27 December 2015, Lagos – As Nigeria inches towards full deregulation of the oil sector, the National President of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), Francis Johnson, says its members are fully in support of the planned deregulation of the sector by the Federal Government. But he is quick to warn that the action should not result in handing over the common wealth of Nigeria to a few shylock businessmen out to further exploit Nigerians. Excerpts:
Deregulation of the petroleum industry means different things to different people – government, investors, marketers, etc. What does it mean to oil workers?
Deregulation is a universal economic concept that promotes free market enterprise. When the regulator relaxes regulation and permits market forces to determine the means of production and distribution of an economic product, deregulation is achieved.
While deregulation is desirable, it must be approached with caution and highest sense of good conscience. For us in the oil and gas industry, deregulation would have been a non-issue if the critical issues of legal, regulatory and fiscal reforms as posited in the Petroleum Industry Bill (PIB) were addressed.
Today, we are talking about deregulation of the downstream sector of the petroleum industry as a single item whereas what is required is a complete overhaul of both operational and policy frameworks in the industry.
The laws currently in operation cannot support the demands of the sector, because it is in dire need of reformation.
The 1968 Petroleum Act is what the industry is currently surviving on. How can the country rely on an obsolete body of regulations and still demand efficiency from an industry that has been stretched beyond its elastic limit? Why would Nigerians be talking of deregulation at all if we had a functional products pipeline operating at a user-fee basis?
If the nation had taken the intervention of PENGASSAN seriously enough in 2001 after the submission of the White Paper report on Supply and Distribution of Petroleum Products headed by the then Secretary to the Government of the Federation, Chief Ufot Ekaette, the country would not have the problems it is facing today.
The union, at the time, had called for a systematic review of all aspects of the supply and distribution of products, including regular turnaround maintenance, TAM, of the refineries.
Today, we are talking of shutting down the refineries for a year to carry out a comprehensive TAM. This is the action needed 15 years ago, while fuel importation lasts. By now, the country would have achieved self sufficiency in local fuel production and thin out the subsidy margin.
Some people say deregulation is the answer to the perennial fuel scarcity. Does PENGASSAN share this view?
Some say it is ‘the answer’ but we say it is only an answer. Deregulation is not an end in itself, but a means to an end. If we understand to that level, then part of the problem is solved.
Our stance has always been to put in place necessary structures that will enable and sustain the policy. When the sector has achieved full deregulation, there will even be a greater challenge than scarcity, namely consumer protection.
Post-deregulation, the first aspect of the policy that will be most felt is price liberalisation. That is the greater concern for us as a pressure group. It is not enough to deregulate.
What have we put in place to prevent collusion and predatory tendencies of operators? We do not have strong protection or cover for consumers’ in Nigeria.
See what we experience daily with service providers, in aviation, telecommunications, etc. We seem to be engrossed with the quest to deregulate the sector, but no one is paying attention to the public utilities, like the pipelines, jetties, depots and even refineries.
We seem to forget that the very reason for scarcity is the neglect and lack of maintenance culture with which public infrastructures were left unattended to for so long.
So, deregulation yes, but it’s just an aspect of addressing the myriads of problems confronting the sector.
Do you think the country is ripe for deregulation policy?
Same as what I said earlier. The unions are not against the policy in any way, rather deliberate steps should be taken to address weightier issues of employment, sectoral development, corruption, inefficiency and profitability for the Nigerian state.
In fact, the labour movement in Nigeria has been in the forefront of restructuring of the downstream sector for a long time.
Sometime ago, between 2000 and 2003, the Unions participated in the various interventionist committees set up by government to address the problems in the industry.
At a point, we proposed phased deregulation of the downstream sector to enable the Federal Government fix the ailing refineries, grant licenses to private refiners, stimulate investment drive, improve human capital capacity, institute legal and regulatory framework and a whole lot of institutional policy to engender sectoral development.
If the proposals were taken seriously, we definitely would not be where we are today 15 years after. So, we are not ready for full deregulation yet until those concerns are addressed, otherwise we shall be riding in the air.
Deregulation works better in a free market moderated by competition. With regulated fuel price of N87 per litre, how would the policy work with subsidy in place?
Deregulation and subsidy are two different regimes. No system ever works that way. It is either we deregulate or we subsidize. It can only be one of the two, and not both.
However, there was a moratorium for the subsidy regime when the Petroleum Support Fund, PSF, commenced in 2006. It was dependent on other variables including periodic TAM on the refineries to boost local production up to the point of complete sufficiency.
But, that has not been done. So, at what point can we now say we are ready for deregulation?
Then, we must be very careful with this overt capitalist approach of market forces determining everything in free enterprise, especially in a developing economy such as ours.
The regulatory agencies are not fully independent and inadequately funded, yet we desire to free the market to operators to feed on consumers? No! The union will not subscribe to that conspiracy against the Nigerian people.
The combined products supply from the country’s refineries cannot meet domestic demand. How would deregulation work under a products import regime?
The major challenge in the refineries is feedstock. Crude supply to the refineries must not only be systematic, but statutory.
The daily fuel consumption is between 30 and 32 million litres per day, with provision for strategic reserve. If capacity is boosted to refine 80% of the domestic demand, and work towards bringing on stream private refineries to complement the balance, why should we still bother about importation? Now, why I said earlier that we need to put up structures that will sustain the policy of deregulation?
Under a products import regime, government will only put in place a mechanism that monitors the price parity to prevent oligopolistic tendencies of operators.
There are strong arguments for and against deregulation of the downstream petroleum industry. What’s the way forward?
Straight away, the way forward is for government to show the will in eliminating inefficiencies and corruption in the sector by strengthening the regulatory agencies by establishing their independence for greater efficiency. This is where the much anticipated passage of the Petroleum Industry Bill (PIB) is important. Like I said before, the Unions are not averse to deregulation as a policy, but it must be approached taking cognizance of Nigeria’s socio-economic realities.
For deregulation to thrive, all regulatory issues and laws capable of frustrating its effectiveness must be removed. Don’t you think the absence of the PIB could pose a major problem? What do you think the government should do?
Absolutely! The Petroleum Industry Bill (PIB) remains the panacea for the myriads of problems in the industry. We have heard government say it will implement provisions of the Bill piecemeal in order of needs and priority.
We don’t know how that will play out. Our expectation is for the Executive arm to re-present the Bill to the National Assembly and take advantage of the majority of membership for accelerated passage. Graciously the Senate President has promised to work assiduously at passing the Bill.