By Peter Uzoho
Notwithstanding reservations by marketers of petroleum products in the country with respect to petrol marketing business, the new pricing regime put in place by the federal government is expected to emplace a more transparent operating model that will stimulate investment growth and encourage the importation of products by marketing companies, a report by Augusto & Co has stated.
Augusto & Co in its latest 2020 Oil and Gas Downstream Sector Report also believes that the continuous efforts of the government to deepen the utilisation of cooking gas or Liquefied Petroleum Gas (LPG) in Nigeria will continue to bear fruit in the medium to long term.
While noting the positive steps taken by the federal government to fully deregulate the downstream petroleum industry, the firm in report pointed out that the recent plunge in the price of crude oil and slowdown in demand for petroleum products occasioned by the coronavirus pandemic led to a reduction in the pump price cap of petrol to N123 per litre by the Petroleum Products Pricing Regulatory Authority (PPPRA).
The report stated that a recovery of crude oil prices in June 2020 led to the revised price of N143.8 per litre for petrol, saying, the consensus medium-term outlook for the crude oil market was positive, implying that the price of petrol will be higher than the old regulated pump price in the near future.
“The pricing of petrol will continue to be overseen by the Petroleum Products Pricing Regulatory Agency (PPPRA) through a pricing template. The new pricing template takes several factors such as the petroleum product cost and the foreign currency conversion rate into consideration,” the Augusto & Co report noted.
Augusto & Co, however, stated that it expects the recent adjustment of the official exchange rate from N306 to N380 per US$ to test the sustainability of the pricing template before the end of 2020.
It noted that substantial local supply of refined petroleum products was imminent with the 650,000 barrels per day (bpd) Dangote Refinery currently under construction.
It added the expansion of the Waltersmith Petroman’s refinery by 25,000 bpd to 30,000 bpd and other smaller modular refineries coming on stream were also expected to drive increased local refining capacity in the near to medium term.
The report further revealed that the growth of the Nigerian oil and gas downstream sector remained hindered by the lack of substantial investments, import constraints and regulated pump prices.
“This is largely attributable to the dominance of the government in the industry, particularly in relation to the importation of refined petroleum products. Over the years, the industry has enjoyed stable demand of petroleum products as a result of the subsidies provided by the government. This contributed to the gradual crippling of government finances,” it explained.
It said a significant structural change in the industry was hinged on the approval of the PIB, which aims to create efficient and effective governing institutions with clear and separate roles.
The report stated that the delay in the approval of the bill has brought about uncertainty for potential investors.
It explained that, given Nigeria’s track record of weak policy implementation and the negative impact of the COVID-19 pandemic on economic activities, the rating agency does not expect the PIB to be approved before the end of 2020.