A Review of the Nigerian Energy Industry

Kachikwu, oil marketers agitate for liberalised downstream sector

Kachikwu, oil marketers agitate for liberalised downstream sector
*Fuel dispenser nozzle.

OpeOluwani Akintayo

06 February 2019, Sweetcrude, Lagos — The Minister of State for Petroleum Resource, Dr. Ibe Kachikwu and oil marketers have called for the liberalisation of the downstream sector as a solution to curb petroleum subsidy.

These petroleum marketers include the Major Oil Marketers Association of Nigeria, MOMAN, Independent Petroleum Marketers Association of Nigeria, IPMAN, and Depot and Petroleum Products Marketers Association, DAPPMA

According to them, until the downstream sector of the oil industry is fully liberalised, the sector subsidy on imported refined products will continue to be a recurring factor in Nigeria’s energy mix.

“The only option we have to come out of this subsidy issue is the liberalisation of the downstream oil sector. If we continue to subsidize products, we will continue to struggle as a nation”, Kachikwu had said in a statement on Tuesday.

Chief Executive Officer/Executive Secretary, MOMAN, Mr. Clement Isong, said the downstream petroleum industry regulations should be deregulated in line with international best practice.

“We recommend that government should deregulate pump prices and focus on enforcing compliance with adequate regulations on health, safety, environment, and quality.”

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Isong said only total deregulation would save the situation. Contending that doing so will help attract more investments to the oil sector, he said that only deregulation would encourage the establishment of private refineries and other related infrastructure in the country.

Speaking further on how deregulation of the sector will impact on other aspects of the nation’s economy, he said, “Deregulation will also enable the Nigeria Railway Corporation to lift more products from the South to other parts of the country to reduce transportation.”

He stated that when private sector investors invest and build more refineries, products will always be available and this will be to the advantage of the common man.

He also noted that deregulation would also address frequent shortages of products as marketers would source for forex at competitive rates to import in products, not depending on government.

The MOMAN scribe said that the nation’s current business model for the distribution of petroleum products was unsustainable.

“We feel the time is now to encourage a well-informed and honest debate among ourselves as Nigerians on our downstream pricing policy, showing sensitivity to the fears of Nigerians and the challenges we face as a people and as an economy to arrive at an equitable but sustainable business model,” he said.

He said the implementation and compliance with these regulations, the concept of cost recovery and competitive investment returns will ensure the sustainability of the downstream petroleum industry.

He said, “As the market players grow their business, they will increasingly become exposed to risk management challenges and will move their capital to areas where return matches the risks.

The Executive Secretary, DAPPMA, Mr. Olufemi Adewole, said that rise in the landing cost of petroleum products has renewed the calls for the full deregulation of the downstream sub-sector of the nation’s oil and gas industry, ’

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He said that the Nigerian National Petroleum Corporation, NNPC has been the sole importer of petrol into the country for more than a year as private oil marketers stopped importation due to shortage of foreign exchange and increase in crude oil prices, which made the landing cost of the product higher than the official pump price of N145 per litre.

“In the downstream sector, the NNPC continued to ensure increased Premium Motor Spirit supply and effective distribution across the country. In pursuit of sustained seamless distribution of petroleum products and zero fuel queues across the nation, the corporation has continued to maintain an eagle eye on the daily stock of PMS,” the corporation said in its latest monthly report.

“Federal Government had resorted to subsidy regime following an increase in the landing cost of petrol, with the NNPC, which was responsible for about 90 percent of the importation of the product, bearing the latest subsidy cost on behalf of the government.

`The Group Managing Director, NNPC, said that the Federal Government had been resisting intense pressure to increase the pump price of petrol, noting that the landing cost of the commodity was N171.4 per litre, when oil price was around $64 per barrel.

DAPPMAN scribe said the process of deregulation would carry the advantage of opening up the sector to competition “where the players are able to participate at every segment of the value chain and the removal of entry barriers in the supply and distribution of petroleum products.”

He said, “Every player is given the opportunity to refine or import petroleum products for use in the country so far as the products so refined or imported meet quality specifications.

“The appeal of the deregulation of the downstream sector is clear in that it would encourage efficiencies in the sector. However, bold reforms will be necessary to allow for private sector entry into the sector.

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“These reforms would include downstream capacity enhancements and safe operations, building up strategic product reserves, improved sector logistics, private sector investment in sector infrastructure, permanently removing all petroleum product subsidies, among others.”

“With the landing cost as it is right now, we can’t bring in products because we can’t absorb the subsidy, and we don’t have access to foreign exchange.

“If the government takes the bull by the horn and deregulate the sector, then we will see private marketers do what we know best to do.”

Also, the National President, IPMAN, Mr. Chinedu Okoronkwo said total deregulation of the downstream sector would attract more investment, generate more jobs and reduce the pressure on foreign reserves.

Okoronkwo stressed the need for total deregulation and liberalization of the downstream market to address the persistent challenges in the oil and gas industry.

According to him, it is expected that deregulation of the downstream will lead to improved supply, competition and eventually drive down pump prices, as well as encourage investments in refineries and other parts of the downstream sector.

He said that the challenges with procuring forex significantly affected marketers’ ability to import petrol in recent times. Thus, by liberalizing the market, the government expects importers to find ingenious ways to procure forex from autonomous sources and improve product availability.

It would be recalled that Sen. Garba Marafa, Chairman, Senate Committee on Petroleum Downstream, said total deregulation of petroleum downstream sector remained the best option to salvage the nation’s economy.

Marafa stated this in an interview with the newsmen on the sidelines of the 16th Nigeria Oil and Gas conference in Abuja that the Senate had consented and moved for total deregulation of Premium Motor Spirit, PMS.

According to him, total deregulation is the solution and the 8th Senate is determined to give Nigerians a direction in the downstream and curb the corruption in the sector.

“We are addressing the governance aspect of the Petroleum Industry and Governance Bill (PIGB) because we know that PIGB will address the challenges confronting total deregulation of the downstream sector.

“The civil society and labour unions should frown against subsidy regime and embrace total deregulation.

“If you combine NNPC and marketers’ subsidy claims, you will see that it is over N9 trillion in the last 10 years. This is almost twice of our national budget.

“I wondered if the common man gets value for this subsidy. If the money was directed into other infrastructure development, we would have gone far in infrastructure building.

“Diesel has been deregulated and we are better off; why are Nigerians afraid of subsidy removal? Right now, the government is indirectly paying subsidy.

“We have to be realistic and take the right decision; we have to choose between building more infrastructures and consuming subsidy.

“Deregulation will promote local refining of crude oil and create more value and generate employment,’’ he said.

Marafa explained that competition would push down prices of petroleum prices in the long run and that hypocrisy of the elite was regulating the price.

“All the people benefiting from fuel importation will never let deregulation to happen,” he said.

“Investment is lacking and we are trying to build refineries, we are talking to financiers, we have found them but we are yet to agree on terms.

“Hopefully, by early next year, we will complete the financing agreement, that is one of the solutions to the problems,’’ he said.

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