A mixed reaction is still trailing the dithering in allowing full implementation of the Petroleum Industry Act, which in the view of operators has the potentiality of driving Investment in the industry and return sanity in products supply chain.
Nigeria is presently seen as failing to drive investment to its bountiful downstream oil sector following inability of government to stamp its authority to fully implement fiscal policies that could attract funds into the sector.
Rather than reap the benefits provided by the PIA, Nigerians are rather gasping to derive positive opportunities which about in the sector.
Existing market operators and potential investors are holding back funds as they are unsure of Investment recovery as government tactically retains petrol subsidy policy.
Both major and independent petroleum marketers have backed out of product importation arrangement put together by the federal government following inability to recoup cost associated with the business.
The Major Oil Marketers Association of Nigeria (MOMAN) said ending subsidy on Premium Motor Spirit (PMS) is extremely difficult but the federal government has no other option in light of current economic realities.
MOMAN also called for massive investment by the government in various sectors such as mass transportation, healthcare and education to successfully wean off Nigerians from petrol subsidy.
Chairman of MOMAN, Mr Olumide Adeosun, made this known at the Association of Energy Correspondents of Nigeria (NAEC) Strategic International Conference in Lagos.
Adeosun spoke on the topic: “Energy Transition, PIA, Petroleum Pricing and the Way Forward for the Downstream Sector.”
Represented by Mr Clement Isong, the Chief Executive Officer, MOMAN, Adeosun said it would remain extremely difficult to wean Nigerians off cheap PMS, also known as petrol.
He said: “It is something that must be done as there are no more viable options.
“We are told that this year the subsidy bill to the federal government may be between N5 trillion and N6 trillion. Clearly, Nigeria cannot afford this.
“To wean Nigeria off this subsidy, a lot of investment must be done to sensitise Nigerians in convincing them and finding alternatives.
“We need to begin to remove the subsidy and mitigate the pains Nigerians will feel when petroleum prices begin to manifest their true value.”
Adeosun said marketers were optimistic that the industry was headed in the right direction with the enactment of the Petroleum Industry Act (PIA) 2021 which was an excellent piece of legislation.
“We are now at the point of implementation, which is taking a bit longer than hoped but this is not necessarily a bad thing.
“The president postponed the implementation of free market pricing, which has caused a slowdown with respect to benefits expected from free competitive open market pricing, such as new investments and subsidy removal, ”he said
Adeosun said the marketers were also convinced that (the decade of gas declared by the federal government in January 2021) was clearly the way forward.
He said, however, the increase in gas prices worldwide and the unavailability of the product had made it a little more difficult in the roll out.
Adeosun said, “The ordinary Nigerian who was meant to transit to gas not just for cooking but also for powering automobiles and power generation is struggling because PMS pricing is yet to be fully deregulated.
“It creates an aberration and additional challenge for the adoption of gas, as most people are still dependent on cheap PMS for their cars and generators.”
According to him, while the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) has an important role to play in guiding our future, the best regulator ultimately is the market.
“The market regulates prices if you are too expensive people would not buy from you. The market regulates quality as well as customer service. The market also rewards the best in class.
“We need to move to an era of transparency and information dissemination.
“Energy correspondents need to share as much information as possible with the market and public with respect to cost prices, quality, product specifications, customer service and pump prices.
“That is the best regulation you can ask for,” Adeosun said.
In his view, the group managing director, Rainoil Limited , Dr Gabriel Ogbechie said the country stands to save over 12 trillion naira, which could be channeled for other areas of development for the country if the downstream sector is fully deregulated
Ogbechie, a key investor in the downstream oil industry said the global average price currently for PMS was N516 per litre, which was way higher than the N175 per litre it is being sold in Nigeria and called on government to not only deregulate but also initiate a petrol tax to fund maintenance and construction of critical infrastructure across the country
Speaking on the vexed conversation around fuel subsidy removal, he noted that Nigerians are not adverse to subsidy removal, but noted that PMS consumers only want some level of reassurance on the subject matter, and the cushioning effects by government.
He also noted that the petroleum industry act remains the silver bullet in growing the downstream sector, however decried the huge sum expended on fuel subsidy so far.
Ogbechie noted that the subject issue of deregulation has come to stay, as a policy direction for the downstream petroleum sector, given the enormous benefits that comes with a deregulated petroleum environment.
He said however, that Rainoil Limited presently has over forty LPG trucks in its business bank, with retail outlets scattered across the country.
As a prominent player in the Nigerian oil and gas industry, Ogbechie said the company’s operations cut across the downstream value chain including petroleum product storage, haulage/distribution and retail sales. The company’s primary products he disclosed, included petrol (PMS), Diesel (AGO), kerosene (DPK) and liquefied petroleum gas (LPG).
He said Rainoil just celebrated 25 years this year. According to him, the company which started from the scratch, today had been built to be one of the very prominent and very dominant players in the downstream sector of the Nigeria oil and gas industry.
“Today, Rainoil limited holds a 50million litres capacity of petroleum deport. We own another 50million litres capacity petroleum deport in Calabar, Cross River State. We own yet another 50million litres capacity deport in Lagos State. Again, we own an 8000MT liquefied petroleum gas facility also in Lagos State.
‘’We have little more than 100 petrol stations spread across the country. We are also heavily into logistics. We have more than 150 tank trucks that distribute the petroleum products across the country,” he said. Ogbechie added that the company had provided direct employment to less than 1,200 Nigerians.
However, an economist Dr. Muda Yusuf, in his opinion said there is a need to creatively manage the transition from the current pricing regime to a fully deregulated arrangement.
Yusuf, the chief executive officer, CEO, of the Center For The Promotion Of Public Enterprises (CPPE), said, “It is a tricky issue which could pose a serious challenge to government if not tactically managed. The reality is that the sentiments among the citizenry are not favourable to the deregulation of petroleum product pricing or petrol subsidy removal. Even some elites are curiously not persuaded on the justification for the subsidy removal.”
Yusuf, who was former director-general of the Lagos Chamber of Commerce and Industry (LCCI), told the NATIONAL ECONOMY that if the policy transition is not properly managed, the risk of a social and political backlash could be quite high.
“No doubt there is a sound economic and business case in favour of fuel subsidy removal. But the social and political contexts are equally critical.
Certainly, the subsidy is not sustainable, which is why there is need to accelerate engagement with the relevant stakeholders to come up with a policy transition strategy that is sustainable, realistic and pragmatic.
The conversation should not only be economic, but also social and political,” he advised.
On the way forward he said government should first expeditiously address the ongoing rehabilitation of local refineries as domestic refining of petroleum products will ease the current prohibitive cost of petroleum products which is largely a consequence of our vulnerability to volatilities in global oil price and currency depreciation.
The Dangote Refinery should also be supported to ensure early completion, he added.
Meanwhile, he advocated an urgent engagement with stakeholders to allow for a slight adjustment in price in the light of inflationary impact on petroleum downstream operations., saying, “The full deregulation may not happen at this time because of the enormity of the potential shocks on the citizens and current political context.”
There should be a level playing field in the current allocation mechanism of imported petroleum products to Marketers by the Nigerian National Petroleum Company, NNPC, Limited.
