By Akoma Chinweoke

Criticism has continued to trail the decision by the President Muhammadu Buhari  – led administration to increase the price of petrol  which many perceive  as insensitive. Nigerian Labour Congress  (NLC) is  threatening to mobilise Nigerians for mass protests if  the new policy is not reversed.  The NLC described the development as  unfortunate especially as it came at a time when poor Nigerians are facing economic hardship.

However, Mr. Emeka Akabogu, Chairman, OTL Africa Downstream,while baring his mind on the  issue, lauded  the Federal Government’s decision to hike the fuel price, describing it as the best decision the government could have taken in the circumstances. Excerpts:

Initial Reaction

I fully support the Federal Government’s decision. It is obviously taken with a lot of courage, given its political and social implications in the short term. I have no doubt that it is the best decision the government could have taken in the circumstances. On the platform of OTL Africa Downstream, we have maintained an active advocacy for this over the years and only last year (October), defined the approach that should be taken in achieving market driven deregulation. We are happy that the government has taken cue from our considered input and things can only get better from here.

Short-term Impact

Of course the impact is already being felt. In Lekki-Ikoyi axis, for instance, by midday of the day following the announcement, queues had virtually disappeared after stations had adjusted their pumps to reflect the new price. The government has essentially said anybody can import petroleum products, subject to the quality standards of the DPR and compliance with the upper price band set by PPPRA.

I expect the market to be awash with products so the most obvious impact will be disappearance of fuel queues over the country as is already being seen. Unfortunately, knee jerk reaction of marketers will see everybody staying at N145/litre in the immediate term, even where they can get it cheaper. The knee-jerk reactions will see many inexperienced marketers get their fingers burnt while trying to cash in. The risks involved in international oil trading coupled with ship and shore logistics are considerable, so I expect that quite a number will learn this the hard way. But the market will stabilise and citizens will begin to feel the real positive impact in the medium to long term of the policy’s implementation.

Government Revenue, Industry Value Chain

The savings on subsidy payment are significant and will soon begin to manifest. In addition, government could still even make more money through enforcement of sundry taxes. Over the years for instance government has not been earning duty from petroleum products import after the erstwhile import duty was removed in 2002. More significantly, increased activity in the industry value chain will lead to a boost in the country’s GDP. The shipping sector will witness more activity and investment in tanker ships, with corresponding impact on tankage capacity, inspection and financial services amongst others.

Organic Development and Re-alignment of Market

The fact is that many erstwhile operators in the downstream industry existed solely due to the patronage offered by the subsidy regime. There was no need for creative commercial or marketing solutions and competition did not exist.

The current reality is sharply different, as will become apparent shortly. Many operators will either merge or go out of business. Others will dig deep to meet consumer needs with impact on efficiency and best practices.

Competition Policy

The PPPRA/DPR or whoever the downstream regulator under the new PIB turns out to be will have to retool with a focus on commercial and economic regulation of the downstream petroleum market. I will suggest development and issuance of competition guidelines by the relevant body to avoid abuse of dominant positions which could easily develop. Cartelisation could potentially flourish with increased investment interest by big global commodities traders and this should be guarded against.

Local Refining

The announcement is good news for stakeholders in the refining industry, particularly holders of licenses for modular refineries. This must, however, be urgently coupled with a clear policy on feedstock guarantees on commercial terms. Current law under Section 9 of the Petroleum Act confers a discretion on the Minister to determine the quantity and regularity of crude oil supply to refineries. This is a dangerous power as it could potentially certainty and predictability of crude flows to the refineries which could compromise their optimal commercial operations.