Experts: Current Downstream Sector Deregulation Unclear, Contentious

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Oil and gas industry experts have described Nigeria’s current deregulation of its downstream oil sector as uncertain, contentious and identified some inefficiencies therein.

Speaking during a recent webinar organised by the Nigeria Natural Resource Charter (NNRC) to review the government’s deregulation policy, the experts explained that the current legislation and institutional arrangements establishes gaps which include conflicting provisions with respect to who has the power to fix the prices of petroleum products.

In a communique at the end of the webinar, the experts noted that the Petroleum Act of 1969, Price Control Act of 1977, Petroleum Equalisation Fund Act and Petroleum Product Pricing Regulatory Agency Act of 2003 all have varying provisions and powers on pricing of petroleum products.

According to them, the PPPRA has the power to determine the pricing policy of petroleum products and has been determining the prices of petroleum products in the recent past through its pricing template.

They noted that in the current context, it is equally difficult to establish the true cost of petrol importation into Nigeria with the Nigerian National Petroleum Corporation (NNPC) reportedly enjoying some monopoly power.

“When PPPRA were announcing the monthly guiding prices, claims that the pricing template it published takes into account FOB (free on board) cost, freight, trans-shipment cost, statutory and admin charges (NPA, NIMASA, PEF, etc), storage charges, financing costs, foreign exchange rate together with generous distribution margins for the oil marketing companies, transporters and retailers.

“But the Major Oil Marketers Association of Nigeria (MOMAN) insists that the cost of importation of petroleum products, especially PMS, is beyond the reach of its members, primarily due to unavailability of (forex) FX at the same rate applicable to NNPC. They also insist that distribution costs the template allots to marketers is inadequate to sustain their businesses,” the communique stated.

According to the experts, the NNPC as the sole importer of petrol is currently utilising its domestic crude oil allocation to import petrol under the Direct Sale Direct Purchase (DSDP) arrangement, thus benefiting from unrestricted access to foreign exchange at official rate of N360 per a dollar.

“Oil marketers would end up with a higher landing cost that is at least 25 per cent higher than NNPC’s if they procure FX at N480,” the experts noted.

They equally explained that transparency, sufficient political will, effective planning and strong regulator are essential ingredients necessary for the sustainable implementation of the deregulation policy.

Further, the experts claimed that the total cost of importing petrol into Nigeria is today unknown to consumers, adding that the PPPRA does not comply with regulations on monthly guiding prices for petrol.

“PPPRA renege on its responsibility to monitor the market and advise NNPC and other marketers on the appropriate guiding prices of PMS on a monthly basis,” they said, adding that there is insufficient market information that would allow all importers and consumers to understand the basis for any change in price.

The experts also claimed that the ex-depot price of the Pipeline and Products Marketing Company (PPMC) which is a subsidiary of the NNPC is now the basis for pricing petrol across the nation and thus asked if the PPMC is now a regulator or player in the sector.

On what needs to be done, they explained that: “Provided NNPC remains the only importer, Nigeria should develop a strategy for importing PMS at minimum cost from the international market and sharing same to all wholesalers for domestic supply at competitive prices.”

“Full deregulation is not limited to the removal of government subsidies alone.

Deregulation will require the creation of a competitive market environment, which will guarantee the supply of products at commercial prices to customers.

“It allows competent players to grow the market through deployment of current technology, good governance, and international best practices. It also requires unrestricted and profitable investments in infrastructure, open to all players under a level playing field and which guarantees reasonable returns to the investors.

“A strong regulator is required, not for fixing products prices but to monitor and enable transparent and fair competition amongst players. Effective control of natural monopolies to protect consumers and prevent market dominance is another key role of the regulator,” they stated.