Forex issues: Downstream players reject CBN guidelines on N250bn gas expansion fund

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…Say agric platform not suitable for gas investment

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Following lack of clarity on Foreign Exchange Rate, stakeholders in the downstream sector of the Nigerian Oil and Gas Industry have rejected guidelines released by the Central Bank of Nigeria ( CBN) for assessing the N250 billion National Gas Expansion programme.

Recently, the CBN released the modalities for the implementation of an intervention facility worth N250 billion for the National Gas Expansion Programme (NGEP).

In order to make Compressed Natural Gas (CNG) the fuel of choice for transportation and Liquefied Petroleum Gas (LPG) the fuel of choice for domestic cooking, captive power and small industrial complexes, the government introduced the NGEP.

Under the NGEP, the CBN is providing N250 billion loan to help stimulate investment in the gas value chain.

According to the apex bank, large-scale projects under the intervention will be financed under the Power and Airlines Intervention Fund (PAIF), in line with existing guidelines regulating the PAIF, while small-scale operators and retail distributors will be financed by the NIRSAL Microfinance Bank (NMFB) and/or any other Participating Financial Institution (PFI) under the Agribusiness/Small and Medium and Medium Enterprises Investment Scheme (AgSMEIS).

The CBN said those who qualify for the credit facility are operators in the gas processing plants business as well as gas cylinder manufacturing plants sector.

Also, those interested in doing the business of L-CNG regasification modular systems, autogas conversion kits or components can apply for the loan.

The central bank stated that the loans would be given with an interest rate “not more than 5.0 per cent p.a. (all-inclusive) up to February 28, 2021, thereafter, interest on the facility shall revert to 9 per cent p.a. (all-inclusive) effective from March 1, 2021.”

Nigerian NewsDirect gathered from  players in the downstream sector that the Central Bank of Nigeria ( CBN) replicated the guidelines for Anchor Borrowers Fund of players in the Agric sector for the N250billion fund of National Gas Expansion Programme by President Muhammadu Buhari.

According to them, investment in the establishment of compressed natural gas station and liquefied petroleum (LPG) requires importation of equipment which are normally acquired with the purchase of Dollars. Without approval of a fixed exchange rate for investors, it will be difficult for investor to pay back despite the 5 per cent interest approved.

“Most players coming together to access the fund have been advised by our financial advisers to stay away because without review of the current guidelines released by the CBN, taking such a loan will end the operation of the players,” they pointed out.

The players who spoke to Nigerian NewsDirect noted that various associations in the downstream sector including the Independent Petroleum Marketers Association of Nigeria (IPMAN) and Major Oil Marketers Association of Nigeria(MOMAN) have created committees that will make official response to the CBN.

The players  who advised our correspondent not to mention their names for fear of being blacklisted by the CBN suggested that the CBN needs to take input of the downstream investors into consideration before releasing the guidelines.

“It is not fair for the apex bank to come up with a guideline that will make the fund to become inaccessible like the cabotage fund for Indigenous ship owners in the maritime sector.”

The former President, IPMAN Mr Tunji Adeniji  in an exclusive interview with Nigerian NewsDirect commended President Buhari for approving the N250billion gas fund.However, he joined other players by describing the fund as “ PROHIBITED.”

According to him, accessing the N250bn  is not going to be easy for genuine investors except the CBN reviews the  platform for accessing the fund which is currently being used in the agric sector.

Adeniji lamented that equipment will take everything because of the cost of the equipment. This, he blamed on the Dollar content of the equipment which has been a big challenge to investors in this era.

“ For investor collecting the fund to invest in gas, hypothetically he will need skit, automobile skits, autogas skits  and LPG skits among others.

“The equipment have dollar content and with that dollar content, it’s not easy with the banks, dollar is not stable. Today, N360 from CBN but not easy to access. So,  we have it between N420-460 in the black market so you have to go to black market.”

He argued: “Did CBN make provisions for that, for investors in gas? Why wouldn’t CBN peg the dollar for the gas expansion programme at N360, then investment with the fund will be feasible.

“Lack of fixed exchange  rate will not make players to access the fund. For instance,one woman goes to market to buy her own skit at N380 per dollar, later if in 2 months after and  I decided to buy my own skit for N420 per dollar. This high cost of dollar will not make us to compete for fund because we will not be cost efficient.”

Adeniji added : “My advice here is that CBN needs to repackage that fund for it to be attractive because of the variation of dollar. That’s the major constraint that investors in downstream have, without which, the speed of movement will be slowed down.”

So back to the gas expansion,  Adeniji described the programme as a laudable project, expansive and it is the only thing limiting product.

In the guideline for the N250bn gas expansion programme, the CBN stated that for manufacturers, processors and wholesale distributors, the term loan “shall be determined based on the activity and shall not exceed N10 billion per obligor [with a maximum] working capital of N500 million per obligor.”

Also, for SMEs and retail distributors, the term loan “shall be determined based on the activity and shall not exceed N50 million per obligor [with a maximum] working capital of N5 million per obligor.”

It said applicants must submit applications through any Participating Banks (PBs) to the CBN with documents, including relevant endorsements and permits from the Ministry of Petroleum Resources (MPR) for the project.

Upon approval, the CBN will conduct  an internal review of the application to ensure compliance with the guidelines before the release of the loan within five working days.

However, the CBN stressed that there would be periodic monitoring of projects financed under the scheme jointly with the PB and MPR.