Nigeria’s Oil Marketers Increase Borrowings by 76.5% to N3.0trn Post-Subsidy Removal.

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Nigeria’s Oil Marketers Increase Borrowings by 76.5% to N3.0trn Post-Subsidy Removal

The removal of fuel subsidies in 2023 has led to a significant increase in bank borrowings by petroleum marketers in Nigeria. According to Financial Vanguard findings, key operators in the sector borrowed over N3.0 trillion in the nine months ended September 2024, representing a 76.5% increase from N1.7 trillion in the corresponding period of 2023.

The Central Bank of Nigeria’s (CBN) Monetary Policy Rate (MPR) rose from 18.75% in 2023 to 27.50% in 2024, making borrowing more expensive for businesses. However, the sharp increase in petroleum product prices forced oil marketing companies to resort to bank borrowings to meet product procurement costs.

As a result, the companies recorded a significant growth in finance costs, rising to N156.9 billion in the nine months ended September 2024, representing a 78.9% increase from N116.083 billion in the corresponding period of 2023.

Despite the high cost of borrowings, the companies still recorded significant profit margins due to the huge rise in turnover driven by higher pump prices of gasoline across the country. The combined firms’ profit before tax (PBT) grew by 44.5% to N420.805 billion in the nine months ended September 2024, from N280.805 billion in the corresponding period of 2023.

The companies’ turnover also grew by 57.9% to N5.296 trillion in the nine months ended September 2024, from N3.355 trillion in the corresponding period of 2023, surpassing inflation at 34.8%.

Industry and financial analysts attributed the increase in borrowings to the high elasticity of demand for petroleum products, which enabled the companies to transfer their costs to consumers. They noted that the removal of fuel subsidies led to a sharp increase in petroleum product procurement costs, requiring huge working capital outlays that many operators could not afford, hence the resort to bank credit.

The analysts also noted that the increase in fuel prices led to higher capital requirements to maintain and grow volumes, resulting in increased borrowings. They stated that the final removal of Nigeria’s longstanding fuel subsidy marked the beginning of a new economic reality, significantly altering the country’s oil sector and leading to sharp rises in fuel prices, which spurred inflation to 34.8% in December 2024, the highest in 30 years.

On the outlook, the analysts expect impressive performance and increased dividend from the petroleum sector, driven by the encouraging trend since the beginning of last year. 

This, according to them, “is because of the encouraging trend since beginning of last year. Since 3rd quarter of 2024, distribution of petroleum products has nearly normalized meaning improving income for operators. Consequently, 2025 is even expected to be a better year for the industry in terms of return.

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