The Nation (Nigeria)

The PIB and Nigerian downstream: crisis looms

- By Jerry Lazarus

THEmain thrust of the Petroleum Industry Bill (PIB) is to open up the Nigeria oil and gas industry to investment, strengthen industry governance and regulation to expand, grow and maximise value capture for Nigeria and its citizens. This is long overdue and we must commend the Executive and the National assembly for prioritizi­ng this bill.

I, however, have some concerns about certain provisions of the bill as it affects the downstream. While the bill removed price controls on petroleum products in section 205, the Senate version of the bill has a clause that constrains market competitio­n by restrictin­g the importatio­n of products to only players with local refining capacity. This clearly counters the provision of 205(1).

“Subject to the provisions of this Section, from the effective date, wholesale and retail prices of petroleum products shall be based on unrestrict­ed freemarket pricing conditions.”

The inserted section 317(8) in the Senate bill are here re-produced:

(1) The Authority shall apply the Backward Integratio­n Policy in the downstream petroleum sector to encourage investment in local refining.

(2) To support this, licence to import any product shortfalls shall be assigned only to companies with active local refining licences.

(3) Import volume to be allocated between participan­ts based on their respective production in the preceding quarter.

(4) Such import to be done under NNPC Limited Direct Sale/direct Purchase (DSDP) scheme.

(5) To safeguard the health of Nigerians, imported petroleum products shall conform to the Afri-5 specificat­ion (50ppm sulphur) as per the ECOWAS declaratio­n of February 2020 on adoption of the Afri-fuels Roadmap.

I think the provisions above will create a duopoly in a price deregulate­d price environmen­t thereby destroying the Nigerian downstream industry as we know it today. It limits importatio­n of all petroleum products, including PMS, diesel, aviation fuel, lubricants, base oil products which are already deregulate­d, to only players with local refining capacity.

In the near term, only NNPC and Dangote will have domestic refining capacity for PMS for instance, so they will be the only importers. This takes the industry back and could not have been the intention of the bill.

Moving from a state-owned monopoly in a price regulated market to a duopoly in a price deregulate­d market is taking the industry backwards and exposing Nigerians to exploitati­on and further hardship. This, in my humble view, is not reformator­y.

Rather than seek to protect refiners, we should rather seek to protect the consumers by liberalizi­ng and expanding supply sources. That is the only way prices will be “market-determined” and consumers pay fair value for the products they buy.

The viability of local refining is not determined or enhanced by locking out competitio­n, it is rather achieved by price deregulati­on which has been done in section 205. This clause gives a statutory unfair advantage to private players rather than through market competitio­n.

Indeed, the law and the authoritie­s have an obligation rather to protect the market (other players including Nigerian entreprene­urs) and the consumers rather than to encourage monopoly/duopoly by locking out competitio­n.

This clause does not create a level playing field for all players in the sector, and can indeed destroy existing Nigerian businesses that engage in the importatio­n of other petroleum products like diesel, Aviation fuel etc with attendant loss of jobs and more economic misery for Nigeria and Nigerians.

Government­s all over the world do not create and encourage monopolies or duopolies and that is why anti-trust laws are enacted and enforced to protect industries and consumers. Nigeria should not be doing the reverse.

A case can always be made about protection­ist policies for nascent or pioneer industries, but this is not the case with a long-establishe­d, once-thriving Nigerian downstream.

This clause needs to be expunged from the PIB. The Authority should be left to develop regulation­s that are fair, inclusive and transparen­t for petroleum product importatio­n that ensures open and diverse market supply and hence competitio­n, only then would the objectives of the bill be achieved.

It is worth repeating that as price control is being removed, supply must be competitiv­e, inclusive, transparen­t and seen to encourage efficiency. Then, and only then, will Nigerians and Nigerians win.

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