Prince Femi Akinruntan, the Group Managing Director of Obat Petroleum who turns 40 on Tuesday spoke to Muyiwa Adeyemi (Head South West Bureau) on the business environment in Nigeria and challenges of building local refineries.
How will you describe business environment in Nigeria?
Business in Nigeria is now much more complex than it was before. We have a lot of challenges in our economy and in the system, in particular. However, the last one and half years have changed the face of commerce and the environment is getting better now. For many of us who do international business, we can now access Forex much more easily than what it used to be, and I give kudos to the Federal Government for creating a reliable level of stability which favors our business environment.
When did you become the GMD of Obat Group?
I have been the GMD of Obat Group for about seven years now. Actually, we have a few conglomerates, which comprise international businesses. As soon as my father, His Imperial Majesty, Oba (Dr.) Frederick Obateru Akinruntan, ascended the throne of our fore fathers, he handed full leadership to me. Nevertheless, it took him over 25 years to groom me for the role. I remember that I started attending international business meetings and conferences with His Majesty, and sitting in boardroom meetings to observe, as soon as I became a teenager.
What are the major challenges facing Oil and Gas business?
Apart from the Forex issue, Oil and Gas business is quite dynamic. You can project for six months and work within your projection if you are disciplined and hard working. Once you have mastered the trade, you can leverage on certain indices. Nevertheless, there are unforeseen issues here and there as well as global economic issues you have to contend with. Once you realize that you don’t have power over those international hurdles, you work around them to achieve your target. Most of our products are imported; from the beginning of a transaction you can calculate your profit, all things being equal. The bottom line is that Oil and Gas business is lucrative in Nigeria once you know what you are doing in terms of focus, integrity, resilience and discipline.
Why is it still difficult to have refineries in Nigeria, which is better for the country than importation?
I can assure you that Obat Oil believes that our country will have a great lift if we can have more refineries. However, the major challenge has been funding and guaranteed feedstock. Since 2006, Obat Oil began a process of constructing a refinery here in Nigeria. In fact, I make bold to say that we have played a leading role in efforts towards this in Nigeria. I accompanied His Majesty to the United States and UAE severally where we consulted at the highest levels, and injected much funds into feasibility and affiliated reports. I must state here and now that building and maintaining a refinery, either Modular or Grassroots, is a capital-intensive project. You need a great deal of financial muscle especially, Direct Foreign Funding, which is much cheaper than our local loan facility that you can access here in Nigeria because we all know what the interest rate here is. With good foreign financial and technical partners, you can easily access funds from abroad. I think it is better to fund such a capital-intensive project with foreign loan facility. If you do it with local funding, your cash flow will be very heavy and your payback period will be very long. I am not sure any bank in Nigeria is ready to offer such facility now.
Is that the major challenge militating against you having a refinery?
Not at all. We have foreign partners. Wood Mackenzie and Universal Oil Products (UOP) conducted our project analysis. Just after concluding all necessities in and out of Nigeria, our financing bank had problems in the US. We had been at advanced stages before the global economic meltdown and it seriously affected that bank which forced them to call it off. Since then we have been working to secure another foreign partner but the state of economy is not encouraging them to show interest in financing such a capital intensive project. I want to assure you that we have not given up on the project. Aside our refinery site in Ondo State, we have acquired 38 hectares of land at the Lekki Free Trade Zone, directly facing the Atlantic Ocean to build the refinery. Work is ongoing with our Polish partners to build the largest petroleum tank farm in the world, as a support facility for the refinery. We have one of the deepest drafts in Nigeria, which can berth large vessels, and it is perfect for our refinery. The site has a lot of advantages for our business.
As the owner of the largest privately owned tank farm in Africa, will you say Nigeria has enough stock of petroleum products to allay fears of scarcity?
Yes. I can tell you that at the moment, statistics show that we have over two hundred tank farms in Nigeria. It makes the nation quite formidable. Although, the majority of them are not as big as Obat tank farm but the good thing is that the Federal Government is concentrating more on bringing in PMS and they are supporting bulk traders like us to get petroleum products effectively. There is no time our tanks are not wet with PMS. We must commend the government for ensuring that petroleum products are very much available to the Nigerian populace. I don’t foresee scarcity of fuel now in Nigeria with ongoing proactive policies from the Federal government.
How has the Monetary Policy been affecting businesses in oil and gas?
The Monetary Policy of the government is the basis for taking business decisions and if the Monetary Policy is not business friendly, then people will reconsider their decisions in terms of doing business in Nigeria. Actually, it was tough, but you can see that the government is evolving a more formidable economy. We do not have any problem because we are adjusting to the dynamics of the economy and different reforms of the government. It is common sense that you have to shape up your business to fit into the Monetary Policy of the government because you have no choice but to abide with government decision and fit in to work effectively in the terrain.
Is government still subsidizing pump prices of petroleum products?
No, government is not subsidizing petroleum products now, but they give us the products at a fixed price and they allow us to sell at a fixed price too. The era of subsidy has gone and I can beat my chest to tell you that.
Are you marketers comfortable with that?
I can say it is good because you can plan your business properly and know what your margin would be in the long run, which limits a lot of business risks. However, it is better to allow the interplay of the forces of demand and supply. The Federal government may need to remove its hands and allow demand and supply to determine the prices of petroleum products in totality. As it is now, because of the monetary policy of the government, it is difficult for any indigenous firm to go on her own to import PMS, but I must mention that, government is giving us intervention through IOCs, to import PMS by ourselves. There are major Marketers that government mandates to sell forex to us directly like CBN is doing, this is also to ensure that we do not sell beyond the fixed price. In other words, government is still regulating prices of petroleum products through PPPRA.
With the regulation of prices, do you think foreign investors will want to invest in a refinery in a country where demand and supply is not determining prices?
You need to capture the ideology of a foreign investor. They have little stake in determining the business environment here. Their major concern is an assurance that they can recoup their injected funds with interest. Once we are not selling at a loss, they can’t kick against the status quo. There was a time, nobody could import without subsidy but now, there is no subsidy. The business environment is growing with lots of future prospects, and this is strong enough to convince any foreign investor in Oil and Gas business in Nigeria that whatever invested will be recouped.
Some oil marketing companies were recently indicted for subsidy scam, Obat oil was never mentioned, were you not invited to partake in the deal?
Many companies were indicted because the majority of them have not been in this business for a long time. They rushed into the business because of the scam and they have been swept off. Obat Oil has been in existence since 1981 and I have been in the business since I was growing up. The training from His Majesty, my father, is that you must be God fearing and you must avoid shady deals. If you are God fearing, you will not steal from the government or from any other person. You must be hard working and be contented with whatever you have. Whatever that is built on a solid rock will survive the challenges no matter how difficult.
How many outlets do you have now?
We have over 50 outlets, and we have just recently started expanding the number of outlets because of the recession. It is important for us to increase the bottom line. We want to trade more and generate more cash flow. You will soon begin to see more of our outlets in Lagos and Abuja.
As a young business executive, how do you feel running a multi million Naira business empire?
It is not easy because you wake up in the morning with a lot of task for each day to achieve. Most of my staff and I hardly sleep; we work round the clock. Most times, I sleep for less than four hours a day. At times you will come to the office in Lagos only to find yourself in London or Paris at the end of the day in a bid to attend a crucial meeting that just got scheduled. I move around the world to get businesses and attract more associates. I am up to the task because there is noting I have not seen in this business. I have been an Executive Director under my father’s watch, I have been a Manager under his watch, I have understudied him enough and I have seen him coming out of many challenges.
How have you been coping with the dangers posed to many businesses by fraudsters that are everywhere?
It is not a serious issue to us here because we know them once they come. We have been in this business and introducing anything strange or any dubious way of doing business will be rejected immediately. If you do cashew business, you should know the time of the year it is ripe. At that point, nobody can sell groundnut to you and call it cashew nuts. It is important that you keep abreast all the fundamental principles of your business. As a master of your business, no fraudster will come and tell you a strange story to buy into, unless you are also a fraudster.
What is your driving force?
His Imperial Majesty, Oba (Dr.) Frederick Obateru Akinruntan, CON, Paramount Ruler and Prescribed Authority, Olugbo of Ugboland has been my driving force. My father has a lot of energy and he is always calculating and drafting business goals. He is always on the move. I think that puts me on a running skate.