkwo said during the panel discussion of the OTL African Downstream Conference in Lagos yesterday that as a result of low barrier for entry and exit, several Nigerians with small capital from various sectors of the Nigerian economy have registered oil firms in the downstream sector without a clear understanding of activities in the industry. He disclosed that Fidelity bank’s exposure to oil gas is within the range of 85 for upstream and 15 per cent for downstream due to poor financing structure by operators in the downstream sector.

According to him, downstream operators believe that if they obtain a loan at 25 per cent to support capital invested, they will easily obtain 70 per cent profit without understanding clear criteria and challenges of operation needed to attract finance.

“For downstream operators to attract finance, they need to have good structure in place and change their attitude likened to that of Onitsha traders which I particularly experienced as a branch manager of a business outfit in South East many years ago whereby they believe that importation of one container will generate One million Naira profit without clear understanding that importing more containers will generate more profit as the numbers increase. So, for downstream players, they should understand that as they increase volume of imported products cost will decrease and profit will increase,” he said.

Okonkwo pointed out that the major challenge in the downstream discouraging banks from financing their operations is this financing structure. He suggested that they should learn to develop financing structure that will assure bankers that funds released will easily be recovered.

He added that the same appetite which Nigerian banks have for financing downstream operations is the same with foreign financial institutions. For instance, he said that foreign financial institutions preferred to have direct participation in upstream sector than going through banks and are more averse when it comes to request for fund for downstream operations in Nigeria.

“As a result of bad structure, activities of downstream operators are more volatile to attract financing. Hence, Nigerian banks will continue to send depositors money to areas where they can easily be recovered,” he explained.

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