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Serial fuel scarcity looming as tank farm owners divest to retailing

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Indications have emerged showing that come next year, serial scarcity of petroleum products may hit the nation. Business Hilights can authoritatively report.

The implication of the massive divestments from tank farm to retails is that only a few will remain in the business, meaning that whenever the few farms run dry, scarcity will set in.

This is based on a combination of factors. Top in the is the fact that many banks are cash squeezed and their deep pockets in honouring letters of credit are becoming shallow due to recession and rising nonperforming loans.

Another factor is the fact that the cost of maintaining tank farm facilities due to their highly corrosive nature is frustrating the investment from time to time.

Aside the above, the intractable challenge of bad port access road causing truck accidents with loss of products have also been considered by the operators before divesting to retail division of the industry.

There is also fear of possible rehabilitation of the refineries or sale to capable hands that can put them in order within months.

However, the key reason behind the massive shift to retail business which has forced the capacity utilization of the tank farm facilities to drop to 80 per cent is the discovery of the fact that retail division gives quick cash and return on investment.

Only recently in an interview, former Executive Secretary of the Petroleum Products Pricing Regulatory Agency, Mr. Reginald Stanley, “The market fundamentals provide support of going into the retail side of the business. Now, does it support building tank farms? I will say categorically no! The days of tank farms are gone. Today, the capacity utilisation of tank farms in the country is about 20 per cent. That means 80 per cent of tank farms in the country are lying idle.

Continuing, he said “I dare say that some of those tank farms will be broken down and sold out because the capacity to engage what we have today is too large for the market. However, when you go down the retail part, there are many opportunities.”

On the pricing of the PMS at filling stations, he said the partial deregulation of the product had engendered stiff competition among marketers.

 “The Federal Government has partially deregulated the downstream petroleum sector and has put the price of the PMS at a maximum rate of N145 per litre. It has also allowed a band in which marketers can go up or down. But we are in the heat of competition; so if you go up and the guy next door to you is at N145, you are out.

“But if you are efficient and can stay within the band, you will attract customers. So, Emadeb is a price-taker and must play within what the market is offering. Therefore, as a player in the downstream sector, you must make sure that you are efficient and within your retailers’ margin, you can play around on what will be of good impact to the public.”

The ex-PPPRA boss spoke during the inauguration of Emadeb Energy Services Limited retail outlet in Abuja.


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