Downstream Oil Sector Operators Harp on Attractive Business Climate


Peter Uzoho
Operators in the downstream sector of Nigeria’s oil and gas industry have reiterated the need for the federal government to initiate policies that would pave way for an attractive and competitive business environment.
This, according to them, would lead to increased investments in the sector.

The also urged the federal government to unveil a pricing formula that would guide the monthly adjustments of the pump price of premium motor spirit (PMS) otherwise known as petrol in order to avoid dislocations at the retail end of the value-chain.

The operators made the call during a webinar organised by the OTL Africa Downstream in conjunction with Major Oil Marketers Association of Nigeria (MOMAN), Depot and Petroleum Products Marketers Association of Nigeria (DAPPMAN) and Petroleum Products Retail Outlets Owners Association of Nigeria, among others, to discuss the issues attendant to full market deregulation including pricing, business models, competition, new investments and value-creation in the downstream petroleum sector.

They expressed concerns about the style of market deregulation including pricing, business models, competition, new investments and value-creation in the downstream petroleum industry.

According to the operators, many marketers are keeping low stock towards every month end due to the uncertainty surrounding the price of the commodity, especially as government, through the Petroleum Products Pricing Regulatory Agency (PPPRA), still determines the pump price of petrol despite deregulation.

They noted that a pricing formula would guide marketers and consumers on what to expect anytime there is a movement in the price of oil, especially as the country does not control the price of crude oil in the global markets.
Speaking at the online seminar, the Chairman MOMAN, Mr. Adetunji Oyebanji, said the COVID-19 has presented an opportunity for Nigeria to take some decisions as regards the downstream operations.

With some fundamental changes being proposed, he advocated the need for appropriate laws to back up actions, noting that with government retaining price control, it would always be under pressure to adjust the price due to political considerations.
“We believe that if the market determines the prices, there will be marginal changes rather than everyone rallying around to change prices. Marketers continue to advocate a proper legislation to allow market dynamics prevail. This because people keep low stock towards month end because they fear price reduction and are worried that they might be unable to plan effectively.

“Government must ensure that there is a level playing field by removing monopolies, while a strong anti-competition agent should be in place to discourage operators from taking advantage of a free system.
“Like it has been done in other countries, we need a strong agency that sanctions infractions and help to mitigate price gouging”, he said.

On the benefit of subsidy to marketers and the PPPRA’s decision to allow operators commence petrol importation, Oyebanji said petrol importation has no particular benefit to marketers because subsidy does not bring any income to operators.
“There was never a time government stopped anyone from importing fuel. Economics is what has allowed marketers to import. Government never stopped marketers from importing; it just didn’t make economic sense given the fixed price. The present situation allows operators to import and recoup their investments”, he added.
In the same vein, the Chairman of DAPPMAN, Dame Winifred Akpani, said deregulation was the way out of the crises confronting the downstream sector.

She decried the incursion of government into the downstream industry both as a player and regulator, lamenting that the gains recorded in the past when there was robust private sector involvement in the industry has been eroded and most players are now quitting.
Akpani, said some of the tank farms have been taken over by banks and the Asset Management Corporation of Nigeria (AMCON) due to the inability of some of its members to service their loans as at when due.

Similarly, the Managing partner, Teno Eenrgy Resources Limited, Mr. Timothy Okon, explained that the luxury of suggesting that we can determine a price of a product that we do not control its price in the international market cannot stand.
He said the government should redirect the money being spent on fuel subsidy to education and health sectors, pointing out that between 2006 and 2018, Nigeria expended $63 billion on subsidies.

Okon said: “This is an enormous amount of resource for a country that needs to educate its young people, to build health centres, to create the basis for this economy and to create employment opportunities.
“The key thing really is to have the political will to ease out of this current situation, and the ideal time is now when clearly oil prices are low. Things like education and health are quite fundamental if you want to redirect subsidies; those are the areas in which you build a more egalitarian society in the future.
“The energy footprint of wealthy people is far greater than the energy footprint of the poor. So, subsidy is disproportionately skewed towards the wealthy.”

Lending her voice, the Group Chief Operating Officer of MRS Holdings, Amina Maina, stated that government policies has discouraged investments in the depot space of the sector
She disclosed that a standard depot costs about N3 billion to N5 billion and because of low margin and inappropriate policies many investors have abandoned the business.

She noted that with the NNPC taking over 100 per cent of import and price determination with little margin for depot owners many have left due to huge bank loans and business takeover by AMCON.
According to Maina, since 2016, the Nigerian National Petroleum Corporation (NNPC) had offered depot owners N2 per litter without considering other expenses that leaves marketers with nothing.

She expressed optimism that investment would blossom in the downstream sector if government took strong measures to deregulate especially now that COVID-19 has set businesses struggling.
On his part, the National President of Petroleum Products Retail Outlets Owners Association of Nigeria, Mr. Billy Griss-Harry, advised the federal government to take a strong position on the deregulation exercise to allow more flow of investments in the sector.