Clement Isong, MOMAN, Chief Executive Officer and Executive Secretary
Subsidy has been a concern to downstream players in the Nigerian oil and gas industry owing to issues that surround it. It has been observed that subsidy payment has breed corruption in the oil sector and has done more damage than good which it intends to bring in the industry.
Thus, stakeholders in the oil and gas industry have said until the downstream sector of the oil industry is fully liberalised, subsidy on imported refined products will continue to be an unresolved issue.
They emphasized the need for government to have a re-think on the measure to deregulate and liberalise the downstream to pave way for more attractive investments in the sector.
It will be recalled that some investors especially the International Oil Companies (IOCs) have quitted the downstream sector.
As private marketers continue to stay on the sidelines in terms of petroleum products importation, some stakeholders have reiterated the need for the Federal Government to fully deregulate the fuel market.
Oil Marketers, under the aegis of Major Oil Marketers Association of Nigeria, (MOMAN), Independent Petroleum Marketers Association of Nigeria, (IPMAN), and Depot and Petroleum Products Marketers Association, (DAPPMAN), have called on the Federal Government to urgently deregulate and liberalize the country’s downstream sector for unfettered private sector participation and investment, which is subject to an appropriate regulatory framework.
According to Chief Executive Officer and Executive Secretary, MOMAN, Clement Isong, the downstream petroleum industry regulations should be in line with international best practice.
He said the implementation and compliance with these regulations, the concept of cost recovery and competitive investment returns will ensure the sustainability of the downstream petroleum industry.
Isong posited, “As the market players grow their business, they will increasingly become exposed to risk management challenges and will move their capital to areas where return matches the risks. We recommend that government should deregulate pump prices and focus on enforcing compliance with adequate regulations on health, safety, environment and quality.”
Isong said only total deregulation would save the situation. Contending that doing so will help attract more investments to the oil sector, he said only deregulation would encourage the establishment of private refineries and other related infrastructure in the country.
According to the MOMAN boss, deregulation of the sector will impact on other aspects of the nation’s economy, thus, “Deregulation will also enable the Nigeria Railway Corporation to lift more products from the South to other parts of the country to reduce transportation.”
He stated that when private sector investors invest and build more refineries, products will always be available and this will be to the advantage of the common man.
Isong noted that deregulation would also address frequent shortages of products as marketers would source for forex at competitive rates to import in products, not depending on government. The nation’s current business model for the distribution of petroleum products was unsustainable.
“We feel the time is now to encourage a well-informed and honest debate among ourselves as Nigerians on our downstream pricing policy, showing sensitivity to the fears of Nigerians and the challenges we face as a people and as an economy to arrive at an equitable but sustainable business model,” Isong added.
On his part, Executive Secretary, DAPPMAN, Olufemi Adewole, said that rise in the landing cost of petroleum products has renewed the calls for the full deregulation of the downstream subsector of the nation’s oil and gas industry.
Adewole was of the view that Nigerian National Petroleum Corporation (NNPC) has been the sole importer of petrol into the country for more than a year as private oil marketers stopped importation due to shortage of foreign exchange and increase in crude oil prices, which made the landing cost of the product higher than the official pump price of N145 per litre.
The DAPPMAN Executive Secretary said, “In the downstream sector, the NNPC continued to ensure increased Premium Motor Spirit (PMS) supply and effective distribution across the country. In pursuit of sustained seamless distribution of petroleum products and zero fuel queues across the nation, the corporation has continued to maintain an eagle eye on the daily stock of PMS.”
He added that “Federal Government had resorted to subsidy regime following an increase in the landing cost of petrol, with the NNPC, which was responsible for about 90 per cent of the importation of the product, bearing the latest subsidy cost on behalf of the government. The Group Managing Director, NNPC, said that the Federal Government had been resisting intense pressure to increase the pump price of petrol, noting that the landing cost of the commodity was N171.4 per litre, when oil price was around $64 per barrel.”
Adewole reiterated that the process of deregulation would carry the advantage of opening up the sector to competition “where the players are able to participate at every segment of the value chain, and the removal of entry barriers in the supply and distribution of petroleum products.”
He pointed out that “Every player is given the opportunity to refine or import petroleum products for use in the country so far as the products so refined or imported meet quality specifications. The appeal of the deregulation of the downstream sector is clear in that it would encourage efficiencies in the sector. However, bold reforms will be necessary to allow for private sector entry into the sector. These reforms would include downstream capacity enhancements and safe operations, building up strategic product reserves, improved sector logistics, private sector investment in sector infrastructure, permanently removing all petroleum product subsidies, among others.
Adewole emphasized further that “With the landing cost as it is right now, we can’t bring in products because we can’t absorb the subsidy, and we don’t have access to foreign exchange. If the government takes the bull by the horn and deregulate the sector, then we will see private marketers do what we know best to do.”
Giving his own perspective on the ugly trend, the National President of IPMAN, Chinedu Okoronkwo said total deregulation of the downstream sector would also attract more investment, generate more jobs and reduce the pressure on foreign reserves.
Okoronkwo stressed the need for total deregulation and liberalization of the downstream market to address the persistent challenges in the oil and gas industry.
He said that it is expects that deregulation of the downstream move will lead to improved supply, competition and eventually drive down pump prices, as well as encourage investments in refineries and other parts of the downstream sector.
The challenges with procuring forex significantly affected marketers’ ability to import petrol in recent times. Thus, by liberalizing the market, the government expects importers to find ingenious ways to procure forex from autonomous sources and improve product availability.
It would be recalled that Senator Garba Marafa, Chairman, Senate Committee on Petroleum Downstream, said total deregulation of petroleum downstream sector remained the best option to salvage the nation’s economy.
Marafa stated this recently in Abuja that the Senate had consented and moved for total deregulation of PMS otherwise known as petrol.
According to him, total deregulation is the solution and the 8th Senate is determined to give Nigerians a direction in the downstream and curb the corruption in the sector. “We are addressing the governance aspect of the Petroleum Industry and Governance Bill (PIGB) because we know that PIGB will address the challenges confronting total deregulation of the downstream sector. The civil society and labour unions should frown against subsidy regime and embrace total deregulation. If you combine NNPC and marketers’ subsidy claims, you will see that it is over N9 trillion in the last 10 years. This is almost twice of our national budget.”
Marafa added, “I wondered if the common man gets value for this subsidy. If the money was directed into other infrastructure development, we would have gone far in infrastructure building. Diesel has been deregulated and we are better off; why are Nigerians afraid of subsidy removal? Right now, the government is indirectly paying subsidy. We have to be realistic and take the right decision; we have to choose between building more infrastructures and consuming subsidy. Deregulation will promote local refining of crude oil and create more value and generate employment.”
The Senate Committee Chairman stated further that competition would push down prices of petroleum prices in the long run and that hypocrisy of the elite was regulating the price, “All the people benefiting from fuel importation will never let deregulation to happen.”
Similarly, the Minister of State for Petroleum Resource, Dr Ibe Kachikwu, made it known that only liberalisation of the downstream sector solution will curb subsidy, adding that until the downstream sector of the oil industry is fully liberalised, the spectre subsidy on imported refined products will continue to be a recurring factor in the country.
According to the Minster, “The only option we have to come out of this subsidy issue is the liberalisation of the downstream oil sector. If we continue to subsidize products, we will continue to struggle as a nation. Investment is lacking and we are trying to build refineries, we are talking to financiers, we have found them but we are yet to agree on terms. Hopefully, by early next year, we will complete the financing agreement, that is one of the solutions to the problems.”
Kachikwu said another way out was to get the refineries working and that was the reason government had supported efforts to ensure that Dangote Refinery was functional by 2020.
He noted that if that would be achieved, it would add about 600 million barrels to 400 barrels of oil processed by the nation’s refineries.