With price of petrol increased from N86.50k to N145 per litre, major marketers are facing a drastic reduction in volume sales, as many independent oil marketers face an uncertain future as forex scarcity bites harder. Chairman of Major Oil Marketers Association of Nigeria, MOMAN, Akin Akinfemiwa who is also the Group Chief Executive Officer, Forte Oil Plc explains to Adedayo Adejobi
Marketers clamoured for deregulation for years and only recently the government finally heeded that call and deregulated the downstream. How has this impacted on the downstream petroleum sector?
The clamour is still on and the market is not deregulated as we speak. What we have is an adjustment of the foreign exchange line items on the modulated template to approximately NGN285/$1 from the NGN197/$1 CBN rate previously used. However, we view this as a significant achievement and departure from the subsidy regime in which petroleum product imports accounted for over 50% of Nigeria’s foreign exchange earnings leaving very little headroom for spending on social infrastructure. Furthermore, the over-dependence on the CBN window at the time implied that marketers were stifled with respect to import volumes and hence various supply outages at the time. I need to commend the efforts of the Honorable Minister of State for Petroleum, Ibe Kachikwu for taking this bold step in ensuring that products supply in Nigeria today is at import parity without recourse to subsidy to the FGN. We shall continue to work towards the full deregulation of the downstream sector and allow the customer benefit from the overall efficiencies we bring to bear. In addition, the new pricing structure would create a more structured approach for the operations of the downstream sector with a reduced dependence on NNPC by all marketers for petroleum products supplies as we now have to source ourselves. I am aware that some Major Marketers have been approached by some independent marketers for integration and absorption as some of these independent marketers may not have the scale required to operate in the days to come. This is the beauty of this new structure and it shall be to the ultimate benefit of the consumers.
The queues at the filling stations suddenly disappeared after the pump price of petrol was pegged at N145 and products have been readily available. Did this justify the clamour by marketers for deregulation?
Like I had mentioned earlier we are not in a fully deregulated regime. The disappearance of the fuel queues with new prices at 145 eliminated the unnecessary arbitrage that existed between the various states of the federation and Lagos and Abuja (focus of supplies during the shortages) when the pump price was at N 86:50. As you may be aware, limited product supplies flowed from Lagos and Abuja to states with very little or no supplies pushing up the prices in those areas to about 200-400% of the 86:50 pump price at the time. The introduction of the 145 pump price eliminated that arbitrage. It is also very important to note that PMS demand has witnessed a 40-50 reduction in demand since the introduction of this new pump price without a corresponding increase in income has led to a reduction in purchasing power and consequently efficient journey planning and management on the part of motorists.
With N145 pump price per litre, how has this affected your sales with petrol now more readily available?
Sales have drastically reduced by about 40-50% at this new pump price. Nigeria is a driving country with a lot of dependence on PMS for both passenger and commercial vehicles. As the foremost indigenous energy solutions provider, our customer surveys indicate that motorists have resorted to various journey planning initiatives such as car-pooling, use of government mass transit busses and even cutting down on unnecessary movements and visits. If you may agree with me, there has been a light flow of traffic in the Lagos metropolis in very recent times. We however deem this to be the initial reaction and thus believe that the demand will improve over time.
There was news report recently that despite the deregulation of the sector; marketers are still constrained by access to forex and have been unable to import. How are they now sourcing their forex?
The foreign exchange constraints are still there. Recall that when the price adjustment was made, there was an allusion to a secondary foreign exchange market but I am aware that the authorities are finalizing modalities for this and should be implemented in the coming days. There is sufficient petroleum products from both the NNPC and the Major Marketers pending the implementation of this policy.
With the pump price pegged at N145 is the sector now deregulated or what we have seen is just a mere increase in the price of the product to remove subsidy?
As I said earlier, the market is still not deregulated. However we have leap-frogged from the subsidy regime which I consider a huge success and has also laid a solid foundation for deregulation. The price of 145 Naira per litre is a function of a fixed and applicable foreign exchange rate of 285N to 1 USD. We also still have agencies like PEF ensuring the uniformity of this price across the entire country. What we have now is low crude oil prices, significantly high summer discounts on PMS purchase offshore and a fixed and applicable exchange rate of N285. Should any of these variables move northwards or southwards, then that shall have significant implications on the pump price and this is where the main challenges shall be for Marketers. The main challenge I see here is rate at which the foreign exchange shall be sourced for these imports and a clear policy on the pump prices should any of these market variables change.
Forex appears to be an issue because independent depot owners recently visited the Minister of Finance where they call for her assistance in accessing forex. What is the way out?
I think meeting with the minister is unnecessary at this point. This is a purely Monetary Policy issue which lies with the Central Bank of Nigeria and the ability of CBN to intervene in the foreign exchange market which is tied to an increase in dollar revenue. If you look at our situation today, we have reduced crude output as a result of the current disruption in crude production in the Niger Delta region. Now that we have a near-deregulation, initiatives like that of Dangote Industries Limited in establishing private refineries will eliminate the over-dependence on foreign exchange for fuel imports to the tune of about of USD 12 Bn (as at today’s prices for all petroleum products; PMS, Bitumen, AGO, Jet A-1, HHK, LPFO, etc) and enable the FGN to develop social infrastructure to the benefit of Nigerians and unborn generations