Oil mar­keters ask FG to back down­stream dereg­u­la­tion with law

… as Nige­ria spends $63bn on sub­si­dies in 12 years

Business Day (Nigeria) - - FRONT PAGE - ISAAC ANYAOGU & EN­DURANCE OKAFOR

The Nige­rian gov­ern­ment says it has dereg­u­lated the pe­tro­leum down­stream sec­tor since March to al­low oil mar­keters re­sume im­por­ta­tion and sale of petrol, but mar­keters say with­out the req­ui­site leg­is­la­tion to back the pol­icy, the sec­tor can­not truly be dereg­u­lated.

At a vir­tual con­fer­ence of the Nige­rian Pe­tro­leum Down­stream Con­sul­ta­tive Sum­mit held on Thurs­day, pan­el­lists said gov­ern­ment pro­nounce­ments on dereg­u­la­tion may in­di­cate in­tent but it must be backed by law to be ef­fec­tive, at­tract in­vest­ments into the sec­tor and this must be done quickly.

The con­tin­ued ex­is­tence of agen­cies that were cre­ated to sup­port a reg­u­lated price en­vi­ron­ment, like the Pe­tro­leum Equal­i­sa­tion Fund (PEF) which tries to en­sure uni­form re­tail pe­tro­leum price across Nige­ria by sub­si­dis­ing dis­tri­bu­tion to re­mote lo­ca­tions, would need to be dis­banded to in­di­cate a se­ri­ous­ness to dereg­u­late.

“In reg­u­lated dereg­u­la­tion, what should ob­tain is a reg­u­la­tion of tech­ni­cal stan­dards and en­sure qual­ity con­trol,” said Ti­mothy Okon, man­ag­ing di­rec­tor, Teno En­ergy Re­sources Ltd. Okon also said that mon­i­tor­ing and en­force­ment would be­come more ef­fec­tive.

The pan­el­lists said that a fully dereg­u­lated mar­ket would re­quire tweak­ing the laws set­ting up the func­tions of gov­ern­ment agen­cies like the PPPRA and price board, which is yet to be done.

Ade­tunji Oye­banji, man­ag­ing di­rec­tor, 11plc and chair­man of Ma­jor Oil Mar­keters As­so­ci­a­tion of Nige­ria (MOMAN), said one way to pre­vent a sit­u­a­tion where a rise in crude oil prices puts the gov­ern­ment un­der pres­sure to keep prices low is to back the in­tent to dereg­u­late by a law.

While dereg­u­la­tion has been touted as ef­fec­tive, it has not al­ways yielded the best out­comes in the sec­tor. Many ar­gue that the diesel mar­ket which has been dereg­u­lated for sev­eral years does not see lower prices when oil prices fall, a ma­jor ar­gu­ment in favour of dereg­u­la­tion.

How­ever, Huub Stoke­man, man­ag­ing di­rec­tor of OVH En­ergy Mar­ket­ing Lim­ited, said the rea­son is that diesel is mainly used in power pro­duc­tion and only a small per­cent­age, about 5 per­cent, is sold in re­tail out­lets, hence the mar­gins are low and it takes a longer time to be sold, some­times over four months to clear stock, at which time any tem­po­rary gains from crude oil price de­cline would have been eroded.

Okon said that sub­si­dies are not sus­tain­able af­ter Nige­ria has spent over $63 bil­lion from 2006 to 2018 on it, funds that could have been used to build thou­sands of kilo­me­tres of roads, or hun­dreds of hos­pi­tals and schools.

Some par­tic­i­pants echoed the con­cerns of some gov­ern­ment of­fi­cials that a fully dereg­u­lated mar­ket could lead to bad be­hav­iour by oil mar­keters, in­clud­ing price goug­ing and mor­ph­ing into a car­tel to ex­ploit Nige­ri­ans.

In 2012, law­mak­ers and law en­force­ment agen­cies in­ves­ti­gated cor­rup­tion by oil mar­keters and found a huge dis­crep­ancy in the vol­ume of oil they ac­tu­ally im­ported and how much sub­si­dies were claimed. Some col­lected sub­si­dies for petrol that was never de­liv­ered. They were ac­cused of steal­ing over N2 tril­lion from gov­ern­ment fol­low­ing which some of them were sanc­tioned and im­pris­oned.

Now the gov­ern­ment is star­ing down a fis­cal cri­sis as oil in­come dwin­dle and debts mount and can no longer af­ford waste­ful sub­si­dies, which is why it is even con­sid­er­ing the pro­posal. Worse still, the

pol­icy bene­fits only the elites who are ba­si­cally in two of Nige­ri­ans im­por­tant cities, Lagos and Abuja, who buy the most fuel, ac­cord­ing to NBS re­port of pe­tro­leum prod­ucts sup­ply across Nige­ria.

A fully dereg­u­lated mar­ket, the pan­el­lists said, would trans­late to healthy com­pe­ti­tion in the sec­tor and at­tract badly needed in­vest­ment. Within the last decade, all the multi­na­tional oil com­pa­nies have di­vested from the down­stream sec­tor and even those who bought their as­sets are flee­ing the sec­tor.

The NNPC which took on the role of the sole im­porter is now buck­ling un­der the weight of the bruis­ing sub­si­dies and is lead­ing the charge to abol­ish them, as the sub­si­dies con­tinue to rub­bish its fi­nances and keep alive a ro­bust fuel smug­gling en­ter­prise across Nige­ria’s por­ous bor­ders.

”Our ar­gu­ment for mov­ing for full dereg­u­la­tion is that it will ben­e­fit the in­dus­try and coun­try by at­tract­ing the kind of in­vest­ment that is needed,” Oye­banji said.

Yet, the mar­keters’ mo­ti­va­tion is not only on ac­count of the na­tional loss sub­si­dies rep­re­sent, but Nige­ria’s reg­u­lated down­stream en­vi­ron­ment has also crip­pled their in­vest­ments as they can­not re­cover the cost of N3-5 bil­lion they spend build­ing de­pots with the mar­gins NNPC al­lo­cates to them to make a profit on N2 per litre.

Amina Maina, group COO, MRS Hold­ings Ltd, said the mar­gins are too small to re­coup their in­vest­ments let alone make a profit. Poor re­turns in the midst of huge costs in main­tain­ing de­pots, pay­ing salaries, and keep­ing trucks on the road are the rea­sons only a quar­ter of the reg­is­tered de­pots have man­aged to stay in op­er­a­tion in Nige­ria.

Nige­ria’s Fed­eral Gov­ern­ment said in March that it has bowed to long-stand­ing pres­sure to re­struc­ture the down­stream oil sec­tor and has as such removed oil sub­sidy af­ter the coun­try was hit by lower oil prices which placed more pres­sure on its re­serves.

The Muham­madu Buhar­iled ad­min­is­tra­tion moved the petrol price peg of N145/litre to N125 in March 2020. It was the first time the price would be ad­justed since it was re­viewed from N86 per litre to N145 by Pres­i­dent Buhari in 2016.

How­ever, this is only a half-hearted at­tempt brought on by dire eco­nomic re­al­i­ties rather than prag­matic pol­icy, hence it has kept the struc­tures that aided a reg­u­lated petrol price en­vi­ron­ment and the PPPRA will con­tinue to is­sue petrol prices at in­ter­vals.

“It is one thing to dereg­u­late and it is an­other thing to have laws that back the dereg­u­la­tion,” said Maina.” “We have to really mean it.”

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