Nigerian’s leading energy firm, Forte Oil, has announced plans to sell its upstream services and power businesses in Nigeria and divest from Ghana in order to concentrate fully on its core fuel distribution operation in Nigeria.
Forte Oil, majority owned by billionaire Femi Otedola, had also been in talks with a major refinery to form a strategic partnership for local refining of petroleum products.
Forte oil did not give a reason for the change in direction but said the downstream sector in Nigeria had gone through changes in recent years and was expected to evolve further.
It added that the industry has operated under a tightly regulated fixed margin but could be deregulated especially given its impact on the Nigerian currency and import bill.
With a total market value of N57.3 billion, the company didn’t announce how much revenue it will generate from the sale of its business as the interest costs attributable to the businesses to be sold stood at N2.2 billion as of December 2017.
Forte Oil said proceeds from the divestment would be used to expand its downstream fuel distribution business and to invest in storage infrastructure.
“The changing landscape also suggests backward integration would be essential to remain competitive within the sector, particularly in the face of impending deregulation,” it said in the notice.
However the company announced plans to seek shareholder’s approval for the sale on May 23 before appointing advisers for the project.
The change comes as a shock for a company that newly publicized plans to aggressively pursue opportunities along the energy value chain as Akin Akinfemiwa, Ceo of Forte oil had previously told stakeholders in Lagos last year about the company’s plan to acquire marginal oilfields to boost its upstream assets.
In 2016, the Nigerian government increased petrol prices by 67 per cent to N145 to cut subsidies paid for fuel imports. The development came after a plunge in oil prices hit state revenues, caused dollar shortages and halted infrastructure projects with firms laying off tens of thousands of workers.
The hike however did not prevent gasoline shortages which have plagued Nigerians for much of 2017 and 2018.
Forte Oil has two storage depots, five aviation fuel depots and a lubricant blending plant. It also has 100 trucks for distribution of products across its more than 500 retail outlets which would require a lot of capital to expand.
Its 57-percent owned power unit, Amperion Power Distribution Company, has a lot of receivables due from the state-backed offtaker and its upstream unit has contributed less than 7 percent to group earnings over the past three years.
The unit in Ghana has declared losses over the last three years and has uncollectible trade debts due to tough economic conditions and currency devaluation in the cocoa-rich country.
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