NNPC Celebrates Crashing Diesel Prices By 42%

  • As 15 manufacturing companies borrow N418bn from banks

NNPC at the weekend celebrated the crashing of diesel prices by as much 42 percent, noting that the Corporation brought the price from around N300 per litre in January 2017, to about N200 at the end of May, 2017.

The Group General Manager, Public Affairs Division of the Nigerian National Petroleum Corporation (NNPC), Mr Ndu Ughamadu indicated this on Sunday, highlighting that Automotive Gas Oil (AGO), popularly called diesel enjoyed a huge slide downwards over the last six months, following strategic interventions by NNPC.

”In the first quarter of 2017, retail prices of AGO, which is one of the deregulated products, shot to an all-time high of N300 per litre in major demand centres across the country.

”Such unpleasant situation placed a huge burden on truck drivers, who need the product for transporting their vehicles; and the nation’s manufacturing sector, which requires it to run its operations.

“”It also affected the masses, who need it for household power generation.

”However, following strategic intervention efforts by the NNPC toward sustained improvement in the supply of diesel, the product’s retail prices as at the end of May ranged from N175 to N200 across the country (a significant price drop of about 42%).

”Ex-depot prices also dropped to between N135 and N155,” Ughamadu observed, adding that the strategic interventions included improving the supply of AGO and remodeling of the product distribution to address sufficiency issues across the country.

”Since January this year, we have worked very hard with relevant stakeholders to improve distribution from refinery depots, by implementing a robust loading programme.

”The Corporation was able to resuscitate its critical pipelines and depots in places such as Atlas Cove-Mosimi, Port-Harcourt Refinery-Aba and Kaduna Refinery – Kano.

”Efforts are also ongoing to revamp and commission other critical pipelines across the country,” he said.

The spokesman noted that another key intervention that enhanced supply and distribution of diesel was the corporation’s ”robust engagement” with critical downstream stakeholders where salient issues were raised and duly addressed.

”These stakeholders include: Major Oil Marketers Association of Nigeria (MOMAN), Nigerian Association of Road Transport Owners (NARTO), Petroleum Tanker Drivers (PTD) as well as Independent Petroleum Marketers.

”Furthermore, as a result of consistent positive engagement with the Central Bank of Nigeria (CBN), NNPC equally extended the expansion of Premium Motor Spirit (PMS) Foreign Exchange Intervention Scheme to accommodate Diesel and Aviation Fuel.

”The general public is hereby assured that the corporation wil continue to ensure seamless supply and distribution of diesel and other petroleum products across the country,” Ughamadu concluded.

In the meantime, at the backdrop of funding exigencies and inability to raise longer term and cheaper capital from the capital market, top 15 companies in the manufacturing sector, listed on the Nigerian Stock Exchange, NSE, were compelled in 2016, to seek expensive and short term bank loans to bridge funding gaps.

Thus, they spent N127 billion servicing about N418 billion loan they borrowed. This represents a 30 per cent increase in their loan liabilities from N322.5 billion recorded in the corresponding period of 2015.

Financial Vanguard investigations revealed that the loan expenses got escalated by the persisting liquidity challenges in the banking sector coupled with subdued credit appetite of the banks as a result of huge loan defaults during the period.

Consequently, lending rates escalated to over 25 per cent. The immediate impact was adverse on the bottomline of the companies with their profitability forced to a 24 per cent decline in the cumulative profit before tax in 2016. But three of them escaped with good profits.

The breakdown showed that the cumulative Profit Before Tax, PBT, declined by 24 per cent to N268.5 billion in 2016 from N351.7 billion in 2015. But they also attributed this downturn partly to the economic recession impact and other macroeconomic variables as most of them were unable to secure Foreign Exchange, forex, and this escalated their cost of fund during the period under review.

Findings by Financial Vanguard revealed that the 15 companies paid a total interest of N127.253 billion to the banks, representing a 44 per cent increase from N88.403 billion recorded in the corresponding period of 2015. The total interest paid by the 15 manufacturing companies also represents 47.4 per cent of the total profit recorded in 2016. Earnings reports from the companies indicate that most of them were constrained by increasing financing charges, otherwise known as interest expenses, leading to steep declines in profits in most of them.

Out of the 15 companies in this coverage, 11 companies’ PBT declined during the year under review as finance charges contributed to the major cost constraints. Management of these companies had stated that their inability to source new equity capital due to the meltdown at the capital market had forced them to continue relying on high-interest bank loans.

A review of the report  showed that while other macroeconomic conditions, especially slowdown in top-lines due to decline in purchasing power and increase in costs of sales due to exchange rate depreciation, contributed to weak performances by the companies. High cost of funds was the major factor that wiped off positive trading and operating profit performance to undermine pre-tax profit. It was further discovered that PZ Cussons and GlaxoSmithKline Consumer, GSK Nigeria Plc did not borrow money during the year under review, but paid interest to banks for previous borrowing.

Details of the borrowing are as follows:  Dangote Cement N71.732 billion in 2016 as against N31.352 billion in 2015; Cadbury Nigeria Plc N151 million in 2016 as against nill in 2015; Nestle Nigeria Plc N50.620 billion in 2016 as against N29.944 billion in 2015; Unilever Nigeria Plc N20.916 billion in 2016 as against N8.018 million in 2015 ; Flour Mills Nigeria Plc N64.421 billion in 2016 as against N114.96 billion in 2015; Honeywell Flour Mills Plc N51.289 million in 2016 as against N42.129 billion in 2015; Dangote Flour Mills N36.237 billion in 2016 as against N40.824 billion in 2015; Lafarge Wapco Plc N59.482 billion as against N11.822 billion in 2015

Others include: Guinness Nigeria Plc N39.168 billion as against N20.69 billion; Nigerian Breweries Plc N17 billion as against N17 in 2015; Dangote Sugar N2.036 billion in 2016 as against nill in 2015; May & Baker Nigeria Plc N2.972 billion in 2016 as against N3.129 billion in 2015; Fidson HealthCare Plc N2.232 billion in 2016 as against N2.6 billion in 2015.

Findings showed that Dangote Cement led the chart on interest payment in 2016 in terms of value with N45.6 billion; it was followed by Flour Mills Nigeria Plc N22.4 billion.  Nestle occupied the third position with N20.9 billion, followed by Lafarge Wapco with N15.5 billion, while Guinness Nigeria came fifth with N7.9 billion.

Additional report from Vanguard