By Obas Esiedesa – Abuja
Senate’s decision to award just three per cent to oil-bearing communities may not be the only controversial clause in the Petroleum Industry Bill, PIB, as a closer check has shown that the upper chamber also provided that petroleum products can only be imported by refinery owners in Nigeria.
While the bill expectedly removed price controls on petroleum products in section 205, the Senate version of the bill has a clause that constrains market competition by restricting the importation of products to only players with local refining capacity.
This clearly counters the provision of 205(1): “Subject to the provisions of this Section, from the effective date, wholesale and retail prices of petroleum products shall be based on unrestricted free-market pricing conditions.”
The inserted section 317 (8) in the Senate bill states:
“(1) The Authority shall apply the Backward Integration Policy in the downstream petroleum sector to encourage investment in local refining.
“(2) To support this, licence to import any product shortfalls shall be assigned only to companies with active local refining licences.
“(3) Import volume to be allocated between participants based on their respective production in the preceding quarter.
“(4) Such import to be done under NNPC Limited Direct Sale/Direct Purchase (DSDP) scheme.
“(5) To safeguard the health of Nigerians, imported petroleum products shall conform to the Afri-5 specification (50ppm sulphur) as per the ECOWAS declaration of February, 2020 on adoption of the Afri-Fuels Roadmap”.
The decision by the Senate to impose restrictions on what is supposed to be a deregulated downstream sector of the Petroleum Industry raised eyebrows among experts who called for the provisions to be expunged.
When contacted on Sunday, energy expert and former President of the Society of Petroleum Engineers Nigerian Council, Engr. Joseph Nwakwue, in a note to Vanguard on the clause, expressed concern that the provisions will create a duopoly in a price deregulated environment thereby destroying the Nigerian downstream industry as we know it today.
According to him, “It restricts importation of all petroleum products, including PMS, diesel, aviation fuel, lubricants, base oil – products which are already deregulated, to only players with local refining capacity.
“In the near term, only the NNPC and Dangote will have domestic refining capacity for PMS for instance, so they will be the only importers. This takes the industry back and could not have been the intention of the bill.
“Moving from a state-owned monopoly in a price regulated market to a duopoly in a price deregulated market is not what Nigeria needs now as it takes the industry backward and exposes Nigerians to exploitation and further hardship. This, in my humble view, is not reformatory”.
He pointed out that “rather than seek to protect refiners, we should rather seek to protect the consumers by liberalizing and expanding petroleum product supply sources. That is the only way prices will be “market-determined” and consumers made to pay fair value for the products they buy.
“The viability of local refining is not determined or enhanced by locking out competition, it is rather achieved through price deregulation which has been done in section 205.
“This clause gives statutory unfair advantage to private players rather than through market competition.
“Indeed, the law and the authorities have an obligation to protect the market (other players including Nigerian entrepreneurs) and the consumers rather than to encourage monopoly/duopoly by locking out competition.
“This clause does not create a level playing field for all players in the sector, and can indeed destroy existing Nigerian businesses that engage in importation of other petroleum products like diesel, LPG, Aviation fuel etc with attendant loss of jobs and more economic misery for Nigeria and Nigerians”, he added.
Nwankwue pointed out that governments all over the world “do not create and encourage monopolies or duopolies and that is why anti-trust laws are enacted and enforced to protect industries and consumers.
Nigeria should not be doing the reverse. A case can always be made about protectionist policies for nascent or pioneer industries, but this is not the case with a long-established, once-thriving Nigerian downstream.
“This clause needs to be expunged from the PIB. The downstream regulator – Authority should be left to develop regulations that are fair, inclusive and transparent for petroleum product importation that ensures open and diverse market supply and hence competition, only then would the objectives of the bill be achieved.
“It is worth repeating that as price control is being removed, supply must be competitive, inclusive, transparent and seen to encourage efficiency. Then, and only then will Nigerians and Nigerian win”, he added.
Also in his note to Vanguard, energy expert, Ademola Adigun said the provision was clearly put in place to favour certain players in the industry.
According to him, “It is a clause designed to give an advantage to Dangote. It’s not a fair clause based on current realities and is capable of creating an oligopoly in the market.
“It’s very unfair and seems inserted to please a certain group”, he added.
Also a document detailing industry players’ position on the PIB obtained by the Vanguard stated this about the section, “A licensing regime for importation be included in section 174 and the conditions for licensing be open and transparent, ensuring free-market competition and a level playing field for all parties. This will enhance market efficiencies”.
The Senate and the House of Representatives last Thursday set-up conference committees to harmonise both versions of the PIB.
The committees are expected to meet on Monday. The harmonized version is also expected to be passed by both chambers before the National Assembly proceeds on its annual break on Thursday.