Why there must be multiple regulatory bodies for petroleum industry
The Petroleum industry operates under two, even three distinct sub sectors, known as the downstream, midstream and upstream.
But the most critical sub sectors, (downstream and upstream) more engaging have more industry operational activities.
The downstream sector commonly refers to the refining of petroleum crude oil and the processing and purifying of raw natural crude as well as the marketing and distribution of products derived from crude oil and natural gas. The downstream sector reaches consumers through products such as gasoline or petrol, kerosene, jet fuel, diesel oil, heating oil, fuel oil, lubricants, waxes, asphalt, natural gas and liquefied natural gas and liquefied petroleum gas (LPG) as well as hundreds of petrochemical.
On the other hand, the upstream petroleum sector includes all petroleum exploration and extraction activities such as exploration, development and processing which take place prior to the shipment of stabilised crude oil, condensate or sales gas (including liquefied natural gas.
Upstream petroleum activities occur both onshore and offshore.
The idea of a single regulator for the sector runs at variance as well as against the policy direction of government as approved in the National Oil and Gas Policy in 2009 which provided for an Downstream and Upstream Regulator.
As the industry awaits the passage of the Petroleum Industry Governance Bill by the National Assembly, concerns have been raised by industry operators on the plan to stream line all regulatory functions in the sector into a single regulatory framework.
However, given the diversity nature of objectives ranging from guarding against systematic risk to protecting the individual consumer from fraud, it is possible that a single regulator might not have a clear focus in objectives and rationale of regulation and not be able to adequately differentiate between types of institutions.
The content of the Bill seeks to establishment of the Legal and Regulatory Framework, Institutions and Regulatory Authorities as well as guildlines for the operations of the Upstream and Downstream sectors of the National Petroleum Industry.
The Bill number 64, Volume 13 published in December, 2016 as index to legislative instruments specify this. But a single unified regulator may suffer from some diseconomies of scale. Once source of inefficiency could arise because a unified agency is effectively a regulatory monopoly, which may give rise to the type of inefficiencies usually associated with monopolies.
There will be job losses for sure in an economy that is not generating or creating jobs where decision for a single regulator is final. In the event that such decision is final, staff of the Petroleum Products Pricing Regulatory Agency (PPPRA) should become the nucleus of the downstream department of the single regulator as PPPRA is already strategically placed to carry out such function.
Also, not appropriate to concentrate too much power in one body where there are different players. A single regulator may not view things from the different dimensions they deserve and from the different viewpoints of the stakeholders.
A particular concern about a monopoly regulator is that its functions could be more rigid and bureaucratic than these separate specialised agencies. It is argued that another source of diseconomies of scale is the tendency for unified agencies to be assigned an ever increasing range of functions, sometimes called Christmas tree effect.
From the highlighted perspectives above, history is on the side of two regulators for the sector thus the single regulator model has been tried and found to be unsuccessful in the past.
Dennis Mernyi, Abuja.