*Pricing control, subsidy still order of day – Marketers *PPPRA says market will determine prices, recants *Govt doesn’t need PIB to deregulate, Kyari insists *N43bn spent as subsidy in January 2020
CHUKS ISIWU, IKE AMOS & OPEOLUWANI AKINTAYO
Lagos/Abuja — Despite the Federal Government declaring an end to subsidy for petrol and the deregulation of the downstream petroleum business earlier in the year, stakeholders are questioning the authenticity of this proclamation.
Some stakeholders believe the government was only “playing to the gallery” and has not really instituted full deregulation in the downstream petroleum sub-sector.
Group Managing Director of the Nigerian National Petroleum Corporation, NNPC, Mallam Mele Kyari, declared an end to petrol subsidy and the deregulation of the sub-sector in April this year. “There is no subsidy and it is zero forever. Going forward, there would be no resort to either subsidy or under recovery of any nature. NNPC will play in the marketplace; it will just be another marketer in the space. But we will be there for the country to sustain security of supply at market price,” Kyari had stated.
According to him, the Federal Government has eliminated subsidy, which the NNPC also refers to as under recovery.
The government backed the move through a regulation released by the Petroleum Products Pricing Regulatory Agency, PPPRA. The document, which removed price cap on petrol, was titled “Market Based Pricing Regime for Premium Motor Spirit (PMS) Regulations, 2020” and released on June 4, 2020. It said market forces would determine petrol price. But, in a sort of contradiction, PPPRA negated the ‘Market Based Pricing Regime for Premium Motor Spirit (PMS) Regulations, 2020,’ when it also directed that petroleum products marketers were not allowed to fix the price of products.
Petroleum products marketers are wondering why this twist and confusion. They say there is so far nothing like government having removed price cap for petrol or market forces determining the price of the product, given that despite the new arrangement, the PPPRA still sets prices.
Some industry watchers said the government may have made the deregulation declaration because of what they referred to as sustained pressure from local pressure groups and some foreign financial institutions to fully deregulate the downstream business.
Many downstream oil and gas sector operators are also clamouring for the passage of the Petroleum Industry Bill, PIB, into law if the government was serious about deregulation.
Pricing control, subsidy still order of day
Reacting to the development, the Chairman, Major Oil Marketers Association of Nigeria, MOMAN, Mr Tunji Oyebanji, said the government statement on deregulation is confusing, especially since control pricing, absorbed cost and subsidy are still the order of the day.
“Government needs to clarify what they called deregulation because it is not yet clear to us with all the legislation still in place. If the government really wants to deregulate, they have to abrogate all the legislation-made bottlenecks,” he stated.
Oyebanji called on the government to create an enabling environment for businesses to thrive, as business should be left to investors, adding that the “most pathetic thing is that government has limited capacity to run it (the business). He also emphasised the need to attract foreign investments in the downstream sub sector.
Oyebanji stressed that the oil price collapse has exposed the country to financial stress, stating that this is the right time for the government to hands off business and focus more on governance and providing policies that would enable investment to thrive.
The MOMAN boss also maintained that there are huge backlogs of subsidy monies running to billions of naira that the government is yet to pay to marketers, which has led to the Asset Management Company of Nigeria, AMCON, taking over about thirty companies due to their inability to pay back loans they collected from banks. He also said many multi-nationals in the downstream sub sector have sold their stakes and left the country.
He lamented that the subsidy that should be paid within forty five days now extend to over three years, making so many businesses to go bankrupt due to financial crunch.
According to him, it is only when the government takes its hands off importation of petroleum products that the issue of subsidy will be a thing of the past.
On the recent announcement by the PPPRA of licenses being issued to major oil marketers for fuel importation, Oyebanji stated that the licenses have always been there, but that some of the marketers only stopped importing when the government could not fulfill its part in subsidy payment.
He revealed that the ex-depot fuel prices was reduced by NNPC because private firms were now bringing in products, which eventually would lead to price crash but the majority could not import due to foreign exchange constraints.
“Real big time investment is needed in the downstream sector. The money used in paying subsidy can actually bring this dream into reality,” he said.
Moreover, he emphasised that a simple statement on deregulation as issued by the NNPC Group Managing Director or the Executive Secretary of the PPPRA was not sufficient enough to bring about regulation.
Wunmi Iledare, a professor of Petroleum Economics, described the deregulation as a great stride, but noted that if marketers were to sell products at market price, dictated mostly by crude oil price, exchange rate and margin, the PPPRA would have no role.
He said only the president and the National Assembly could deregulate for such exercise to pass the true test of time, adding that the passage of the Petroleum Industry Bill, PIB, was important in giving authority to the exercise. “There must be an Act to deregulate or an annulment of any existing institutions controlling prices of petroleum products,” he stressed.
Nigeria doesn’t need PIB to deregulate, says Kyari
NNPC’s Group Managing Director Kyari, however, replied those clamouring for passage of PIB before deregulation. According to him, the downstream petroleum sub sector does not need the Bill to deregulate.
In an interview with Premium Times, Kyari said deregulation is “purely a policy issue”.
“You don’t need the PIB to go ahead with the deregulation. This is purely a policy issue”, he said.
He said the NNPC will be one of the companies that would be regulated as there will be an oversight by the regulator over the Corporation itself as a business and one of the players in the market.
“I will not speak to the issue of NNPC’s role under the deregulated environment. I also did speak about liberalizing the price of PMS (premium motor spirit) for the simple reason that the NNPC is in the receiving end,” he said
Although he said government has agreed to liberalise the prices of petroleum products as the market should be allowed to determine the prices, the PPPRA merely days after, for the second time in the year, slashed pump price for petrol, pegging price band between N121.50 to N123.50 per litre.
“When some people say deregulation should be included in the PIB, I don’t agree. It is a policy matter. We do not need a PIB to liberalise the prices of petroleum products. It was never in any law that we must have the price of petroleum products in the law. It does not exist”. He said he agrees that the Petroleum Products Pricing Regulatory agency should oversee the price modulating mechanism,” Kyari said..
He continued: “The price modulation is simply a mechanism that will ensure the ordinary people are not exploited. It is mechanism that gives guidance so that people don’t do what they should not do, which is to sell at prices that are out of the market”.
“No country folds its arms and allow the things to go wrong before intervening. Even in advanced countries where there are liberal economies, there is some form of regulation in the context of nobody being given subsidy. But one cannot do things one should not do”. “If the product is produced here, market forces will naturally prevent you from selling at any price that you want”.
“But, we are not a regular economy. We have transportation issues and other hindrances to the movement of products across the country. That means we will continue to have institutions around that will ensure we get the right price in the market. Yes, engagements with stakeholders are necessary, but, it is a policy issue. The solution is to have alternatives in the form of compressed natural gas that will make fuel cheap in the country”.
“That is why we are pursuing a national gas policy that will help provide the alternative”. “Gas brings national development. It is the biggest enabler. Oil brings cash, but gas brings development through power, industries, and other things that are built around gas. We are focused on delivering a number of projects”.
PPPRA recants, insists market can’t fix fuel price
In a latest development on the deregulation issue, the PPPRA insisted that petroleum products marketers are not allowed to fix the price of Premium Motor Spirit, PMS, also known as petrol.
This is a clear negation of its ‘Market Based Pricing Regime for Premium Motor Spirit (PMS) Regulations, 2020,’ released June 4, 2020, which effectively removed the cap on the price of PMS, and which also allowed the price to be determined by market forces.
In a statement in Abuja, Executive Secretary of the PPPRA, Abdulkadir Saidu, explained that its role in the determination of the monthly price for PMS would be advisory, while the price it would be reeling out would serve as a guide to marketers.
He stated that the ‘Market Based Pricing Regime for Premium Motor Spirit (PMS) Regulations, 2020,’ published June 4, 2020, does not confer on marketers the power to fix prices for the product as they deem fit, but should rather, rely on guiding prices that would be advised by the PPPRA according to market realities.
He noted that the PPPRA shall monitor market trends and advise the Nigerian National Petroleum Corporation (NNPC) and oil marketing companies on the monthly market-based guiding price, which shall include the indicative retail price at which the product shall be sold across the country.
According to him, in a deregulated market, the role of a regulator in monitoring and regulating activities in the sector cannot be over-emphasised.
He said, “It would be recalled that the removal of Premium Motor Spirit (PMS) price cap and implementation of a market-based pricing regime was first announced by the Honorable Minister of State for Petroleum Resources, Chief Timipre Sylva, in March 2020. This was followed by PPPRA’s publication announcing the Regulation on the market-based pricing regime, thus creating a legal framework for the policy.
“The Honorable Minister had earlier stated that the Federal Government will continue to monitor the price of petroleum products and advise on monthly guiding prices that guarantee reasonable returns to Operators while ensuring consumers pay appropriate prices in line with market reality and are not overcharged.
“The Honorable Minister, in his statement, further stressed that the government’s role in a deregulated economy was to provide, through the operation of the Petroleum Products Pricing Regulatory Agency, a pricing mechanism to create a market-driven price regime.
“For the avoidance of doubt, it is instructive to state that no private individual or group has the mandate to fix prices of petroleum products, however the statutory regulatory body is saddled with the responsibility of advising guiding prices.”
N551bn paid as subsidy on petrol in 2019 – NNPC
Meanwhile, the Federal Government, through the Nigerian National Petroleum Corporation, NNPC, paid N551.22 billion as subsidy – also called under-recovery by the NNPC – on Premium Motor Spirit, PMS, also known as petrol, in 2019.
However, the amount paid as subsidy or incurred for under-recovery in 2019 represented a decline of 24.58 per cent when compared to the amount recorded in 2018, NNPC said.
In January this year alone, according to the NNPC, N43.306 billion was spent by the government to subsidise petrol. .
In its Monthly Financial and Operations Report for December 2019, the corporation also revealed that it received N1.469 trillion as payments for domestic crude oil sales, while it remitted N664.147 billion to the Federation Account in 2019.
Giving a breakdown of the amount paid as subsidy in 2019, the NNPC stated that in January, February, March, April, May and June, N40.53 billion, N2.876 billion, N13.34 billion, N104.35 billion, N102.34 billion and N30.64 billion were recorded as subsidy respectively; while in July, August, September, October, November and December 2019, under-recovery of N93.69 billion, N42.93 billion, N31.41 billion, N29.31 billion, N33.19 billion and N26.63 billion were recorded respectively.
The amount incurred by the NNPC on under-recovery represented 37.5 per cent of the N1.469 trillion earned from domestic crude oil sales; while the under recovery also represented 83 per cent of the N664.147 billion transferred by the NNPC to the Federation Account.
Discrepancy in figures
However, it what appears as a discrepancy, Senior Special Assistant to the President on Niger Delta Affairs, Senator Ita Enang, had in April 2020, disclosed that the Federal Government spent N1.5 trillion to subsidise petrol in 2019.
Enang, who disclosed this in a communiqué issued after a consultative meeting between a Federal Government team led by the Office of the Senior Special Assistant to the President on Niger Delta Affairs and the Association of Artisanal Local Refineries Operators in Nigeria, stated that that the amount incurred as subsidy was as a result of the fact that the commodity was imported at points where the landing cost were higher than the regulated price of the commodity in Nigeria.
He also warned that with the current crash in the prices of crude oil in the international market, the Federal Government would be faced with dwindling revenue from crude oil sales and other barter arrangements, which would make it impossible for the country to sustain the subsidy regime.
He said, “Whereas the price of crude oil has drastically dropped to the twenties dollar per barrel, there will be great cost differentials if we still ship very cheap crude abroad, pay export shipping cost and incidentals, get them refined abroad and ship back to Nigeria, paying another shipping and landing, agencies and incidental cost, including fuel subsidy.
“Whereas with the crashed cheap price of crude oil, Nigeria will not have enough revenue from crude sales or any batter arrangement to sustain the subsidy regime currently operating.
“Whereas the import of refined petroleum products, indeed PMS in particular has more cost element of marine transportation, Nigeria Ports Authority, NPA, charge for export/import handling, Nigeria Maritime Administration and Safety Agency, NIMASA, charges, and indeed other charges relating to in and maritime transportation.”
N43bn spent on subsidy in January 2020 alone
In its Monthly Financial and Operations Report for January 2020, the NNPC revealed that N43.306 billion was spent to subsidise petrol in January this year.
According to the NNPC report, the amount incurred on subsidy, otherwise called under-recovery, rose by 62.63 per cent from N26.629 billion recorded in December 2019.
The amount was also N3.5 billion less, or an equivalent of 92.4 per cent of the N46.85 billion the NNPC remitted to the Federation Account in the month under review.
The NNPC explained that to ensure continuous PMS supply and effective distribution across the country, it supplied a total of 1.20 billion litres of PMS in January, translating to 38.68 million litres per day in the downstream sector.
The corporation noted that under recovery was deducted from proceeds from domestic crude oil sale.
It added that it would continue to diligently monitor the daily PMS stock to achieve smooth distribution of petroleum products and zero fuel queue across the country.
According to the NNPC, while the cost of crude oil allocated for domestic consumption stood at N184.5 billion, it received N133.995 as payments for crude oil in January 2020; from which under recovery of N43.306 billion was deducted.
In addition, the NNPC stated that N1.71 billion-worth of petroleum products was stolen in the month under review; while N5.48 billion was spent on pipeline repairs and management.
Specifically, the NNPC explained that a total of 60 pipeline points were vandalised during the prior, representing about 50 per cent increase from the 40 points vandalised in December 2019.
It added: “No pipeline failed to be welded nor ruptured. ATC(Atlas Cove)-Mosimi and Mosimi-Ibadan axes accounted for 50 per cent and 17 per cent of the breaks respectively while all other routes accounted for the remaining 33 per cent.
“NNPC in collaboration with the local communities and other stakeholders continuously strive to reduce and eventually eliminate this menace.”
Furthermore, the NNPC said it earned N4.575 billion from gas and other sources; while N91.717 billion was spent on Joint Venture Cost Recovery and government priority projects.
To this end, the corporation declared a trading surplus of N1.87 billion in January 2020, a 65 per cent drop from the trading surplus of N5.28 billion recorded in December 2019.
It said: “The 65 per cent decrease in the month arose due to 17 per cent drop in the cumulative performance of strategic business units (SBU) in the upstream and midstream as well as over 100 per cent deterioration in downstream activities.
“These weak positions along with deficits of the refineries, Ventures and CHQ (Corporate Headquarters), led to a decreased surplus to the group.”