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Diezani harps on the imperatives for deregulation

DIEZANI Alison Madueke, Nigeria’s Petroleum Minister represents different things to different people within the oil and gas industry. Noted for many firsts, her eloquence and capacity to wow her audience makes her an interviewers’ delight.

In this interview with Hector Igbikiowubo, Editor, Sweetcrude, she harps on the imperatives for deregulation of the downstream petroleum sector, among other issues. Excerpts:

As you are aware this is not the first time that government would be coming up with plans to deregulate. What is different this time around?

That is a poignant observation, especially in the face of the debilitating cost payment of subsidy has inflicted on the economy. Last year subsidy payments gulped over N1.3 trillion, about 24 per cent of the entire budget. You can imagine how much subsidy payment has cost the government for the length of time the downstream sub-sector has remained regulated.

The benefits of deregulation of the downstream are well known and no responsible government can afford to shirk its responsibilities to the people on the altar of political expedience. What is different this time around? The difference my dear is that we have gotten to a point where we can no longer afford to incur the cost associated with subsidy payments to the detriment of other developmental needs of the economy.

So to tackle this challenge, the Federal Government under the able leadership of Mr. President has designed an effective social safety net system in Nigeria designed to ensure that the massive volume of resources expended on subsidy payments annually is ploughed back to the provision of essential social/health amenities and services to the common man.

The package would help guarantee improved maternal and child health services while also providing conditional cash transfer scheme to pregnant women in the country, a package which as you know is unprecedented our history. There is also provision for primary school feeding program, youth employment package which also entails what we call active labour market and public works programs for youth.

The novel scheme also allows for electricity rebate, fuel voucher, equipment voucher among other items. Though details of the overall cost implications are being finalised by the Ministry of Finance, suffice it to say that experience from abroad suggests that to establish an effective national safety net system in a country as large as Nigeria would require capital outlay of $100-$200 million annually for 3-4 years window depending on the envisaged design.

Thus as a first step, focus would be placed on designing the outlines and establishing a national registry to allow beneficiary identification. And later the focus would shift to the erection of other relevant building blocks which would spell out the conditions for eligibility, enrolment etc.

So as you can imagine, this is an entirely new song which requires a new dance step and that exactly is what we are doing.

There is no doubting the fact that we have gotten to a critical juncture in our national life where the imperatives for the total deregulation of the downstream sector of the petroleum industry cannot be over-emphasised.

– Aviation Turbine Kerosene, Diesel, LPFO, HPFO are fully deregulated. How successful has this programme been?

Interesting question! You are the journalist and I was hoping that you would be able to educate me on your findings in this regard. Well, first off is the fact that government has been spared the debilitating impact of bearing the cost of subsidy payments on the petroleum products you have identified.

Diezani

Petroleum marketers have been at liberty to import and export some of these products, as well distribute in-country without let or hindrance. Following the withdrawal of the NNPC from the importation and distribution of these products, especially diesel, you can imagine the multiplier effect increased participation of the private sector has had in job creation, skills acquisition and expansion in installed private sector capacity.

What are the imperatives for deregulation of petrol and kerosene?

The imperatives for deregulation of petrol and kerosene are quite obvious. Like I said earlier, last year alone, the government incurred over N1.3 trillion in subsidy payments on both products. Complete deregulation of the pump price of both products will save government this huge cost and afford same more money to apply to the developmental needs of other areas of the economy. But more importantly, deregulation of the pump prices of both products would unleash the entrepreneurial acumen of the private sector on the petroleum products refining sub-sector of the economy. You would recall that sometime in 2001 or thereabout, the government through the Department of Petroleum Resources issued 18 refinery licenses to private entities, but 10 years down the road, none of them have been able to set up a refinery and the reason is obvious – financiers and investors always cite the continued regulation of the downstream as reasons for their inability to go forward. We want to believe that once the downstream sub-sector is deregulated, these financiers and prospective investors will have the added impetus to go ahead and invest.

Nigeria represents the largest single market in sub-Saharan Africa; we are geographically located to act as a hub for the refining of petroleum and petrochemical products in the West African sub-region, among other benefits including job creation and possible domiciliation of capacity in-country.

– If the current PPPRA pricing template is anything to go by, indications are that there will be a 110% increase in the pump prices of petrol and kerosene if government goes ahead with implementation of deregulation. How does government expect to mitigate the impact on pricing?

That is an observation critical to this discourse; however you must permit my attempt at drawing a parallel between petroleum products and cost of telephone call in-country. You would recall that before the advent of GSM telephony, the average cost of telephone calls was about N1 per minute, but all of this changed with the introduction of GSM lines. Prices of GSM telephone sets went up at inception, ranging from N28,000 to N35,000 or more depending on the hand-set.

I dare say that following deregulation of the pump prices of petroleum products, it is inevitable that prices would go up initially. However, given the inevitability of competition which would follow, indications are that prices will come down marginally and when refineries start coming on stream between 24 and 36 months down the road, prices would fall sharply.

Nigerians must understand that we cannot achieve greatness without sacrifice – there is no victory, without a battle and there is no greatness without perseverance and tenacity of purpose. We stand at the precipice of greatness and must have the presence of mind to take the plunge.

Talking about mitigation, we are working out a package of incentives with the active connivance and input of industry stakeholders who appreciate the need for us to move beyond rhetoric. We appreciate the efforts steadfastness of organised Labour in looking out for the interest of the people and we appreciate the feelers we have gotten so far from them regarding the need to move the nation forward. We believe that the current realities affords government and organised Labour a unique opportunity to chart a new course on the way forward regarding job creation, industrialisation, development of in-country capacity, among other benefits.

We understand that the cost incurred in subsidy payments last year was in excess of N1.3 trillion. How much has subsidy payments cost the government this year?

It is early days yet – the end of the third quarter of the year. But if current trend is anything to go by, indications are that we may yet surpass last year’s figure put at about N1.3 trillion. Indeed this is more than enough imperative for the complete deregulation of the downstream sector of the petroleum industry.

Can you imagine how much impact N1.3 trillion to N1.5 trillion can have when deployed to accelerate the creation of the National Safety Net System which I spoke about earlier? We must understand that no country can afford to have recurrent expenditure outstripping capital expenditure and expect to grow. If we save the huge cost associated with payment of subsidy, we can in one fell swoop raise capital expenditure over recurrent expenditure and set our dear country on the irreversible part of growth and development.

While your submission on savings sound laudable, it is important to note that we have a law which demands that all monies coming into the federation account must be shared amongst all three tiers of government. The federal government has no control over this, and may have to contend with only the share that accrues to it under the sharing formula. What is your reaction to this?

I agree with you. But you must note that even at that, about 55 per cent of N1.3 trillion to N1.5 trillion amounts to something substantial which can be applied to other areas in dire need of intervention. Besides, just as the federal government requires funding to execute capital projects, so does the states and local government require funding too. I want to believe that we cannot afford to be held back by arguments against the deregulation of the downstream anymore than we have permitted in the last few years.

We have set targets including but not limited to Vision 20:20:20 by which time we expect to be catapulted to the 20th largest economy in the world. We cannot achieve this by sitting idly by and doing nothing, we have to initiate actions to propel the nation in this direction and the full blown deregulation of the downstream is one such action.

There have been allegations that the subsidy claims put out by government may be inflated, what is your reaction to this claim?

That is the most ludicrous claim I have heard in discussions surrounding the deregulation or otherwise of the sector. There are rigorous checks put in place to forestall any attempts at compromising the system. Between the PPPRA and the NNPC, the accounting processes are subjected to rigorous auditing. Like I said earlier we are at a critical juncture in our nation’s development and cannot afford to miss opportunities as they are presented. Claims regarding the propriety of subsidy claims are at best a distraction from the issues at hand.

Indeed assuming subsidy claims are inflated, an indication that the system is corrupted, is accepted as a given, isn’t that enough reason to jettison the process in its entirety to be rid of the very instrument of corruption that has bedevilled the system? Why must we continue with a system that exposes the country to so much loss, so much cost and permit your implied reference – corruption?

In the event government goes ahead with implementation of full –blown deregulation, Nigerians may be curious to know what use the savings made will be put to?

I had earlier stated that working in concert with various industry stakeholders, government was working out a package of palliatives cum incentives to mitigate the impact of removal of subsidy. It is however interesting to note that most commuters who travel in-country already pay deregulated transportation costs. Commuters who travel intra and inter-state lines use diesel powered vehicles for their movement

The big buses that travel between inter-state lines use diesel, even the big buses that convey commuters within city limits use diesel and diesel prices are deregulated. We will unveil the package of incentives and the uses to which savings on non-payment of subsidy will be applied as we are working as soon as we conclude our work. I can also assure you that this would be ready before the end of November, 2011.

Is it true that the NNPC is largely dependent on sovereign guarantees of the federal government to meet its fiscal obligations to third parties owing to the cost of subsidy incurred in the last 4 years?

Yes, this is true. It is sad to note that a corporation as big and vibrant as the NNPC has to go cap in hand asking the federal government for funds when it has no business doing so given the prospects and opportunities at its disposal. The NNPC ought to be at par with contemporary national oil companies such as Petronas, PDVSA, Petrobras and Saudi Aramco, just to mention a few, but this is not the case because of the debilitating impact of petroleum subsidy payments, among other negatives. We have initiated a robust programme to turn the fortunes of the NNPC around and the removal of subsidy is one of such efforts. Indeed the monies incurred in payment of subsidy in the last 4 years is more than enough to tar over 2,000 kilometres of highways, build several hospitals, upgrade facilities at our universities, fund research and development, among several other development needs.

What is the status update on the existing refineries and how far has the ministry gone with efforts to develop the 3 Greenfield refineries?

There is sustained effort at increasing refining capacity through: revamping existing refineries to increase their contribution to national demand of petroleum products. There is an ongoing engagement with the original EPC contractors to ensure effective implementation of the turn-around-maintenance. An NNPC team is currently in Japan to conclude the engagement of the original EPC contractors which will be the first to be rehabilitated.

Regarding the three Greenfield refineries to be sited in Lagos, Kogi and Bayelsa states, the initial feasibility study have been concluded and the preliminary report reviewed. We are awaiting the final report scheduled for end of September, 2011.

Is there any plan by government to divest from the existing refineries in the near future, especially in the face of recurring down time recorded at these facilities?

There is no plan by the government to divest from existing refineries, but we are open to collaborations with world class companies with proven integrity and track record in the refining and petrochemicals sub-sector. Regarding down-time recorded at these facilities, I agree that we have a peculiar problem and that is part of the imperative for the total deregulation of the downstream sub-sector.


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