Deregulate Downstream Petroleum Sub-sector, Rewane Tells FG

Peter Uzoho
The Managing Director and Chief Executive Officer of Financial Derivatives Company Ltd, Mr. Bismarck Rewane, has called on the federal government to urgently deregulate the downstream sub-sector of the nation’s oil and gas industry, saying current price imposition is discouraging investors.

Rewane, stated that the current system was strangulating the sub-sector, noting that deregulation would open up the market and accelerate growth of the oil industry.

He urged the federal government to emulate other countries that have deregulated their downstream sectors, so as to reposition the industry to truly serve as a growth catalyst.
The economist made the call in Lagos, during an interaction with journalists on the challenges facing local oil companies listed on the Nigeria Stock Exchange.

According to him, the imposition of a price ceiling on petroleum products which affects the margins of the operators would attract investments required to scale up their operations and explore the opportunities in the value chain of the industry.
“A factor affecting the operators is that they do not have control of the pricing of their products, which shouldn’t be as they are at the mercy of others”, he said.

The financial expert admitted that subsidy as a social policy requires sensitive management, noting, however, that the government must make up its mind to take the bull by the horn to free the industry of its current strangulation.
The International Monetary Fund (IMF) had recently urged Nigeria and other countries subsidizing fossil fuel to put an end to it, noting that the policy benefits the rich more than the poor.
Though the IMF, which stated this in a blog post titled: ‘Fuel for Thought: Ditch the Subsidies’ did not name any country, it is believed that the message was directed to countries like Nigeria whose fuel subsidy has become an avenue for siphoning public resources.

A recent World Bank report had said Nigeria spent N731 billion to subsidise petrol consumption last year.
The IMF had stated: “Pensions, education, healthcare, better infrastructure, technology, and climate change: fiscal policymakers have their work cut out for them on many fronts. Whether you live in a rapidly aging advanced economy, or a low-income or emerging market economy with a young, booming population, all these issues matter for you.
“As the Fiscal Monitor in April 2019 shows, government policies on taxes and spending have to adapt and should shift to growth-enhancing investment. This means, for example, more money to build classrooms, hospitals and roads, while cutting wasteful spending, such as inefficient energy subsidies.

“Removing fossil fuel subsidies, which typically benefit the rich more than the poor, could gain up to 4 percent of global GDP in additional resources over the medium term to invest in people, growth, and help protect the most vulnerable.
“We define the subsidies— which amount to 6.5 per cent of GDP globally—broadly. The IMF’s calculations include both the government funding to artificially reduce the price of energy below cost (0.4 percent of global GDP) and the under taxation of fuel consumption (6.1 percent of global GDP), because energy consumption contributes to global warming, local pollution, increased traffic congestion and more accidents.”

Also speaking at the event, the Chairman of the Major Oil Marketers Association of Nigeria (MOMAN) and Managing Director of 11 PLC, Mr. Tunji Oyebamiji, also called for the liberalisation of the downstream sub-sector to make it attractive for investments.
He said: “Well, we are a competitive industry. We believe in competition. We believe that when you give players in the industry a free hand to go into the market and to compete effectively, it brings out the best in them
“Many of our facilities are out-dated and getting older. We believe that government needs to free up the industry just like it has done in so many other industries. We have seen the massive development in sectors that have witnessed deregulation.”