Oil companies this week began receiving part-payments of up to 40% of total debt owed, as government moved to reduce its arrears of about P1.2 billion, the first such payments since last June.
Several highly-placed oil sector insiders told BusinessWeek that government last week wrote to the four oil companies asking for audited sales volumes – the traditional sign that payments are imminent.
Between December 2016 and now, the local oil industry has been in a state of under-recovery – where pump prices are below actual prices incurred by oil companies in importing fuel. The National Petroleum Fund (NPF), which, among other duties, collects levies from motorists and is supposed to support the subsidy by paying the oil companies, is on its knees. For every litre of fuel motorists pay for, 13.5 thebe is remitted by oil companies to the NPF raising hundreds of millions of Pula annually, but the Fund only had P98 million as at March this year. Perennially threadbare, the NPF’s troubles have been worsened by its highly publicised legal troubles, involving an alleged P230 million money laundering criminal case.
Arrears owed to the oil companies climbed throughout 2017, despite four reviews that raised pump prices, including paraffin, by an average of P1.07 between March 2017 and May 2018.
This week, senior executives at the various oil companies confirmed that government had committed to making part-payments of up to 40% of arrears owed. By Wednesday, one company had already received a part-payment, while others reported that they expected transfers by next week at the latest. The funds paying off the oil companies stem from a P430 million injection into the NPF transferred from the Road
“Traditionally, once government asks for audited figures, the payments are ready to be made. This time, oil companies are expected to be paid about 40% of the debt outstanding,” one executive said.
Government’s failure to settle its bill with the oil companies has forced them to dig deep into their cash reserves and even source additional capital, often at premium rates. Engen, the only listed oil company, recently reported a P202 million drop in its cash reserves for 2017, attributing the fall to the NPF woes. “We are hopeful that the government will attend to the matter of the slate under-recovery refund without further delay,” directors at the company said. BusinessWeek has established that even as government eases its arrears with the oil companies, the pressure is still on pump prices with estimates that the current levels are P1.50 below par.
“The under-recovery has worsened despite the increase in May, because global crude oil prices are rising,” a highly placed industry insider said.
“We are still far from stable recovery.
“As crude prices rise, the arrears on under-recovery also rise.” Officials at the Ministry of Mineral Resources, Green Technology and Energy Security were yet to respond to BusinessWeek’s enquiries by Press time, while the minister, Eric Molale was unreachable in Mauritius where he is attending the week-long Africa Energy Forum.