Oando’s plans to transform itself from a leading Nigerian petrol importer into an oil producer to rival foreign energy groups are being hampered by the government’s failure to deregulate the fuel market.
The Lagos-based group, expected to seek a London listing, blamed a 15 per cent decline in last year’s revenues to $2.3bn on the delayed payments of fuel subsidies .
Nigerian governments have regularly vowed to remove caps that keep petrol prices artificially low. Many analysts blame the regime for the lack of investment in refineries – a situation that has left Nigeria importing almost all its fuel in spite of being the world’s 10th biggest oil exporter.
Femi Adeyemo, Oando’s chief financial officer, told the Financial Times that, on an average day last year, the group had $200m of subsidy payments outstanding.
“It ties up cash flow, it ties up credit lines, management time, too many things,” Mr Adeyemo said.
The payment delays, coupled with a banking crisis, pushed up Oando’s average borrowing costs to 23 per cent, from 16 per cent the previous year.
Listed in Lagos and Johannesburg, Oando is scouting for potential acquisitions in Nigeria and the region. It hopes to benefit from planned reforms that would spur indigenous producers and force big energy groups to relinquish some smaller fields.
In a sign that Mr Tinubu’s diversification strategy is beginning to work, the effects of the subsidy delays and the depreciation of the naira were offset by increased revenues from gas production. Profit after tax was stable year-on-year at $75m.
However, petrol sales still account for some 80 per cent of group revenues. Along with other fuel marketers, Oando suspended imports late last year, causing queues at filling stations. They only resumed once the government pledged guarantees for the subsidy payments.
Last year, the government paid subsidies to fuel importers worth Naira 600bn ($4bn), equivalent to the entire infrastructure budget.
Remi Babalola, minister of state for finance, said in December that the subsidy regime was “untenable and unsustainable” and had “bred huge inefficiencies and rent-seeking activities in the downstream petroleum sector”.
Yet unions staunchly oppose removing the price cap, a move that would be highly unpopular in a country where cheap fuel is one of the few things the government provides for its 150m people.
Apr142010