The Chief Executive Officer of Eterna Plc, Benjamin Nwaezeigwe, in this interview with OPEOLUWANI AKINTAYO, speaks on some of the current challenges bedeviling the country’s oil and gas sector

How is the industry?

We are all looking for clarity.

At this time?

Yes. There is a need for clarity. Although we already know that the NMDPRA (Nigerian Midstream and Downstream Petroleum Regulatory Authority) wants us to import. But the big elephant in the room is that forex needs to be dealt with. If you want to bring it in 15 metric tonnes, you need more than $12m, but forex has not been available. I have been trying to buy just about $3m-$4m for base oil that we are bringing in, and it is taking us forever. Not to talk of importing PMS. What we are doing until now, is to get a PFI from PPMC and pay them. So, until FX is available, it would be a great challenge to import.

But some depot owners are already seeking offshore sourcing of funds at a lower interest rate. What is your take on this?

When you say offshore sourcing of finance, we all know that interest rates of the international market are very affordable. It is because inflation has been rising that is why their rates are high these days. But before, if you go to Libot to borrow, you get five per cent. Today, you get it at 10 per cent, via a local market, you get it at 25 per cent. So, this is why people don’t want to go to foreign markets. So, let’s just say you borrow $12m to bring in cargo today. After selling the product in naira, today, the conversion rate is $/N775. By the time you are done cycling out of that product, say in another 60 days, and you want to start buying forex, you can’t see that N412m to buy at once anymore. You need to buy in pieces. Imagine buying $12m and it takes another 60–90 days to clean out that $12m. That means you added up to about $6m. It means you have added to that credit. By the time you want to convert it back to naira, it is already at N800 above. So, apart from the interest you are paying, you are also losing on forex exposure. Just imagine all these Nigerian banks that have FX exposure in multi-million dollars. The exchange rate moved overnight from N465 to N700/N800 official rate. Most of those banks, the kind of FX loss they post by year-end, if it is not going to remove their profits, it is going to almost wipe it out. So, you see that you don’t want to expose yourself to such risk, unless there are also techniques to manage those things, which we call benchmarking. There are a lot of things you can do to manage FX risks, but by the time you bring in those foreign exchange management techniques to your margin, you are going to play in a very tiny profit margin. The business will no longer be profitable.

How are the new government policies impacting businesses?

It has started impacting. That is why we can bring in AGO. But again, you bring in AGO at N720-N730, and we say we should look into the future, that price would go high. We priced at N755, and we started buying dollars. In the end, we bought some N768. If not that we were proactive and started buying on time, when we did the average of N752, imagine if I had priced my product at N740, and at the end, it came to N740, we would have lost money. So, we just narrowly escaped.

What is the Federal Government promising on how to fix the FX challenge?

They said, for instance, they are trying to open up the economy to attract foreign investors. So, in the long run, we would begin to see the inflow coming in, and things would change.

They said we consume 60 million litres daily, but it has dropped by 50 per cent from the north, and 30 per cent from the south. With that drop, it means you would need less forex to do business, because some of those products were being subsidised for people outside the country. With time, it would relax.

Many people have the belief that prices would drop once marketers start bringing in products. How true is this?

Let us even start bringing in products first. But like I said, we are all looking out. If we come together and go to the refineries, you can land it at a reasonable price.

There is an argument that until the price of petrol in Nigeria gets to the prices it is being sold in other African neigbouring countries that smuggling across the border will continue.  What do you think about this?

It is because of what is happening here, that is why it is like that there. You smuggle it and by the time you are selling it there, the price becomes higher. But by the time we start importing and everything goes fine, smuggling will stop. Smuggling is no longer lucrative. There is currently disruption in Niger and other neighbouring countries because those other markets are dependent on Nigeria. The only difference is that Nigeria’s disruption was planned. NNPC was ready, and it was not an overnight thought. But those countries didn’t plan it. And when you don’t plan things, you allow the market to determine prices. A man that was smuggling didn’t calculate the cost of smuggling that he would need to settle some people.

Petrol itself was not subsidised in Nigeria, but the official exchange rate. And why? If you want to import your product, what exchange rate would customs convert for you? If you bring in a car today, and the car you are supposed to clear 30 per cent as customs duty, that $2,000 would be first converted before applying the 30 per cent. So, the product itself isn’t subsidised but the exchange rate. Because of that, we would see slight differences when you compare Nigerian products to those of other countries. Now, would we get to that point? Yes, with time, going by what President Tinubu is saying.

Nigeria has not been able to benefit from the Russia and Ukraine war due to low production. Is there still a way around it?

We have to build the infrastructure and labour that will make us be able to benefit from these opportunities. It is some of our laxity as a country that has made us not being able to benefit from the current windfall occasioned by the current Ukraine/Russian war.

The world producers of crude are all smiling to the banks. Countries like Saudi Arabia said they want to build the most advanced city. They want to build an artificial moon from the money they made from the war. Angola has seen its currency appreciate since the war started. Angola’s inflation rate has dropped, but Nigeria has seen inflation move up since the war started. Nigeria has seen a rise in its forex since the war started. Why? Because we did not build before the rain started. And we are not going to take immediate advantage of the war because 20 years ago, we conceived the Okoloko gas project, and the Brass liquefied natural gas projects, and today, we are still in the drawing board despite the fact that some of the major oil companies have put in money into the startup projects. If we had built those gas projects, today, we should have been celebrating the windfall from this war, because we should have built those bases to create opportunities to export those gases and take the lab from the non-gas pipelines shut down as a result of the war. Now, even if we set out to build those gas projects, they are not something to build in a few years. The only thing is that, if we are wise, the Trans-Sahara gas pipeline that should take gas from Morocco to Europe should be built. But the question is that, how long will it take to realise such investment? It could take 10 years to build. And assuming we have policies that could encourage private sectors to bait on the statute of the country, because our gas is associated gas. We must produce crude to get gas. And none of the world will invest in that gas. So, we have lots of housekeeping to do. Then, we do the heavy lifting that a major gas producer like ours should enjoy whenever there are such windfalls.

The sector is currently witnessing low investments. IOCs are transitioning. Is there any respite for the sector in terms of attracting investments?

One of the reasons for the low investment is the time it took to pass the PIA. The level of insecurity in the Niger Delta is making the oil companies to exit the shallow offshore assets. Until the level of insecurity in the Niger Delta is addressed and the theft and breaching of pipelines are settled, you are not going to have as many investments as expected in exploration and production.

You have to also know that the world is transitioning from fossil fuel to clean energy, and we have not clearly defined our traditional part like countries such as Saudi Arabia have done. We have gas and gas has been classified as part of the clean energy. Today, to access funding for crude oil is difficult.

Do you think Africa should look inwards for funding instead of relying on IOCs?

It is not beyond OPEC to develop their transitional plans. But in terms of funding, we do not have so much capital today in Africa. We should be able to some extent fund those projects. But before we talk of funding, we should even settle the fact that quantities produced should be able to be exported. We have to realise that the transition is real. The reality is that when the world changes, we need to be prepared to change with it. Coal used to be the major source of energy in the world. Today, coal has minimal economic value.

But even the UK and Europe are turning back to coal for energy due to gas shortage.

What is happening in the UK and Europe that they are again tuning to coal is like a shock, and in the next five years, they will fix the problem. Remember that the Western countries have almost decommissioned their nuclear power plants. We have seen consistency in terms of energy transition from them. Also, remember that the capacity of batteries as a source of energy supply, particularly for transportation, is increasing at higher rates. So, that technology that we look at today will keep growing. So, if we do not plan for energy transition; we will be doing ourselves a lot of disservice because it will happen to us.

One major problem in the country currently is low power supply. We heard there is no gas. Is there truly no gas?

What we used to hear in the past was that NLNG preferred to export its gas to earn foreign exchange. Now, Russia is turning off its gas. So, as a business entity, it may make more sense to sell your gas abroad to earn dollars if you try and control the price.

But gas is deregulated.

That is why the price is going up. What should have happened is that more investors should run in to make more money and produce more of those trains. Qatar has 22 trains but when you try to control prices, those who should invest will not. If you allow the free market, investment comes in and supply will increase with time and price would fall.

What is causing the low gas supply to power stations?

It is now becoming like the PMS. Before, other people augment to import, but now they don’t see foreign exchange anymore. It is only NLGN that is producing and supplying the market that has more demand on fewer products. So, the price shoots up. The only way out is for price to be deregulated. Another reason is that recently, a lot of the gas goes into fertilizers, although I can’t verify it. The feedstock for fertilizer is gas, and it has also topped demand. What would have helped us to make it up is for people to import, but they can’t get forex.

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