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Nigeria’s oil sector deregulation of uncertainty: Petroleum products marketers accuse govt of deceit

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Nigeria’s oil sector deregulation of uncertainty: Petroleum products marketers accuse govt of deceit
Timipre Sylva

By Michal Eboh

THE recent pronouncement by the Minister of State for Petroleum Resources, Chief Timipre Sylva, that the downstream petroleum sector had been deregulated since March 19, had further worsened uncertainty in the Nigerian petroleum industry, according to oil marketers and stakeholders in the Nigerian petroleum industry.

Despite the claims by the government that deregulation has kicked off, there had been no significant change in the downstream sector, as the Nigerian National Petroleum Corporation (NNPC) is still the sole importer of Premium Motor Spirit (PMS), also known as petrol into the country and still fixes the price of the commodity indirectly, through the price at which it sells to depot owners.

This is also contrary to claims by the Petroleum Products Pricing Regulatory Agency (PPPRA), that it had commenced the issuance of licence to oil marketers to resume fuel import. In fact, marketers are claiming that government never stopped them nor withdrew their licence to import.

Efforts to get clarification from the PPPRA on whether it is planning a guideline or set of regulations for the downstream sector, pending the passage of the Petroleum Industry Bill (PIB) or amendment of the existing laws, proved abortive, as spokesperson for the PPPRA, Mr. Kimchi Apollo, refused to respond to messages sent to his phone.

However, in an interview with Vanguard, National President of Petroleum Products Retail Outlets Owners Association of Nigeria (PETROAN), Dr. Billy Gillis-Harry, disclosed that once the deregulation is properly outlined and the rules of engagement brought out, its members, comprising major and independent marketers, as well as depot owners, are ready to commence fuel import.

He said: “We can import products. Marketers, depot owners, they are all ready to get into the business and make it beneficial. But you cannot invest money in a business that you are going to lose. There is no deregulation that the government cannot still regulate some part of it.

So why delay?

“In reality, there is no way any marketer, retail outlet owners, or tanker and depot owners, would invest in a business where they cannot be certain that they would make profit. It helps when the government clearly define the guidelines of the full deregulation. Even if it is the partial deregulation that had already given us some level of authority to play in, without being able to import our own products, we have to know exactly what the rules are.”

In addition, the marketers maintained that their decision to hands off fuel import stemmed from the uncertainty, policy inconsistency and lack of clarity of governments’ plans and programmes for the downstream sector.

Specifically, the concerns, according to Gillis-Harry and chief executive officers of some of the oil marketing groups, stemmed from the absence of a level playing field in accessing foreign exchange, and government’s failure to develop a clear policy on modalities by which oil marketers can access dollars from the Central Bank of Nigeria (CBN).

In particular, they claim that in several meetings between oil marketers and officials of the Ministry of Petroleum Resources, the government officials would claim to have issued directive to the CBN to make foreign exchange available to marketers at certain rates, when importing fuel, noting, however, that on approaching the CBN, the marketers would be told they are not aware of such deal.

The oil marketers claimed that they are willing and ready to immediately resume fuel import, but access to foreign exchange and lack of enabling laws and guidelines backing the pronouncement of deregulation would continue to deter them from importing.

Gillis-Harry said, “We, as Nigerians, have only one guaranteed and legal source of getting funds for international trade transactions of any kind, and that is only from the Central Bank of Nigeria (CBN).

“One of the things we have canvassed at PETROAN is that all FOREX allocations for any of our transactions should be on a level playing ground.  Nobody should access dollar at a privileged price above the other.

“Whether, it is Major Oil Marketers Association of Nigeria (MOMAN), Depot and Petroleum Products Marketers Association of Nigeria (DAPPMA); Independent Petroleum Marketers Association of Nigeria (IPMAN) or PETROAN, we should all have access to dollar at the same price. That way, the market would be properly defined by market forces.”

He maintained that oil marketers were fully in support of deregulation; noting, however, that they want the government to do the right thing to ensure that the rules are properly spelt out and policies are clear enough to enable oil marketers understand government’s plans and roadmap, to enable them know what to do at any given time.

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Also, in his submission at a webinar on the downstream petroleum industry, Chairman of MOMAN, Mr. Adetunji Oyebanji, called on the government to institute appropriate legislation to back up the pronouncement of deregulation by the Minister of State for Petroleum Resources.

He said: “Marketers continue to advocate a proper legislation to allow market dynamics prevail. This is because people keep low stock towards month end because they fear price reduction and are worried that they might be unable to plan effectively.

“Government must ensure that there is a level playing field by removing monopolies, while a strong anti-competition agent should be in place to discourage operators from taking advantage of a free system. Like it has been done in other countries, we need a strong agency that sanctions infractions and help to mitigate price gouging.”

Also speaking, an energy expert and Senior Partner, Energy & Commercial Contracts, Primera Africa Legal, Mr. Israel Aye, noted that while it was within the powers of the Minister of Petroleum or his delegate, to remove under-recovery on petroleum products, especially as it was in line with the Oil and Gas Policies, until the Petroleum Act was amended, the government could not have been said to have deregulated the downstream petroleum sector.

He said: “The bedrock of the regulation of the downstream and petroleum product price control is Section 6(1) of the Petroleum Act. Until we change the law, the minister may hardwire the removal of subsidies and formally replace it with the Price Modulation template (2015), assuring bulk importers that they can sell at cost-reflective prices subject to price regulation mechanisms prescribed in the regulation.

“In order to deregulate the downstream sector, we need to amend or expunge Section 6(1) as it is currently written. We need a framework that prescribes the role and responsibilities of each institution taking decisions at every point in the petroleum producing pricing process.

“We need a framework that shows how the pricing template was arrived at, the intervals of the price modulation adjustments, whether monthly, quarterly, weekly or daily.

“There must be an agency legally empowered to handle the responsibility of modulation of petroleum products prices in the country outside the NNPC, which should be allowed to face its responsibility of handling the operations side of the business.

“We must demand an open and transparent process to handle all the issues in the price modulation value chain to remove arbitrariness and exploitation.”

He explained that the much-needed reforms of the Nigerian petroleum industry would be achieved by the passage of the Petroleum Industry Bill (PIB).

Speaking in the same vein, Mr. Joseph Nwakwue, Chairman, Society of Petroleum Engineers (SPE) Nigerian Council, argued that the government was yet to deregulate the downstream, especially as there was yet to be an amendment or change in the existing legislative framework.

He said: “Deregulation?  That is a tall one. Do you fix prices in a deregulated market? To deregulate the downstream would require change in the existing legislative framework and market structure in my humble opinion. We may have set the pump price at cost recovery levels but have not taken the necessary steps towards deregulating the sector.”

On his part, Professor Wumi Iledare, who currently heads the Ghana National Petroleum Corporation (GNPC) Professorial Chair in Oil and Gas Economics and Management at the Institute for Oil and Gas Studies, University of Cape Coast, Ghana, said: “Deregulation has to be backed by dissolution or discontinuation of an existing regulation or law.

“The Petroleum Act 1969, as amended, empowers the Minister to set the price and the Petroleum Products Pricing Regulatory Agency (PPPRA) Act became the enabler even from the name.

“To deregulate there must be a regulation gazetted not implied from executive order or in the front pages of the newspaper. You cannot have an unrestructured PPPRA and Petroleum Equalisation Fund (PEF) and claim to have a deregulated downstream.  Who is fooling who?”

In addition to the above, Tengi George-Ikoli, Programme Coordinator of the Nigerian Natural Resource Charter (NNRC), called on the government to immediately privatize the country’s refineries as proposed by NNPC to improve Nigeria’s access to finished products in country, reducing potential for over reliance on external support for products, to preserve Nigeria’s sovereignty.

She further called on the government to improve the efficiency of the downstream oil sector by reviewing its policies, regulations and operational guidelines to ensure profitability, improved private sector participation and improved employment.

Vanguard

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