The Chairman of Major Oil Marketers Association of Nigeria and Managing Director of 11Plc, Mr. Tunji Oyebanji, who fielded questions at a recent Webinar organised by the Association of Energy Correspondents of Nigeria, stresses the need for the Petroleum Industry Bill to make adequate provision for the protection of consumers of petroleum products against possible sharp practices by some roguish marketers. Oyebanji, among other interventions, advises Nigerians to be moderate in their expectation that improving the nation’s refining capacity will automatically lead to the crash of petrol pump price. Peter Uzoho presents the excerpts:
With the deregulation of the downstream sector, are we expecting the IOCs to return to the space, and how soon?
Well, some of their members closed their operations in recent years simply because of debts owed to the banks and definitely this is a direct result of having a regulated environment where margins were completely squeezed and so, the fact that NNPC became the sole importer of petroleum products in Nigeria. So, part of the solution to improving the fortunes of downstream operators, marketers in particular, is one: taking this step of deregulation so they are able to charge economic prizes that will enable them to recover their costs. Because if you can’t recover your costs you wouldn’t be able to maintain your facilities and also you will not be able to service the loans that you have taken. So, our expectation is that once we go this route and also if we are able (working with the government to get access to foreign exchange so that other players can now be in port), this together, will hopefully combine to improve the fortunes of players in the industry.
Since deregulation will lead to increased investments in the downstream sector, will the IOCs build refineries in the country because they have built in other countries but refused to build in Nigeria?
Well, only the IOCs can answer that question. But obviously, in a situation where there were several of them before, all the six majors where at one point or the other owned by IOCs and it is only Total today that remains that is an IOC. There must have been certain reasons why they not only were not able to make the investments in refineries in Nigeria but ultimately eventually decided to sell of their downstream assets. From my own perspective, a lot of these questions are more economic and business driven rather than sentimental or nationalistic. I have always believed that capital runs to where it can get good returns. So if your economy creates the right kind of environment, you don’t need to be ringing a bell to ask people to come and invest. They will be the ones who will be running to you, saying ‘we will like to build refineries, we will like to do this’. So I think what is required is for the enabling environment to be created. You can imagine, you are asking somebody to spend $10billion to develop a refinery and then when it comes to selling the major product that comes out of that refinery, you tell him how. By the way, you cannot sell it more than this price. You will immediately say: how do you expect me to recover my investment? And even the Dangote Refinery, I’m sure you people will understand that it is not a mistake that that refinery is built in an export free zone. So that means that if policies are such that the investor will not be able to recover his investment, some of that product may actually end up being more for the export market than for local market. So it is more about having economic policies that are attractive to investment and I think that is what needs to be focused on. So when people use words like ‘refuse to’, you have to say, why will they refuse when the have the opportunity to generate returns on their investments and be able to evacuate their money? If such opportunities are there, then nothing will stop them from making such an investment.
Is MOMAN making any plan to diversify to alternative petrol –CNG (Compressed Natural Gas); what is the implication of this as it seems the government and some players are already looking at such possibility?
The whole issue of gas is the new and very exciting development. As you know, the Federal Ministry of Petroleum Resources has declared 2020 as the Year of Gas. The National Gas Expansion Programme is working very actively with all stakeholders including MOMAN to rapidly develop the use of not only LPG (Liquefied Petroleum Gas) but CNG to fuel cars and fuel buses and trucks. In many parts of the world, if you go to for instance Spain, most of those buses that you see that carry people to the airport terminal, many of them run on CNG. So there is no reason why we shouldn’t have much more usage of gas in our country, particularly CNG, because we have abundance of gas. We have one of the biggest reserves on gas in the world. So we are working with the government and some of us have already invested in LPG skids in our retail outlets and we are working now with government to roll out gas filling so that you can drive to a petrol station and then you will have the choice of either using LPG or CNG or putting petrol in your car. So I think that is the wave of the future and we as MOMAN are fully in support of this development.
The fear in this deregulation is the issue of collusion among operators to introduce scarcity and hike petrol price and rip off consumers. How can this be prevented?
During my presentation to you, I said one of the important areas that I think PIB needs to address is actually monitoring what the marketers do, and that’s when I talked about the need for a consumer protection agency or anti-trust agency that will monitor, even monitor down to the meetings that a MOMAN, for instance has, to make sure people are not ganging together and saying ‘okay, in Enugu, there is no product there, all of us, tomorrow, let us change our price and increase it’. Those kind of things should be illegal and attract very heavy penalties and fines for anybody involved in such collusion. That is our belief and we believe that the legislation (PIB) that is in place should put such clauses into it so that consumer protection will be key. But having said that, don’t forget, the objective of every marketer is to sell. The idea of people hoarding, sometimes it is not as simple as people make it out. If you feel the price is going to go up, you will tend to manage your inventory so that it may last you longer. If on the other hand, prices are going to trend downward, you will want to get rid of your inventory. So the same kind of decisions anybody that sells any product are the same kind of decision that people make. But we need government legislation, we need consumer protection to make sure that indeed, nobody takes advantage and cheats customers.
The federal government said prices of petroleum products will not drop even if Nigeria starts refining and that products will still be sold at the international prices, how true is this?
I think there is lack of understanding and that’s one of the reasons why I believe that it will be important for MOMAN to work with NAEC to do either seminars, webinars or whatever, to really educate people how the price of a litre of gasoline (petrol) is arrived at? What are the components? So that people will understand. Now, when you take crude and you refine it in Europe, of course you have to transport the crude to Europe, and then, when it comes back (the refined product), you also have to transport it. So by definition, if instead of taking crude from here to a refinery in Rotterdam, you take it to Dangote Refinery, and then when it is refined, that product again is available from Dangote Refinery to be delivered to Apapa or to Ikoyi or to Enugu, obviously, the distance of the crude going and the refined product coming all the way to Nigeria should ideally be eliminated. But in the whole value chain, this is not the only cost. And if crude for instance, that is going to Dangote Refinery today is currently reading $40 per barrel, nobody is going to sell crude to Dangote Refinery at $20 per barrel because it is in Nigeria. So, its basic cost is going to be the same for that raw material. So what then defines the other costs is the labour element, all the power that goes into the refining and all the other things: how much it costs to maintain the refinery and so on and so forth. So people should not be under this illusion. Because everybody, labour says, well, the only reason why you should deregulate is when we are refining locally, the price will be so cheap. True, we will not be as vulnerable, and when I say not as vulnerable, it’s not that we will be completely shielded because like I have explained, the Dangote Refinery itself is still going to buy the crude at those international prices. But where we would be insulated to certain extent is that additional transportation element of crude and the refined product may be eliminated. So, once you have taken advantage of that part, you are not necessarily going to have much more benefit beyond that. So people should be careful to over-expect, people’s expectations need to be moderated that suddenly when local refining improves that the product will now be selling almost free of charge. That is not going to be the case. It may be cheaper than what it costs to import but it is not going to be a huge gap.
How much is the federal government owing oil marketers on subsidy?
That is a moving figure. You know the figures were probably closer to N800billion or something when we started. Today, government has paid that money down significantly. We must commend this administration because many of those bills were uncured before this administration came to power. But they have paid us in promissory notes, not cash. As the name implies, it is a promissory note, which means in three years, that promissory note will mature and you will get your money. If you want the money before the time, it means you have to go to the bank and the bank will discount it. So you may find that if you are not careful a third of the money has disappeared. And don’t forget, this money you waited for years to get, in the first instance, when you look at where you started and where you have ended, you have failed exam woefully. So, in terms of a figure now, I’m sure that figure must have gone down significantly. I know the only issues somehow now are issues that have to do with foreign exchange differentials that may or may not have been paid in the past and some outstanding interest payments. For us as a company (11Plc) for instance, we have actually down to very small amount. But the big figures are certainly gone. Although, many of us are still holding promissory notes that are yet to mature.
When is it expected to mature, how many years are you waiting?
Okay, let’s start with the fact that may be some of these transactions were 2017 transactions. In the first instance, you are supposed to be paid the subsidy within 45 days. So when I bring the product, 45 days later, government will say, ‘thank you Mr. Marketer. You brought this product at N100, I forced you to sell N100, this is your N20 balance, 45 days later’. So in the first instance, before we even got the promissory notes, four years have passed. The 45 days has become four years and now, you now have promissory note. The first one we got was two years tenure. Then the next time it came it became three years tenure and I think the very last ones may have been close to more than three years for tenure. So if you add the four years the money was owed plus the three years tenure of the promissory note, you are making seven years, and this is money you owed to the bank, you have been paying interest. So, sometimes, when people are saying ‘these marketers, these marketers’, I often wonder. The reality of it is that many people have gone out of business. Many of the names that you knew have closed shops. The only people that may have survived are the bigger multinationals or major players like ours who have diversified portfolios, integrated businesses where we are able to bridge the gap with other aspects of our business.
With the PIB not yet signed into law, how strong is government’s commitment to the deregulation we have now?
Like I said at the beginning, I don’t think it was really about commitment. I think there was no choice in the matter. Because obviously, we have been clamouring for this for a long time, it was really until we got a situation where there was no other choice than this decision made. If you are coming to me to borrow money from me and I ask you: what are you going to do with the money? And you tell me you want to use it to pay subsidy. I’m going to tell you, ‘sorry, no money to lend you’. So I think those are the kind of situations that forced government to have a rethink. I believe the government is extremely committed. I have interacted with the GMD of NNPC, with the Minister of Petroleum Resources. I have no doubt in mind that they are very sincere about it. The challenge of course, is that, it is, as you know, once you have deregulated price, it becomes attached to the movement of crude oil prices. So crude oil prices may be a bit tempered now because of COVID-19 and other attendant challenges. But a time may come when that will change and when it changes and prices start to creep up, I don’t know what the situation will be when that starts to happen. But I think the fundamentals that I have outlined, the opportunity cost for us not to go this route will still hold very firm. And that is why we also encourage and enjoin government to use legislation to make sure that these things are entrenched. You cannot be keeping institutions that were deployed during the regulated environment in a deregulated environment. If you keep all those instructions, their natural tendency will be to want to continue to play their role. So you have to put the necessary legislation in place and remove all those institutions that are part of the old economic environment. With that, I’m sure this going back will be a thing of the past. Hopefully, by then, with commitment and spending the money wisely, with economic policies that are helpful to the country and to the population, people will begin to see the benefits and they will fully embrace the policy.
With the deregulation of the downstream sector, are MOMAN members considering investments in building refineries?
What I will say on this is that, first and foremost, you have to understand that refining is a global business. It’s a global business in the sense that there is a total number of refineries globally and oil demand here and there determines. There is no too much new investments globally in refineries. In fact, many of the IOCs are selling their refineries simply because demand for fossil fuel is on the downward trend. There are some that predict that within the next 30 years, there may be less demand for crude but more demand for things like gas, solar energy, and so on and so forth. So ultimately, it’s a business decision each company needs to sit down and make. How many of the companies that are even quoted on the Nigerian Stock Exchange today can afford to make an investment of $10billion? If you combine the value of all the marketers, I don’t know whether they come to even $1billion. So it’s really an economic question. There is something that is very popular in Nigeria now, people talk about modular refineries. Modular refineries are refineries that may be doing 10,000 barrels per day, 20,000 barrels a day, 30,000 barrels a day, may be maximum. The Dangote Refinery is probably something in the region of 650,000 barrels a day. There is a Reliance Industries Refinery in India, whose capacity is about 1.2million barrels a day. Instead of 650,000 a day, their own is 1.2million barrels. It’s a huge refinery that the cost of production, because of the scale, is so low that you that built a small 10,000 cannot produce per litre at the same cost, because their own is so large. So it’s like somebody going to the market and you want to buy one dozen versus somebody who wants to buy only one piece. The person who is buying one dozen obviously can negotiate and get bigger discount because he is buying larger quantity. So the person who is refining very huge sized capacity is likely to have cheaper cost of production. So the point I’m trying to make is that it’s all about economics. The amount of investment needed to do a decent-sized refinery is huge. So I think the first step in the answer to that question is: we have taken the first step by deregulating. We believe this has come to stay and as it takes hold, as people begin to see the potential benefits, then, the economic reasons why people may now consider investing in refineries will become more apparent at that time.