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Petrol subsidy is a waste of resources, Obi

Mrs Nkechi Obi is the Managing Director, Techno Oil Limited, a significant player in the downstream sector of the oil industry. In this interview with Vanguard’s Yemie Adeoye she speaks on infrastructural challenges and prospects of full deregulation in the downstream sub_sector of the petroleum industry.

What are the problems actually facing the downstream sector of Nigeria oil industry at the moment?
After decades of control and regulation policy in the procurement, marketing and sales of


petroleum products in Nigeria, the Federal Government plans to take the bold step of fully deregulating the downstream of the petroleum industry in Nigeria and opening it up to market forces and completion. The step is however being challenged by organized labour and has become an issue of the moment.

I want to say that with the realities of global economic meltdown, the crash in commodity prices including crude oil and resultant reduced revenues accruing to Nigeria since then, full deregulation will free up a lot of funds (more than N680 billion in 2008 and may hit a trillion naira in 2009) otherwise used as fuel subsidy for the development of the country and the industry.

As we lose our position to Angola as Africa’s largest producer of crude oil, we now import most of our refined petroleum products as our refineries are not working. We know that licenses for establishment of private refineries were granted in 2004 but no significant investment has been made by the promoters and that is why 16 of the 18 licenses were revoked by the government.

Even though several incentives have been granted to promote investment in private refineries, it is unfortunate that the challenges associated with price fixing has contributed to failure of the promoters’  efforts to attract capital from foreign partners and that is why we cannot see new refineries coming on stream.

What is the solution to these highlighted issues?
We believe that deregulation will assist us to solve these seemingly insurmountable problems by making us look inwards and by making us efficient and transparent in allocating resources. Finally, I will say that deregulation would open the industry to market forces, which will enable forward planning by stakeholders and engender healthy competition among marketers to the benefit of consumers; it will conserve foreign exchange, create a level playing ground for the industry to grow through new investments.

Deregulation is a good omen for the industry and I urge all well_meaning Nigerians including the organised labour to embrace the policy for its envisaged positive effects on the nation. I will advise the government to dialogue with various groups, industry stakeholders on implementation modalities and to strengthen the current regulatory framework to check excesses of industry players who might want to be overzealous. With all these, we shall be able to overcome all challenges.

What other challenges do you think the sector is undergoing?
There are challenges to the implementation of full deregulation as a result of increased economic activities since 1999. These challenges are known to the Government even though the labour unions have consistently argued that nothing is being done but the truth of the matter is that subsidy on fuel is a major impediment to provision of fund needed to finance the development of infrastructure/distribution channels.

Other challenges include pipeline vandalism and fire explosion; poor performance of the refineries and inappropriate pricing which resulted in smuggling and hoarding. For instance, the Department of Petroleum Resources (DPR), Navy, and the Pipeline and Products Marketing Company (PPMC) and PPPRA do not have means to police our onshore and offshore borders.
What are the merits of deregulation?

Before the
announcement of partial deregulation by the Federal Government in 1998, it was difficult for new companies to participate in the storage, distribution and marketing of petroleum products in Nigeria. The unveiling of plans to carry out full deregulation in 2001 led to the massive investment by the private sector and now it is clear to all stakeholders that deregulation will open the downstream sub_sector to competition;     market forces will determine pump price; players will participate at every segment of the value chain, entry barrier will be removed and subsidy will become a thing of the past.

If I say no to subsidy and yes to deregulation, then I am not very sympathetic to the generality of our citizens whose earnings are below poverty line. Every country gives one form of subsidy or the other.  In some countries the focus of subsidy is on food and healthcare, but to be realistic, the best possible subsidy that will reduce hardship and improve living conditions of Nigerians is definitely not oil subsidy.

All the petroleum products we discharge here does not end up in Nigeria. They end up in neighboring countries. Right now, for the government to eliminate scarcity of petroleum products in Nigeria, it has to plan to exceed the estimated consumption level of the country by supplying in excess. The extra_figure above the demand requirement ends up in neighboring countries. So, how long should we continue? We are living in interesting times but it is not only in Nigeria. It is a global problem.

We have to look at subsidy critically. Do we want to cripple the economy or do we want to improve on it. The choice is for Nigerians. Labor unions as we know are fighting a just cause but we also have to look at the opportunity cost of postponing the implementation of full deregulation.

The idea of oil subsidy is not good for a growing economy that depends on a mono product as a major source of revenue generation.  If we decide to postpone the evil days as the labour unions idea of deregulation, Nigeria may never get out out of the woes of ailing infrastructure. This is because when the government is spending an amount that is twice the annual capital expenditure on fuel subsidy where will it raise money to undertake the construction and repair of several bad roads in the country?

What is your view on price differential?
Oil for now is the mainstay of the nation’s economy. We cannot afford to waste it. At the moment, Nigerians are not deriving any benefit from the policy of subsidy. Currently, dual purpose kerosene (DPK) is subsidized; hence we sell at N50 per litre at Techno oil storage depot. But the kiosk close to my residence retails at N130 per litre.

This simple survey
shows that the high cost of transportation fare charged by commuters is not commensurate with the price of premium motor spirit (PMS), which is subsidized. So, where is the subsidy? If a bus is traveling from Lagos to Port Harcourt and there is need for the driver to refill the tank once, except there is jerry can to store the product purchased at filling station Lagos, I can tell you that there is no other town where the driver will get the price below N90 per litre except in Port Harcourt. Can we then say that over N1.2 trillion spent on subsidy within the past three years benefited the poor class within the society or what impression are the labour leaders creating for outsiders that are have deregulated their downstream sub_sectors.

I think it is high time oil subsidy be removed completely so that resources being committed to subsidy would be utilized for the financing of infrastructure. Stakeholders labour and government should collaborate and agree on other forms of subsidy that will improve our standard of living.

What prospects does a deregulated regime hold?
If it is possible for us to have level playing field in a deregulated regime, it implies that activities of companies in the sector will drive the economy and enhance the growth of the downstream sector.

This would be achieved when the volume of products for distribution is higher than the demand requirement and competition would be enhanced.

Supply and distribution of petroleum products will also increase and players will have the opportunity to plan for future growth and bigger investment in the long term.  Deregulation will also enable government to channel funds already marked out for subsidy to key infrastructural development. A deregulated industry will attract both local and foreign investors, and finally, better customer service will be provided by players and the consumer will be king and have value for their money.


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