Is deregulation of downstream petroleum sector expedient or desirable?

By Emmanuel Ugoji

At the height of a nationwide public enlightenment programme to create awareness for the 2006 National Housing and Population Census, Chairman of National Population Commission, Samu’íla Makama faced the daunting task of explaining to Nigerians why religion and ethnicity would not be among the variables to be canvassed during the exercise.

After several attempts to convince Nigerians did not work, he devised an ingenious way of addressing the questions. He always said that something can be desirable but yet not expedient.

By the response, he meant that canvassing for the two variables were suitable for achieving a particular end that could cause friction in the country in the sense that any group that turns out to have a higher population could use it as an instrument of oppression on other groups with smaller numbers. On the other hand, when something is desirable it means it has advantageous benefit, meaning that a national population and housing census is an exercise that would impact on national planning and resource allocation.
Fourteen years after the census, the two words have come into play again. This time around it is not for census purposes, but on the desirability or expediency of deregulating the downstream of Nigerian petroleum sector.
The campaign for deregulation has been on since the 1990s and the question on the lips of many stakeholders and non stakeholders revolves around why the feat has not been achieved.

It was a privilege listening to discussions at a webinar session on Nigeria Petroleum Downstream Consultative Summit which held May 21, 2020. Conversations at the meeting confirmed the confusion which had trailed efforts to deregulate the downstream sector over the years.

While the impression was that the meeting was for all stakeholders in the Petroleum downstream sector, the first observation was that the Independent Marketers, NNPC, Petroleum Products Pricing Regulatory Agency (PPPRA), Directorate for Petroleum Resources (DPR), Petroleum Equalization Fund (PEF) and Civil Society Groups, which would have spoken on behalf of the masses were totally absent. Groups represented at the webinar session included Depots and Petroleum Products Marketers Association of Nigeria (DAPPMAN), Major Marketers Association of Nigeria (MOMAN), Petroleum Retail Outlets Owners Association, MRS and Oil Trading and Logistics (OTL)

It was evident from the body language of participants and presentations made at the meeting that the confusion surrounding the deregulation of the downstream sector were as much as that trailing COVD-19 as it concerns its origin, cure and management as well as the contradictions recorded against medical experts on their comments about the virus.

At the meeting, it was easy to deduce that private sector participation in the formulation of policy that would guide the implementation of a deregulated regime is still minimal and that this has made major marketers to keep seeking for additional clarifications on how they would function when deregulation begins. For them, there are still a lot of uncertainties, which they say is not a friend to investment. They also need an environment that would create opportunity for them to make profit on investment.

For deregulation to be effective, the major marketers maintained that there should be additional investments on facilities which include pipelines, trucks and refining capacity as these would make it possible for deregulation to be efficient, effective and impactful.

From the angle of depot owners, business has been at a low ebb since NNPC became the sole importer of petrol as they could not embark on expansion projects. According to them, government’s intervention in pricing hardly took into account the expenses they incurred in the movement of products among other expenses. They had to stop business literally waiting for deregulation to happen. Some depot owners even have issues with banks in terms of obtaining and servicing loans because of government interventions. The implication of the statement that government did not take into account, some expenses they incurred in the movement of products gives an incline into what the price per liter will look like when deregulation commences.

The representative of the retailers who did not sound very eloquent and familiar with deregulation was only concerned about what he called the correct pricing for petrol products such that their business will be `”exciting”. He was very desirous of knowing government’s final decision on deregulation, the type of policy that will back it up as well as input from stakeholders. He expressed reservations on how foreign exchange for importation will be sourced which also prompted him to ask for a level playing field.

What also played out at the meeting was that speakers were suspicion of the real market intentions of the Federal Government as it concerns deregulation of the downstream of the petroleum sector.

A general observation at the meeting was that respective groups want deregulation to mean that government would totally hands off fixing the prices of petroleum products just as there will be no government agency monitoring their operations, except the Nigeria Consumer Protection Council which they said should only monitor to ensure that standards are met in terms of road worthiness of vehicles and selling outlets. Meanwhile, it is obvious that the council is struggling to cope with its schedule which makes it a tall order to add enforcement of standards in the petroleum sector to its brief.

The stakeholders believe that competition among marketers and market forces, especially price of products in the international market, will determine the price of products at the retail outlets. They, however, acknowledged that there would be price fluctuation. They dismissed the possible existence of cartels based on their assumption that they are all credible and responsible business entities despite the fact operators in the sector function in groups.

On how they plan to source foreign exchange for importation of petrol, the impression created by speakers indicated they will still look up to government and have not really identified ways and means of sourcing the funds. This came out clear when one of the stakeholders insisted that there should be a level playing field for obtaining foreign exchange which is against the impression that importers will independently source for funds for the business.

It will be recalled that sharp practices of cutting corners observed during the period that subsidy was provided for importers of petroleum products stood as a major setback to the government gesture. It was believed that when CBN provided foreign exchange to petroleum products importers at discounted rates, they contributed money and imported in one vessel while the remaining amount was deposited in banks and reinvested for more profit. Some of the major importers were said to be bank owners.

It was obvious at the meeting that the big players in the downstream sector do not favor the rehabilitation of refineries as a way of making availability of petrol cheaper for Nigerians. They prefer perpetual importation. They also kept mute on whether it would not make more sense for refineries to be rehabilitated or sold before deregulation comes into effect.
Few days after the meeting, the Chairman of OPAC Modular Refinery, Mr. Momoh Oyarekhua, said that the Federal Government should encourage local refining of the country’s crude oil to reduce the penchant for importation of finished products and this was in contrast with what the major marketers canvassed at their meeting.

On whether there will be a role for the Petroleum Equalization Fund in a deregulated regime, the major marketers came out clear that the organization will seize to exist or at best, will not be in its present form. The example used to explain the position was that the soft drink, Coca Cola sells at the same price all over the country and that the bottling company did not need to set up an organization to ensure the uniformity of price per bottle.

The explanation raises suspicion on the kind of relationship between PEF and major marketers. It is obvious the demand for Coca Cola depends on choice and its demand is inelastic while the demand for petroleum products is very elastic to the extent that it affects everybody and everything, including the dead who will need a vehicle to convey it from hospital to the mortuary or cemetery and for the generator that will supply power to the morgue where it is preserved.

PEF also appears not to be the best friend of petroleum marketers because of their role in ensuring that products are sold at same price all over the country. The ability to monitor the movement of products and how much they are being sold has been a torn on the flesh of marketers who would have preferred to have the liberty of fixing prices arbitrarily in order to make higher profit.

Matters are even worse now that PEF has developed an electronic device called “Downstream Automation Fuel Management Information Systems (DAFMIS). It is an innovation for organizing, evaluating and efficiently controlling PEF’s operation and it can monitor the movement, quality and quantity of products to the extent that any shipment across the shores of Nigeria could be stopped. This seems to be the reason behind the preference of the consumer agency as the supervisory government agency if deregulation is eventually implemented.

It is also evident that the planned deregulation is embroiled in conceptual confusion. Recently, the Federal Government came out with a denial of a well publicized pronouncement credited to it in which it announced the removal of price cap on fuel, an action which purportedly gave oil marketers the freedom to determine the pump price of petrol.

Soon after, the Chief Executive Officer of MOMAN, Clement Isong raised an alarm that nothing had changed with the pronouncement and that the Federal Government still called the shots in fixing the price per liter of petrol.
From all indications, we are still a long way from what is envisaged. The i’s need to be dotted and the t’s crossed if an effective and efficient deregulation of the downstream of the petroleum sector must happen. They include how would marketers source foreign exchange for importation of products? Will the CBN still be involved in the provision of foreign exchange since marketers are looking forward to the bank’s support? Would government allow marketers to fix prices without any interference after providing the foreign exchange at a discounted rate? Would there be a regulatory agency of government that would ensure that marketers stick to the rules of deregulation without cutting corners? What are the laws backing deregulation?

Other questions that bother observers include, how marketers and other stakeholders would be checked if they transform into cartels? What safety nets will be there to protect the interest of ordinary Nigerians especially those in the hard to reach areas, in terms of prices and availability of petrol? What will be the contribution of ordinary Nigerians to the process of deregulation even if it means engaging the CSOs? Will the government have the courage to step on the big toes that support or do not support deregulation? What will be the fate of refineries in the face of deregulation in terms of selling them or put6 them in a position where they refine the nation’s crude oil and what happens to the pipelines?

One thing is certain though, whether deregulation is desirable or expedient, it should be done in such a way that a backlash is avoided because once price of petrol goes up at a time when poverty is either knocking on the doors of many Nigerians or have taken residence in their homes, the consequences of the adage which states that a hungry man is an angry man becomes the order of the day and that will not augur well for good governance. The high price of kerosene and gas since the two products were deregulated should give an incline into what could happen if government hands off the importation of petrol.

Emmanuel Ugoji writes from Abuja.

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