The downstream sector of Nigeria’s oil and gas industry, no doubt, has been in a shambles for many years, but it has been thrown into more confusion in recent months, no thanks to the Petroleum Products Pricing Regulatory Agency. In March, the Federal Government, through the PPPRA, announced a new fuel price regime. It said this was expected to emplace a more transparent pricing model, stimulate investment growth in the sector and encourage resumption of product imports by oil marketing companies.
The collapse in global crude oil prices triggered the reduction of the pump price of petrol from N145 per litre to N125 in March. The government also decided to bite the bullet and rid itself of the burden of petrol subsidy, which, as rightly observed by the Minister of State for Petroleum Resources, Timipre Sylva, was “benefiting in large part the rich, rather than the poor and ordinary Nigerians.” The removal of the subsidy became abundantly clear this month when the PPPRA announced a new price band of N141.80 to N143.80 per litre of petrol, up from N121.50 to N123.50 per litre in June. The Federal Government had said in a letter to the International Monetary Fund in late April that the recent introduction and implementation of “an automatic fuel price formula” would ensure fuel subsidies do not re-emerge.
It stands to reason that petrol subsidy removal is a major step towards the long-awaited deregulation of the sector, but the government’s fixation with price control in a so-called deregulated market is a major cause for concern. Last month, the PPPRA published a document where it glaringly contradicted itself, thus creating much confusion in the market. It said the price cap per litre in respect of petrol had been removed but in the same breath, the agency said it would advise the Nigerian National Petroleum Corporation and oil marketing companies on the monthly “guiding retail price” at which the product shall be sold across the country. That just reeks of fraud.
In a statement on May 15, the minister said deregulation was approved on March 19 this year. “But as you all know, PMS (Premium Motor Spirit) and other petroleum products are very strategic commodities, so you cannot allow the prices of these commodities to be determined wholly by the marketers,” he stated. Sylva said deregulation meant that the government would no longer continue to be the main supplier of petroleum products, but would encourage the private sector to take over the role of supplier of the products. In 2017, the NNPC became the sole importer of petrol into the country after private oil marketers stopped importing due to crude price fluctuations, among other issues. Now, not much has changed despite the removal of subsidy: the NNPC is still the major supplier of the product and the PPPRA retains the unjust price template. This status quo is unsustainable; the sector is at risk of collapse if the government continues to crowd out the private sector operators.
The uncertainty created by the monthly price review by the PPPRA and the challenge of accessing foreign exchange have been identified by marketers as major disincentives to the resumption of importing. If the government is serious about the deregulation of the sector, these issues have to be addressed in order to transition from today’s monopoly structure to a vibrant, competitive market. The sector must be repositioned for it to attract the much-needed investments in refineries and pipelines, among others.
It is noteworthy that one of the policies listed as fiscal measures in the Nigeria Economic Sustainability Plan, which was approved last month by the Federal Executive Council, is the deregulation of the price of refined petroleum products and the establishment of a sustainable framework for maintaining the national strategic stock. This should be vigorously pursued.
There is a need to break the NNPC’s monopoly and create a level-playing field for operators in the sector. The government cannot be the regulator and a major operator (importer). A situation where a few operators, who are politically favoured, have a field day, while many others are forced to close shop or suffer losses has to stop.
The government cannot continue fixing the pump price of petrol every month and expect private sector investors to be willing to resume wholesale import or build refineries in the country. In a truly deregulated market, the retail price of fuel includes four main components: the cost of crude oil; refining costs and profits; distribution and marketing costs and profits and taxes. It means that it costs more to transport fuel to the pumps in some areas, such as remote places that are far from major cities. These higher transport costs will show up in the price of fuel. This means there is no place for the fraud-induced bridging costs as part of fuel price.
The NNPC should get out of the downstream sector, remove the bridging cost and fully deregulate the market. The PPPRA and the Petroleum Equalisation Fund have overstayed their welcome and should be scrapped. Only the Department of Petroleum Resources, as the quality control agency, is relevant in a truly competitive downstream oil market.
The country’s loss-making refineries should be sold. Let there be a thorough, corruption-free transfer of the refineries to private investors. The government should also provide incentives for investors to set up more refineries in the country to avoid creating a situation where a sole operator has a monopoly on oil refining and marketing in the near future.
