22 August 2015, Lagos – The fixing of petroleum products’ prices is denying the country investment in the downstream sector of the oil and gas industry and depriving Nigerians certain benefits from the country’s petroleum resources, industry stakeholders said on Thursday.
The Federal Government currently regulates the prices of Premium Motor Spirit, otherwise known as petrol, and kerosene, and subsidises their prices to enable Nigerians to get the products at the regulated prices.
The regulated price of petrol is currently N87 per litre while that of kerosene is N50 per litre. But the products are sold above the regulated prices in parts of the country, despite government’s subsidy.
The Group Managing Director, Nigerian National Petroleum Corporation, Dr. Emmanuel Kachikwu, in his address at the National Association of Energy Correspondents’ conference in Lagos, said, “Subsidy creates distortions in government revenue distribution as a result of round-tripping and unnecessary carry-over of expenditures every year in a way that is difficult for government to control or sustain.”
He noted that subsidy accounted for 20 per cent of the Federal Government budget in 2013.
Kachikwu, who was represented by the acting Managing Director, National Engineering and Technical Company Ltd, Mrs. Bola Ashafa, said, “Deregulation policy is essential to the transformation and growth of the downstream sector of the oil and gas industry.
“Speedy implementation of this policy in Nigeria would go a long way in encouraging inflow of private sector and international investment; ensure that Nigerians derive fair deal from the abundant petroleum resources in the country through fair product prices for consumers and full cost recovery and reasonable margins for operators.”
He said the implementation of the policy would entrench efficiency in product usage; product availability and effective competition among investors, hence putting an end to product shortage.
He, however, said critical enablers such as security of the product and distribution infrastructure must be assured to guarantee the availability of the petroleum products at affordable prices.
The NNPC boss said, “We are fully committed to reforming the existing refineries and boosting domestic petroleum product supply. Currently all the refineries have been re-streamed but are yet to attain optimal capacity.
“Removal of price control mechanisms is deemed imperative to ensure full growth of the sub-sector by allowing private stakeholders to complement the government efforts in developing the industry.”
He said the NNPC would continue to maintain stability in the supply and distribution of petroleum products nationwide to avoid energy crisis.
According to him, the corporation has enough stock of petrol to service the country for 25 days at a national consumption rate of about 40 million litres per day.
“Unfortunately, the stock is not immediately available across the 21 depots in view of the challenges facing the distribution pipelines facilities,” he said.
The Chairman and Managing Director, Mobil Oil Nigeria Plc, Mr. Tunji Oyebanji, said, “What we are talking about is deregulation of the prices; for the prices to be determined by market forces,” but that “there has to be government regulation in terms of standard and quality.”
He noted that there was a time in the country where prices were not fixed by the government.
According to Oyebanji, the lack of full deregulation generates uncompetitive climate and lack of investment and innovation.
He said, “We are looking for a sustainable industry where pricing is liberalised, leading to steady supply, increased profitability, large-scale investment in refineries, increased competition, and an industry where technology plays a role. But currently there is no incentive.”
He said the government had yet to pay them their subsidy arrears.
On his part, the Director-General, Lagos Chamber of Commerce and Industry, Mr. Muda Yusuf, decried what be called the absence of clear policy direction from the government with respect to the oil and gas industry.
According to him, there are people who want to invest in the industry but who are being discouraged by lack of a clear policy direction.
“It is important that we quickly deregulate the downstream sector to attract investment,” Yusuf said.
The Managing Director, NIPCO Plc, Mr. Venkataraman Venkatapathy, said the move from a regulated market to deregulation should be done in a phased manner, adding, “We must take a holistic approach rather than one pre-determined solution.”