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‘Deregulation of petroleum sector achievable, if…’

by Akoma Chinweoke
The Organization of Petroleum Exporting Countries (OPEC), at its 50th anniversary, expressed concern about the world economy, saying the rest of this year and first half of next year may be very difficult.


*AkaboguAlso Nigeria’s minister of petroleum resources, Mrs. Diezani Alison-Madueke, noted that the challenges facing member countries of the organization have deepened beyond stability of crude prices.

Even more worrisome is the fact that some OPEC members like Nigeria are still relying on the developed world refined fuel after selling crude oil to them which is not the best way to benefitting from the oil they have.

In this interview, Mr. Emeka Akabogu, marine and petroleum lawyer, and principal partner, Akabogu and Associates, speaks on why Nigeria should have a framework in place which ensures that when the price of the products is high, it would be able to appropriate it fully.

Poverty is biting hard in the country despite the fact that we are one of the oil rich nations. Do we really have anything to celebrate as a member of OPEC which just clocked 50 years?

There is no doubt that we are one of the leading oil producing nations in the world and, by virtue of that, we should actually be ranking quite high in terms of development index because, in terms of the share cash which we are able to appropriate from the sale of crude oil over the last 50 years, we should be considerably well developed at this stage.

But the story of Nigeria’s development is well known. We have had the misfortune of having bad leadership in the past and we have in the course of the bad leadership been unable to invest in the structures, infrastructure and institutions which would develop the country.

As a member of OPEC, we appropriate the benefit which comes with pricing regimes that are created by OPEC and, at the same time, we are subject to market forces that are driven by the exigencies of the world economy at every point in time so that, in as much as we were a member of OPEC, we could not prevent the lows that have been witnessed in the last 50 years.

At the same time, we should have a framework in place which ensures that when the price of products is high, we would be able to appropriate it fully. The problem of Nigeria is a very touchy toxic one and ultimately how we can rise is dependent on how we now position ourselves for the future.

Critics have warned that the planned deregulation of the downstream sector by the government would cause inflation, unemployment and industrial crisis in the economy.

Do still believe deregulation is the right way to go?
Price regulation for petroleum products should ordinarily be an anomaly because petroleum products are internationally traded according to market forces.

It should not be a problem in Nigeria if our government were investing considerably in infrastructure particularly common infrastructure services so that even if there is deregulation of the industry resulting in increased prices, those critical infrastructure which would be most significantly affected, the pains from deregulation would be shared evenly among the populace .

If we have a good transportation system, good hospitals, good welfare system, even where there are price increases due to the deregulated petroleum market, it will not be so harshly felt by individuals who have to bear all the brunt. So, when it comes to deregulation as a concept and as an economic imperative, it is necessary.

However, it got to be coupled with a commitment and efficient drive on the part of government to put in place necessary social infrastructure to cushion such an effect. For instance, where you have the economy being drained by the difference being paid on every single litre of fuel imported into the country, there is a lot which could be done with the difference.

Don’t forget that , that amount of money, most of the time, is not budgeted and, even if it were budgeted, it could be deployed to very good use by government.

In a particular year, we paid up to almost $5 billion dollars as subsidy which could have a whole lot for the country but, once again, we have to go back to the issue of management of resources by government, corruption and transparency so that if we are successful in deregulating and thereby saving the subsidy we pay, we should be guaranteed that the savings from the subsidy are deployed transparently and in a value adding way for the development of the society. Another thing is that deregulation would greatly help the efficiency of the downstream market.

The market right now is not as efficient and sophisticated as the oil and gas industry and I think it would not be far from the truth to say that one of the reasons for the non-sophistication of the downstream component of the market could be the dependent on subsidy. But when the subsidy is removed and operators know that there is need for new competition and business, they would be much more amenable to meeting the true needs of the consumers. So, I think that deregulation generally is something which is necessary for the market efficiency and the economy but must be coupled with government’s commitment to impact on the lives of the people. It also has potentials for market realignment. We believe that with the intent of government to deregulate the sector, deregulation is going to come anytime now and since we are sure it would come, it is important that market operators position themselves strategically in the market in terms of their working efficiently, network relationship, so that they are able to fully appropriate its benefit when it comes. Deregulation also comes with differentiation in terms of competencies and specialization.

So, we are looking forward that the planned deregulation would position the country for increased growth and it can only be achievable if the country at both federal and state levels put in place solutions to alleviate the impact of the price increases

What is the fourth edition of OTL Africa Downstream conference and exhibition 2010 all about?
The downstream petroleum business in Africa is going through a critical transformational period. After the price-volatile and often challenging years of 2008 and 2009, the calming markets have caused reappraisal and repositioning by market operators.

With no abatement in petroleum products appetite by nations across the continent, the downstream petroleum market remains strong, active and increasingly sophisticated.
Increased competition, efficiency and profit are focal drives.

Governments and national oil companies maintain a desire for petroleum products efficiency, ensuring that refining, despite its challenges, remains a primary concern. Entrepreneurial and investor interest is also robust on petroleum products marketing and retail, while shipping ,storage and related supply logistics are traditional market preferences.

LPG, propane, natural gas, petrochemicals, lubricants, synthetic rubber, plastics, fertilizers, pesticides and pharmaceuticals are all also potentially poised as leading investment options.

All these and more come together at the OTL Africa Downstream Expo 2010, holding between 14-15 October at the Civic Centre, Victoria Island Lagos, in a riveting confluence of knowledge, networks, business and rewards. The OTL exhibition will be welcoming 50(+) strategic exhibitors to showcase related products, services and new projects.

The exhibition is free and open to the public and affords interested persons a rare and unique opportunity to seek out products and services for their immediate and future needs, all under one roof.

The conference is focused on imparting knowledge on expounding topical issues of market relevance to businesses and organizations in the downstream petroleum. Speakers are typically chief executives or other principal management officers of organizations with considerable stake in the industry, including ministers, key government regulators, oil majors and emerging local companies.

It would also feature presentation of awards to recognized outstanding achievement in the sector. The OTL Africa Expo is the biggest gathering of downstream petroleum operations in Africa. Now in its fourth year, has grown to become the principal knowledge, brand and business development tool for companies, and organizations doing business in or with the down stream petroleum market.

What is your view on steps taken so far by the government to ensure the success of the cabotage regime?
Cabotage has been witnessing a lot of s and downs movement.

The people at NIMASA right now are making considerable effort towards ensuring that the implementation of the Act turns out successful but one of the reasons we say cabotage has not worked is that the implementing agency of cabotage over the last six years has witnessed about five director generals.

If we have such a high turn over of director generals, it means that before one settles down to start working, he is dismissed. How can you implement policies in that kind of environment? Beyond that, there is also a wider issue of an institutional planning which can be mastered, imbibed and transmitted from one generation leadership to another .

There is a lot of interests now by government to ensure that there is true value given to indigenous operators especially with the recent passage of the Nigeria content bill into law


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