Nigerian Petroleum Marketers Face Surging Borrowing Costs Amid High Inflation

By DAYO ADESULU

Nigeria’s leading petroleum marketers have recorded a staggering rise in bank borrowing, with loans surging by 76.5% to over N3.0 trillion in the nine months ending September 2024 (9M’24), up from N1.7 trillion in the same period of 2023 (9M’23). This sharp increase is driven by rising procurement costs and high interest rates, as the Central Bank of Nigeria (CBN) raised the Monetary Policy Rate (MPR) from 18.75% in 2023 to 27.50% in 2024, significantly affecting business financing.

Fuel Prices Drive Higher Borrowing and Operating Costs

Following the final removal of fuel subsidies in 2023, petroleum product prices skyrocketed, forcing oil marketing firms to rely heavily on bank loans to meet procurement costs. This has led to an unprecedented rise in finance costs, which climbed by 78.9% to N156.9 billion in 9M’24 from N116.083 billion in 9M’23.

Profits Surge Despite High Costs as Consumers Bear the Burden

Despite soaring operational expenses, major petroleum companies have reported substantial profit growth. Their combined profit before tax (PBT) jumped 44.5% to N420.805 billion in 9M’24 from N280.805 billion in 9M’23. Turnover also increased by 57.9% to N5.296 trillion, outpacing Nigeria’s 34.8% inflation rate, suggesting that oil marketers have effectively passed on rising costs to consumers.

Breakdown of Key Players’ Financial Performance

Top Borrowers

• Oando Plc: Borrowing surged by 238% to N2.773 trillion (9M’24) from N818.3 billion (9M’23).
• Aradel Plc: Loans increased by 55.6% to N96.399 billion from N61.971 billion.
• Total Energies: Borrowings rose 18.9% to N100.505 billion from N84.5 billion.
• Eterna Plc: Marginal growth of 0.01% in borrowings to N42.691 billion.
• Conoil: Borrowings decreased by 61.7% to N12.272 billion.
• MRS Oil: Did not borrow in 9M’24 after taking a loan of N1.411 billion in 9M’23.

Finance Costs Rise Sharply

• Eterna Plc: Highest increase in finance cost (477.7%) to N5.084 billion.
• Conoil: Finance costs jumped 105.5% to N2.476 billion.
• Oando: Finance costs increased by 70.1% to N131.129 billion.

Profit Before Tax (PBT) Growth

• Aradel Plc: PBT surged 186% to N321.6 billion.
• Total Energies: Increased by 151.8% to N41.850 billion.
• MRS Oil: PBT rose 88.9% to N9.374 billion.
• Eterna Plc: PBT declined by 51% to N1.679 billion.

Industry Analysts Weigh In on Market Trends

Demand Elasticity and Cost Transfers

Industry experts note that petroleum products have high demand elasticity, allowing marketers to shift increased costs to consumers. The removal of subsidies and the rise in fuel prices have significantly altered Nigeria’s oil sector, pushing inflation to a 30-year high of 34.8% in December 2024.

Impact of Deregulation on the Petroleum Sector

Financial analyst David Adonri highlighted that deregulation enabled oil companies to adjust pricing, boosting profitability despite increased costs. Meanwhile, investment expert Ambrose Omordion attributed revenue spikes to higher-margin products and improved distribution following the removal of fuel subsidies.

2025 Outlook: Continued Growth Expected

Market analysts predict a strong 2025 for the petroleum sector, driven by improved distribution networks and reduced forex exposure with the entry of Dangote Refineries. However, they caution against overestimating profit margins due to inflation adjustments.

Conclusion

The deregulation of Nigeria’s petroleum sector has led to significant financial shifts, with increased borrowing, rising costs, and higher profit margins. While the sector continues to adapt, consumers are bearing the burden of increased prices. As competition intensifies, market stability and economic policies will play a crucial role in shaping the industry’s future.