Against the backdrop of high spikes in product procurement costs and bank interest rates, petroleum marketers have seen a massive increase in bank borrowing and the cost of doing business.
According to Financial Vanguard’s analysis of important sector operators’ financial records, they borrowed more than N3.0 trillion in the nine months ending September 2024 (9M’24), increasing 76.5% from N1.7 trillion in the same time in 2023 (9M’23).
The Central Bank of Nigeria’s (CBN) Monetary Policy Rate (MPR), which is the benchmark lending rate for banks, increased from 18.75% in 2023 to 27.50% in 2024, a rate regarded too high and a disincentive to enterprises.
However, the steep and sudden increases in petroleum product prices compelled oil marketing organizations to rely on bank borrowings to cover product procurements. As a result, the enterprises’ financial costs increased significantly, reaching N156.9 billion in 9M’24, up 78.9% from N116.083 billion in 9M’23.
However, the corporations nonetheless reported considerable profit margins as a result of a massive increase in turnover caused by higher gas pump prices across the country, demonstrating that they efficiently passed on the high cost of borrowing to customers.
The combined enterprises’ profit before tax (PBT) increased by 44.5% to N420.805 billion in 9M’24 from N280.805 billion in 9M’23, while turnover increased by 57.9% to N5.296 trillion from N3.355 trillion in 9M’23, outpacing inflation by 34.8%.
Financial results span companies such as Oando, Conoil, Eterna Plc, MRS Oil, Total Energies, and Aradel Plc. Explaining the market position, industrial and financial specialists stated that the elasticity of demand for petroleum goods is relatively high, allowing them to pass on costs to customers.
They also said petroleum product procurement cost rose sharply since removal of subsidy in 2023 and further escalated in 2024 and this entails very huge working capital outlay which many operators could not afford. Hence they resorted to bank credit.
According to them, the increase in the price of products also means they will require more capital to maintain and grow their volumes which is the cause of the increase in borrowing seen in their figures.
The experts noted that the final removal of Nigeria’s long-standing fuel subsidy marked the start of a new economic reality, significantly altering the country’s oil sector and resulting in sharp increases in fuel prices, which pushed inflation to 34.8% in December 2024, the highest in 30 years.
They acknowledged that the government was able to carry out the deregulation of the downstream oil sector, but stressed that it had been extremely costly to firms and citizens.