‘Only operators with deep pockets and competency will survive deregulation’

Dapo Abiodun is the Chief Executive Officer, Heyden Oil and Gas. Abiodun, who is also the Chairman, Depot and Petroleum Products Marketers Association (DAPPMA), shares with select journalists the need for further integration and investments in downstream retail business in Nigeria. Business Editor, Clara Nwachukwu, was there. Excerpts.

How much is this new investment in retail chain worth?
Let me put it this way, it is either you are building a brand which has longer gestation period or acquiring fuel stations that have all the licenses and approvals. Although buying filling stations is more expensive, but these are the easiest ways of penetrating the market. We have acquired over 40 petrol stations presently which have brought our total to 50 fuel stations.

Our stations are between Lagos and Ogun states respectively. Ogun is a new market for us, it is easier to build confidence in ourselves and reassure our customers that we know what we are doing. We will begin our expansion to Oyo, Osun, Ekiti, Edo, Kwara, FCT Abuja (which we are currently working on) and other parts of the country.

But in terms of naira and kobo, without been specific, we have done quite a bit. We have done about N10 billion and we are very grateful to our bankers who have supported. That figure is the acquisition. What makes stations different from another is the perception people have about the station. Also, the consistency the station offers in terms of having petroleum products.

We are one of the biggest importers of petroleum products in the country; we have our tank farms, ships and good distribution networks. Therefore, our stations will always have fuel; we have built a good brand in terms of doing wholesale and coming down the retail line to add to the value chain. What we witnessed from the first two which we launched has been very successful. We are very much encouraged that Nigerians appreciate stations that are well built and managed well. That for us is what we have done and we are justified with the result we have seen and we will continue to do this. We are here to redefine how petrol is sold to the public and we are confident that we will be seen as one of the leaders in the petroleum retail sector.

You talked about N10 billion investments, even if the bankers have been very supportive how are you managing to scale through and keep afloat with interests shooting very high?
I believe that access to finance is an integral factor. Having made successes of what we have done before now in the area of wholesale, I think we have built that level of confidence in our customers and they are standing by us. You can see where the story is going, with the deregulation of the petroleum industry by President Muhammadu Buhari, and the efforts of the Minister for State for Petroleum, Dr. Ibe Kachikwu, and the Nigeria National Petroleum Corporation (NNPC) Group Managing Director, Dr. Maikanti Baru.

The deregulation by President Buhari is a great landmark. With this feat, it means that efficiency is what determines the margins. Dr. Kachikwu and Maikanti Baru, have said we are under-retailed. In Victoria Island for instance, there are only three fuel stations; if there is a small tightness in the market, there will be queues everywhere. What NNPC did was to invest in retails by placing the most margins in retail. This is what is happening now. The investment is huge; therefore if we manage our business properly, there will be returns to pay our loans.

With the current forex challenges, how do you source for your products?
Well, what we have been able to do in collaboration with NNPC which I must create an emphasis for because the last thing which people would want to see is the sale of petroleum at N145 per litre. For us here, we are selling at N142 per litre. The occasion has allowed us to be more efficient and competitive. I could decide to sell at N140 as long as I decide to make money.

Regarding forex, what NNPC has done is to discuss with the International Oil Companies (IOCs) that are producing the crude oil, and agreed with them about a certain portion of their proceeds which they hitherto sell to Central Bank of Nigeria (CBN). This is so that the apex bank can help them sell and exchange for naira, those proceeds will be delivered and made available to companies that have funds.

So today, why we have not seen queues in the filling stations is because NNPC is ensuring that adequate foreign exchange is made available to us at CBN rates. Yes we are deregulated, the deregulation is predicated on an exchange rate because of the economic situations we are going through at the moment, and the exchange rate is a little bit fluid. The parallel market, the interbank and the FMDQ are on different rates. NNPC has ensured that marketers access foreign exchange at official rate. This enables me to bring in petroleum products and enable me to offer the product at a price which the public wants me to offer.

What have become of the outstanding N300billion dollar equivalent owed marketers?
Well, we are currently in discussion with the Ministry of Finance and the CBN. What you are referring to is what happened when naira was devalued. The exchange rate then was N195 to the dollar and that time the industry was deregulated. The template which we imported stipulated that you import your petrol at an exchange rate of N195, and then sell at N86 per litre. Many of us did that and because Petroleum Products Pricing Regulatory Agency (PPPRA) and the Ministry of Finance were not able to pay us as at when due within 90 days.

Many of those payments were paid a year after. Unfortunately for us, they paid us the naira at a time we were going through uncertain foreign exchange. Our banks did not access the dollars to liquidate exposures to their correspondence banks. They were trying to bring FX; maybe you are looking for $10 million, they will bring $250,000. That was what we were facing when naira was devalued from N195 to N285.

Those monies are sitting in our banks, and the banks are owing their correspondence banks. We cannot afford to lose money we got at N285 because that will be an outright loss for us and particularly our bankers. We are currently pleading with the Ministry of Finance and CBN to look into it because this is an emergency situation. What we are talking about here is N200 billion. I’m sure that there will be a solution by the side.

The CBN Governor recently said oil marketers have no reason to agitate or threaten to go strike because they are making enough margins from petroleum products. How would you respond to this?
We are not agitating to go on strike. The template says N285, however, the money I got last week, I got at N308. It is a small difference, but the template also gives us a bound to sell petrol between N140 and N145. That helps in a way, we are not discussing that. We are not concerned about what we will do today, but what had transpired before. It is the naira that we got when we were at N195 exchange rate which our banks have not been able to access forex for. Those monies are still with our banks; and they are owning their correspondence banks. Banks now want to exchange those monies at N285 or N305, but we told them that if they are do that it is at their own risk, because where will the shortfall come from. This is what we are asking the CBN governor to look into. We have invested billions of naira in this business.

The independent marketers and the indigenous players in this trade collectively have 75 per cent of the investment in this sector. They are Nigerians and they employ over 75 per cent of people. If those of us who are indigenous players are not encouraged to continue playing a key role in the sector, then you can imagine the unemployment rate it will create. Therefore, I am sure that the government will address it.

Do you plan to invest in refinery as being touted?
Frankly speaking, we are looking at collocating one of the two refineries, and we are currently working on that. The advantage this offers you is that there is existing infrastructure in the three refineries, and there is opportunity to bargain; we are seriously considering that option.

Are you, therefore, saying that collation is better than outright sale of the refineries as being canvassed?
Collocation and selling of refineries are two different things. Collocation means bringing in another refinery. While selling off is considering if the refinery in its present state can be brought to meaningful efficiency. Refining is about efficiency. Government can achieve what it has set-up or will it be better for government to sell off to a private company who can then do that. Collocation does not have anything do with whether a refinery should be sold or not.

Do you support that the refineries should be sold?
In my opinion, I believe that government does not have a track record of managing such establishments successfully. Government does not have any duty in managing business. Government business is managing government. What government needs to do is create the enabling environment for businesses to strive. If government owned a refinery, at the appropriate time they will sell it off, call for investors and own a minority stake.

Instead of national interest and it will be owned by the public and run by the public. This is a model we should adopt. Those refineries at best should be commercialised and eventually sold off. We need the private sector to take care of them because in their present state, they may not attract the right investment required. It is better that those refineries are sold out rightly.

NNPC Chief Operating Officer/Group Executive Director, Downstream, Henry Ikem–Obih predicted that there is going to be a rationalisation soon in the downstream sector. Don’t you think this can cause some dislocation in the system?
When you look at the sector, it is not what it used to before. Before PPPRA gives you allocations to bring fuel in, you have a template, they sell at one naira and they give licences like a club, thereby if you sell at this price, we will guarantee you at this margin. But all of that is going to stop; it is going to be a business for only those who have capacity, deep pockets and are efficient. In an environment where people are going through a recession, you will realise that people who buy N5,000 fuel will start buying N2,000. So you’ll have to be creative; it is not going to be business as usual. There will not be bonanzas anymore; you have to know what you are doing to make money in this industry.

So when are you going to launch the remaining 39 fuel stations?
The next one we will be launching will be in the Victoria Garden City (VGC). It will probably be the biggest fuel station in Lagos, with 26 to 28 pumps which means that 26 vehicles can be buying at the same time and it will be very efficient. The station will be commissioned in the next one month. We have other stations all over Lagos; we are going to be commissioning the stations monthly until we commission all of them. We can do some every three months, others every two weeks. We are currently working on them to be launched in batches of five or more so that by December, we would have commissioned all of them. Then play a role in reducing the traffic congestion.

How much is this new investment in retail chain worth?
Let me put it this way. It is ether you are building for a brand, which has longer gestation period or acquiring fuel stations that have all the licenses and approvals. Although buying filling stations is more expensive, but these are the easiest ways of penetrating the market. We have acquired over 40 petrol stations presently which have brought our total to 50 fuel stations.

Our stations are between Lagos and Ogun states respectively. Ogun is a new market for us, it is easier to build confidence in ourselves and reassure our customers that we know what we are doing. We will begin our expansion to Oyo, Osun, Ekiti, Edo, Kwara, FCT Abuja (which we are currently working on) and other parts of the country.

But in terms of naira and kobo, without been specific, we have done quite a bit. We have done about N10 billion and we are very grateful to our bankers who have supported. That figure is the acquisition. What makes stations different from another is the perception people have about the station. Also, the consistency the station offers in terms of having petroleum products.

We are one of the biggest importers of petroleum products in the country; we have our tank farms, ships and good distribution networks. Therefore, our stations will always have fuel; we have built a good brand in terms of doing wholesale and coming down the retail line to add to the value chain. What we witnessed from the first two, which we launched, has been very successful. We are very much encouraged that Nigerians appreciate stations that are well built and managed well. That for us is what we have done and we are justified with the result we have seen and we will continue to do this. We are here to redefine how petrol is sold to the public and we are confident that we will be seen as one of the leaders in the petroleum retail sector.

You talked about N10 billion investments, even if the bankers have been very supportive how are you managing to scale through and keep afloat with interests shooting very high?
I believe that access to finance is an integral factor. Having made successes of what we have done before now in the area of wholesale, I think we have built that level of confidence in our customers and they are standing by us. You can see where the story is going, with the deregulation of the petroleum industry by President Muhammadu Buhari, and the efforts of the Minister for State for Petroleum, Dr. Ibe Kachikwu, and the Nigeria National Petroleum Corporation (NNPC) Group Managing Director, Dr. Maikanti Baru.

The deregulation by President Buhari is a great landmark. With this feat, it means that efficiency is what determines the margins. Dr. Kachikwu and Maikanti Baru, have said we are under-retailed. In Victoria Island for instance, there are only three fuel stations; if there is a small tightness in the market, there will be queues everywhere. What NNPC did was to invest in retails by placing the most margins in retail. This is what is happening now. The investment is huge; therefore if we manage our business properly, there will be returns to pay our loans.

With the current forex challenges, how do you source  your products?
Well, what we have been able to do in collaboration with NNPC which I must create an emphasis for because the last thing which people would want to see is the sale of petroleum at N145 per litre. For us here, we are selling at N142 per litre. The occasion has allowed us to be more efficient and competitive. I could decide to sell at N140 as long as I decide to make money.

Regarding forex, what NNPC has done is to discuss with the International Oil Companies (IOCs) that are producing the crude oil, and agreed with them about a certain portion of their proceeds which they hitherto sell to Central Bank of Nigeria (CBN). This is so that the apex bank can help them sell and exchange for naira, those proceeds will be delivered and made available to companies that have funds.
So today, why we have not seen queues in the filling stations is because NNPC is ensuring that adequate foreign exchange is made available to us at CBN rates. Yes we are deregulated, the deregulation is predicated on an exchange rate because of the economic situations we are going through at the moment, and the exchange rate is a little bit fluid. The parallel market, the interbank and the FMDQ are on different rates. NNPC has ensured that marketers access foreign exchange at official rate. This enables me to bring in petroleum products and enable me to offer the product at a price, which the public wants me to offer.

What have become of the outstanding N300billion dollar equivalent owed marketers?
Well, we are currently in discussion with the Ministry of Finance and the CBN. What you are referring to is what happened when naira was devalued. The exchange rate then was N195 to the dollar and that time the industry was deregulated. The template, which we imported stipulated that you import your petrol at an exchange rate of N195, and then sell at N86 per litre. Many of us did that and because Petroleum Products Pricing Regulatory Agency (PPPRA) and the Ministry of Finance were not able to pay us as at when due within 90 days, many of those payments were paid a year after.

Unfortunately for us, they paid us the naira at a time we were going through uncertain foreign exchange. Our banks did not access the dollars to liquidate exposures to their correspondence banks. They were trying to bring FX; maybe you are looking for $10 million, they will bring $250,000. That was what we were facing when naira was devalued from N195 to N285.

Those monies are sitting in our banks, and the banks are owing their correspondence banks. We cannot afford to lose money we got at N285 because that will be an outright loss for us and particularly our bankers. We are currently pleading with the Ministry of Finance and CBN to look into it because this is an emergency situation. What we are talking about here is N200 billion. I’m sure that there will be a solution by the side.

The CBN Governor recently said oil marketers have no reason to agitate or threaten to go strike because they are making enough margins from petroleum products. How would you respond to this?
We are not agitating to go on strike. The template says N285, however, the money I got last week, I got at N308. It is a small difference, but the template also gives us a bound to sell petrol between N140 and N145. That helps in a way, we are not discussing that. We are not concerned about what we will do today, but what had transpired before. It is the naira that we got when we were at N195 exchange rate, which our banks have not been able to access forex for. Those monies are still with our banks; and they are owing their correspondence banks. Banks now want to exchange those monies at N285 or N305, but we told them that if they do that it is at their own risk, because where will the shortfall come from. This is what we are asking the CBN governor to look into. We have invested billions of naira in this business.

The independent marketers and the indigenous players in this trade collectively have 75 per cent of the investment in this sector. They are Nigerians and they employ over 75 per cent of people. If those of us who are indigenous players are not encouraged to continue playing a key role in the sector, then you can imagine the unemployment rate it will create. Therefore, I am sure that the government will address it.