Seven reforms that will make Nigeria’s petroleum downstream sector competitive

Some private sector stakeholders have given some recommendations they believe would make Nigeria’s petroleum downstream sector competitive. This is coming at a time when lawmakers are reviewing the Petroleum Industry Bill (PIB).

These recommendations are contained in a document seen by Businessday.

The private sector stakeholders, however, crave anonymity so that

these proposals could be considered on their own merit.

Ensure product supply, quality standards, and competition

The stakeholders recommend private sector participation in the procurement/ importation of refined petroleum products through a transparent inclusive process as a way of reducing the current inefficiencies in the sector.

To this end, they call for the foreign exchange required to procure refined petroleum products to be made available to the Oil Marketing Companies (OMCS) and other businesses at the same competitive rate being offered to the National Oil Company (NNPC) and the process made open for audit.

However, if the government chooses to manage access to supply or limiting demand, they recommend this be done transparently by sector, allowing all petroleum downstream operators with a minimum physical asset base such as a minimum number of retail outlets (100 filling stations) and a minimum storage depot capacity (15KT) domiciled within Nigeria having equal access to foreign exchange at the same rates exclusively for the importation of petroleum products. This would encourage transparent inclusiveness and competition as well as eliminate market dominance by NNPC and round-tripping by briefcase businessmen.

The stakeholders call for strict regional fuel quality standards and specifications for imported refined products as well as for local refineries to be continuously negotiated within the sub-region and upgraded to create or tap into regional cost synergies, enable more stringent vehicle emissions standards and protect the local and regional environment.

They recommend the eventual discontinuation of the Direct Supply Direct Purchase (DSDP) programme and implementation of policies encouraging local refineries to develop Nigeria into a refining hub and a more active role for the Federal Competition and Consumer Protection Commission (FCCPC) or other relevant organisation to check anti-competition activities.

They also recommend the implementation of a pump pricing framework in which the OMCS or other petroleum products distributors independently set retail or pump prices for petroleum products according to their cost strategies and efficiencies without prior review or approval by any official authority.

The fuel pricing regulations should, however, provide and insist that all costs are fully recovered and all applicable taxes and levies fully paid by all market operators. No operator, including NNPC, should be permitted to sell products at a loss and risk driving competition out of the market based on market dominance, direct, exclusive or limited access to government-owned or government constructed logistics capacity.

The stakeholders also want transparent, equal, and equitable access to governmentowned logistic infrastructures such as jetties, pipelines, storage facilities, and other infrastructure that should be continuously verified and guaranteed by the regulator.

“In implementing the objective of achieving full cost recovery by market operators, the determining authority shall take into account the equally important objective of minimizing considerable pump price fluctuations and towards this purpose may take a maximum of forty-five (45) day pricing periods into consideration in determining whether an operator is pricing his product below its product and operating cost price,” they say.

Safeguard stock

The private sector stakeholders also recommend that safety and strategic stocks be accorded the much-needed attention and the cost of maintaining strategic or security stock be taken into consideration when determining the product and operating costs.

“A separate Limited Liability Company with ownership by willing private sector operators with government participation could be incorporated with the mandate to own and develop a network of jetties, pipelines, storage tanks, and other bulk logistics transportation infrastructure throughout the country, mandated to warehouse strategic stock for the country for sale to OMCS through a transparent pricing mechanism guaranteeing equity,” they say.

Guaranteepricemonitoringandconsumerprotection

The private sector stakeholders want the Petroleum Products Price Regulatory Agency (PPPRA) and the Petroleum Equalisation Fund (PEF) scrapped so that the Department of Petroleum Regulation (DPR), the National Oil Spill Detection & Regulation Agency (NOSDRA), or any other Federal or State agency should have oversightpowersoverthedownstream petroleum industry.

The former employers of PPPRA and PEF could be redeployed to other agencies outside the industry, they suggest.

“The new Authority or new downstream Regulator should be populated by downstream industry experts from the DPR and the private sector with private sector customer-friendly exposure with the objective that the regulator is progressive, supportive, technology and optimisation inclined, innovative and focused on growing the downstream petroleum industry to be more self-sustaining, autonomous and capable of generating funds for infrastructural development and improvements. This Regulator shall not intervene in pricing determination,” they say.