Nigeria’s Petroleum Industry Act (PIA 2021) was enacted to provide for the legal, governance, regulatory, and fiscal framework for the Nigerian Petroleum Industry. It also provides the establishment of host communities fund and other related matters in the upstream, midstream and downstream sectors of the petroleum industry.
The PIA also created specific institutions to drive the operations of Nigeria’s petroleum sector through the formation of the Nigerian National Petroleum Company (NNPC) Limited, Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA).
The PIA 2021 (a legislation that embodies 5 Chapters, 319 Sections, and 8 Schedules), comes with an array of provisions and innovations that will affect the private, public sector and stakeholders in the oil and gas industry. It ushers in a new dawn for Nigeria’s Oil & Gas Industry and opens a new page of prosperity for Nigerians.
However since the beginning of the phased implementation of the Act, key industry operators are increasingly demanding fair competition as enshrined in the law.
Also, robust public commentaries and opinions by experts and legal scholars with deep knowledge of the Act have seen seeming gap in its implementation which is fueling concerns and fears about possible market manipulation and domination.
At several fora, experts have expressed their concerns about insufficient regulatory attention to obvious issues especially regarding operations in the downstream sector where there is infringement in market structure that is attempting to hurt investment opportunities and flow.
The Institute for Energy and Extractive Industry Law, a body with an array of legal experts and oil and gas industry analysts, recently hosted an interactive session with key media professionals to shed light on the provisions of the PIA, and discussed some salient issues bothering on practices that could undermine the industry if not addressed.
Speaking on the seeming lack of competitiveness in the sector, an oil and gas industry analyst Henry Adigun, said Nigeria is yet to provide a competitive refining market environment to guarantee fair product pricing and efficiency.
Adigun, enthused that the refineries owned and operated by the Nigerian National Petroleum Company Limited (NNPCL) as presently structured are no match to Dangote mega refinery and cannot refine volume of products that are considered suitable with low sulphur.
This, he said, could be responsible for certain practices that often result in losses by marketers.
Speaking with NATIONAL ECONOMY on the sidelines of a forum hosted by the Institute in Lagos, Adigun, said that a competitive market structure in the midstream and downstream sectors of the petroleum industry exists when multiple market players can freely enter, compete, and operate under fair and transparent conditions.
In basic terms, this denotes there is no monopolistic dominance, controlled governmental interference beyond regulation that ensures fairness, sufficient infrastructure access for market participants, transparent pricing mechanisms, and opportunities for innovation and investment.
He went further to explain that various sub-issues indicating a free and competitive market include open and equitable access to infrastructure, market-driven and transparent pricing, absence of regulatory impediments, and strong enforcement mechanisms, ensure sustained competition benefiting the overall petroleum market performance, stakeholders, and consumers.
In a similar conversation, Taiwo Ogunloye, a Lawyer and Energy expert, alluded to the fact that pricing efficiency and open market participation is hindered due to anti-competitive market practices and behaviour in the midstream and downstream petroleum industry.
According Ogunloye, this happens by activities performed by companies to undermine fair competition, negatively impacting market efficiency, prices, and consumer choices.
́ Such practices may include price fixing, collusion, predatory pricing, market allocation, monopolisation or abuse of dominance, exclusive contracts, unfair restrictions in distribution and retail operations, refusals to supply or deal, discrimination in pricing, or limiting infrastructure access to competitors.
These behaviours distort market conditions, creating artificial barriers for new entrants or smaller players, undermining transparency in the pricing process, harming consumer welfare, and hindering innovation and improvements in service quality,” he said.
A source who spoke on the issue of lack of transparency in the sub-sector, that a marketer recently lost over N1.2 billion to price fluctuations occasioned by Dangote refinery price changes.
The source complained that the practice adopted by the refinery by frequency of price adjustments without engaging marketers brings about significant investment losses. “Also, allocation of products to a select marketers further fuels anti-competitive practices because those marketers are compensated when prices are adjusted,” the source complained.
He said some depots have not received Premium Motor Spirit (PMS) also called petrol in the last one year.
According to him, some investors are divesting into gas storage facilities like Shoreline that has made significant investment in the gas storage facility.
In his views, Israel Aye, a legal practitioner and energy industry analyst, noted that anticompetitive practices and behaviours in the midstream and downstream petroleum industry refer to behaviours or strategies employed by petroleum companies or market participants to unfairly restrict competition and gain undue advantage, typically at the expense of consumers and rivals.
These practices tend to limit market efficiency, distort pricing mechanisms, prevent entry of new businesses, and negatively impact overall economic welfare.” he said.
Aye explained that anticompetitive behaviours in the petroleum midstream and downstream sectors refer to behaviours that reduce or limit competition in markets, which can produce severe detrimental economic effects, distorting market outcomes, harming consumer welfare, discouraging necessary investments, and undermining industry efficiency, and often lead to inflated prices and poor service delivery.
They called for legal and Institutional Framework regarding anticompetitive practices and behaviours in the Midstream and Downstream Petroleum Industry.
In the opinion of the analysts regulatory agencies in the industry should monitor market behaviour to foster competitive environments, identify and stop abuses of dominant market power and restrictive business practices.
They also called for assessment of the petroleum industry’s operational efficiency and evaluate potential barriers for new market entrants, detect and prevent ongoing anti-competitive activities and also establish pre-conditions and transitional arrangements necessary for competitive service offerings. Meanwhile marketers are currently engaging Dangote refinery to develop new partnership and framework that will enable market pricing stability and encourage product distribution via marine access.
Some said they are restricted from importation due to forex scarcity saying that imported petrol is far cheaper than Dangote petrol. They called on government to provide forex for imported substitution to promote competitiveness and provide affordable petrol to the market.
Understanding Downstream Petroleum Operations In The Act
Ogunleye, took time to explain the meaning of downstream petroleum operations in the Petroleum Industry Act.
According to him, Downstream Petroleum Products Operations means; all activities entered into for the purpose of distribution and supply of petroleum products to retail customers, tank farms for distribution of petroleum products, and stations for the distribution, marketing and retailing of petroleum products.
However, before the PIA, there was non-competitive market as the petroleum industry was dominated by state ownership and dominant market power in the upstream and midstream without private sector investments or participation.
State control and rent-seeking by the government limited the growth of self- sustaining midstream industries and investments in midstream infrastructure lagged behind upstream investments with non-commercial unregulated monopoly and barriers to entry were high.
Also, uncommercial tariff and pricing structure regime remains the market structure operations as some petroleum product prices were regulated among others.
However, some of the speakers noted that even when a competitive market structure in the midstream and downstream sectors of the petroleum industry exists when multiple market players can freely enter, compete, and operate under fair and transparent conditions, as the Act tend to promote, that objective is yet to be actualised.
In basic terms, this denotes there is no monopolistic dominance, controlled governmental interference beyond regulation that ensures fairness, sufficient infrastructure access for market participants, transparent pricing mechanisms, and opportunities for innovation and investment.
Various sub-issues indicating a free and competitive market include open and equitable access to infrastructure, market-driven and transparent pricing, absence of regulatory impediments, and strong enforcement mechanisms, ensure sustained competition benefiting the overall petroleum market performance, stakeholders, and consumers.
Discussants at the forum argued that that there are anti-competitive market practices and behaviour in the midstream and downstream petroleum industry with activities performed by some companies tend to undermine fair competition, negatively impacting market efficiency, prices, and consumer choices.
Such practices include price fixing, collusion, predatory pricing, market allocation, monopolization or abuse of dominance, exclusive contracts, unfair restrictions in distribution and retail operations, refusals to supply or deal, discrimination in pricing, or limiting infrastructure access to competitors.
Adigun, in his opinion states that there is lack of competition in the industry as no refinery in the country is a match to Dangote refinery.
He said the state-of-the art refinery is only capable to compete with global refineries.
Ogunleye, in his submission said such behaviours distort market conditions, creating artificial barriers for new entrants or smaller players, undermining transparency in the pricing process, harming consumer welfare, and hindering innovation and improvements in service quality.
In his paper, ‘Understanding Anticompetitive Practices in the Midstream and Downstream Petroleum Industry’ Ogunleye, said, “Anticompetitive practices and behaviours in the midstream and downstream petroleum industry refer to behaviours or strategies employed by petroleum companies or market participants to unfairly restrict competition and gain undue advantage, typically at the expense of consumers and rivals.
́ These practices tend to limit market efficiency, distort pricing mechanisms, prevent entry of new businesses, and negatively impact overall economic welfare.”
He warned that impacts of such actions are especially severe in countries with developing regulatory institutions or in transitioning markets, arguing that “ Strict regulatory oversight and enforcement, transparent market access rules, and competitive pressure remain essential to minimize these serious consequences.”
Israel Aye, in summary to balancing up market operations said regulatory Authority may apply the Backward Integration Policy in the downstream petroleum sector to encourage investment in local refining.”
He said, “Pursuant to subsection (8), of the Law, licence to import any product shortfalls may be assigned to companies with active local refining licences or proven track records of international crude oil and petroleum products trading. Import volume to be allocated between participants shall be based on criteria to be set by the Authority taking into account their refining output in the preceding quarter, the share of active wholesale customers, competitive pricing, and prudent supply, storage and distribution track records.”
These sections outline the framework for promoting local refining through the Backward Integration Policy and set criteria for issuing import licenses to address product shortfalls.
