Forte Oil Nigeria Counts on Power to Boost Company’s Profits

LAGOS (Capital Markets in Africa) – Forte Oil Plc, a Nigerian fuel retailer that has invested in power production, expects a jump in income this year after expanding generation capacity during a payment guarantee by the government to electricity companies.

“Now we can be sure that whatever we generate will be paid for going forward,” Chief Executive Officer Akin Akinfemiwa said in an interview on Wednesday in Lagos, the country’s commercial capital. “It means that you can invest and expect to make money out of it.”

President Muhammadu Buhari’s administration in May approved a 701 billion naira ($2.2 billion) payment guarantee for power generation companies unable to receive due payment from electricity distributors, which last year paid only 27 percent of the 331 billion naira they were charged. The government also this month approved a policy that will increase investments in gas infrastructure and improve supply to power companies and industries.

Forte Oil, which acquired the 440-megawatt Geregu power station in central Nigeria in 2013 as the government sold electricity utilities to private investors, said the plant was close to full capacity in June, buoyed by the government’s assurance to pay for whatever power that it produces.

The company forecasts full-year net income of 8 billion naira, most of which will come from power. It reported a 50 percent profit decline last year to 2.9 billion naira as it curbed fuel imports because of lack of access to dollars as Nigeria’s foreign income fell amid lower prices and output of oil, its main export. 

Brent crude, which compares with Nigeria’s oil grades, fell to $48.26 per barrel at 8:14 a.m. in London, still above the $42.5 price on which the country’s 2017 budget is based.

On taking over the Geregu plant, Forte Oil invested about $100 million to overhaul its turbines, which increased generation to 435 megawatts in June from a low of about 145 megawatts, Akinfemiwa said. Low capacity utilization due to turbine disrepair, disruptions in gas supply and the accumulation of debt by electricity distributors, had hindered efforts “to drive up revenue’’ in the past, he said.

“Gas to power is imperative for our business and what that policy means is that enough gas will be harnessed for power generation” under the new gas policy, Akinfemiwa, 44, said. Dialogue initiated by the government with militant groups in the Niger River delta, home to the country’s oil and gas industry, led to a decline in attacks on gas pipelines, resulting in improved supply, he said.

The company expects income from the sale of lubricants to take second place as a foreign-exchange shortage and rising input costs make petroleum products marketing “challenging,’’ said Akinfemiwa. The fuel distribution and retail business is also set to get better with improved access to foreign-currency boosting gasoline imports, he said. 

Forte Oil’s shares, down 37 percent this year to become the worst-performing stock on the 171-member Nigerian Stock Exchange, rose 7 percent to 53.50 naira at the close in Lagos on Thursday. The stock has risen by 20 percent since April 18 when it announced its first-quarter profit doubled to 1.9 billion naira from 954 million naira.

Source: Bloomberg Business News