The Federal Government’s plan to deregulate the downstream oil and gas sector (petroleum refining & marketing) is seen as a move geared towards opening up the sector to new investments. This is however expected to bring about competitive market which will eventually drive down the pump price of fuel.
One major issue that attracted heated debates by Nigerians from all walks of life, including the civil society groups and the Nigerian Labour Congress (NLC), early this year was the withdrawal of fuel subsidy on Premium Motor Spirit (PMS) by the Federal Government, following the socio economic implications it has on the nation’s landscape. While the Federal Government have spent about N1.4 trillion on fuel subsidy for the past five years, it paid heavily to subsidise kerosene imported into the country through the Nigerian National Petroleum Corporation (NNPC), although the actual amount is not known.
Meanwhile, the government is said to have borrowed N850 billion in 2011 to import products. A look at the pricing template of the Petroleum Pricing Regulatory Agency (PPPRA) for PMS for December 2011 showed that the landing cost of a litre of petrol is N124.76 while the distribution margin for transporters, retailers, bridging fund, marine transport average (MTA) and administrative charge is put at N15.49. This however brought the total cost of petrol to N140.25. Meanwhile, when the initial official pump price was N65 per litre, the government is said to subsidise the difference of N75.25.
Intriguingly, the ongoing public hearing of the House of Representatives' ad-hoc committee's investigation into the subsidy management has continued to produce more shocking revelations. As the finance ministry and the petroleum ministry have come under fire during the probe as lawmakers demand valid answers as to why the subsidy payments in 2011 reached a whopping N1.3 trillion, financial and economic experts believe the fuel subsidy regime was hugely corrupt, wasteful and bled money from the treasury into the pockets of rich fuel importers.
With President Goodluck Jonathan pronouncement on deregulating the downstream oil and gas sector (petroleum refining & marketing), industry experts say this move will open up the sector to new investments. However, when competitive forces are unleashed, it will result in efficient resource allocation expected to eventually drive down the price of fuel in the country.
Reacting on the issue, Kikelomo Adigun, a public affairs analyst disclosed that the concept of deregulation is nothing but essentially the process of lessening the amount of government restrictions, controls, regulations and involvements in the administration of the petroleum sector.
While noting that deregulation is an all-encompassing policy that will make government agency responsible for the administration of the oil sector; in this case, NNPC withdraws its involvement in importation, distribution and marketing of the products, Adigun opined that the Petroleum Industry Bill (PIB) currently before the National Assembly when passed into law will smoothen operations in oil and gas industry as most of the existing legislations presently are outdated and out of tune with what is available in the industry worldwide.
“What the Federal Government spent on the petroleum products refining, importation and distribution in form of subsidy is quite colossal. The withdrawn subsidy could be used to fix these infrastructures while Nigeria moves forward and graduate to the enviable advanced economy.
With deregulation, competition will also set in and as many refineries come on board, petroleum products especially PMS, DPK {Diesel}, Kerosene and several by-products will be surplus and sold even cheaper than Nigerians expect over time. “With refineries on board which do not run in isolation, the atmosphere is automatically charged, saturated and ready for numerous companies that feeds on or uses crude oil fractions as raw materials to spring up.
They range from, lubricant companies (Grease, engine oil, hydraulics, & several engine fluids), petrochemical companies (plastics, cosmetic, industrial chemicals, fertilizers, etc), even pharmaceutical companies are not left out, what about oil servicing companies,” Adigun disclosed.
She however noted that “aside the basic infrastructures and social amenities development and participations, Nigerians stand to benefit from these companies operating in Nigeria as terms and conditions for them to operate (using enabling policies).
The country will also add to her coffers through revenue drive as royalties while so many citizens and localities will benefit from periodic compensations and or pay off.” In a separate forum, Emmanuel Ihenacho, Former Minister of Interior and Chairman of Depot and Petroleum Products Marketers Association of Nigeria (DAPMAN), agreed that deregulation would crash down prices.
While acknowledging that petroleum price might go up immediately after the commencement of deregulation, Ihenacho disclosed that full deregulation of the petroleum sector will encourage private-sector participation in the building of refineries and bring down prices in the long run. The former Minister of Interior noted that “removal of subsidy will encourage Shell, Chevron, Total and other private investors to build more refineries to create employment opportunities, crash down the price of fuel and engender stability in the supply of petroleum products, among other benefits.
What this administration should be concerned with is to demonstrate in practical terms that the proceeds from the removal of subsidy will not be stolen by some government officials. A cursory look at Oil Producing Exporting countries (OPEC) such as Saudi Arabia, Venezuela, Qatar, United Arab Emirates, etc. show that these countries were able to refine their crude oil locally and at cheaper rate, to meet their daily demands of petroleum products and also export to other countries.
This is principally because unlike other OPEC countries, that enjoy cheap fuel because of their functional refineries, Nigeria ’s total dependent on importation of refined petroleum products accounts for the high cost of fuel in the country. With over 36 billion crude oil reserves and average daily production of 2.6million barrels per day, Nigeria is the seventh exporter of crude oil, with 10th largest reserves in the world, but the only country among OPEC that imports refined petroleum products.
Since Nigeria imports fuel, the price of products in the country is a reflection of international oil prices, instead of a reflection of the cost of local refining. While it is alleged that the nation’s refineries are deliberately sabotaged to pave way for continued massive importation of petroleum from which many highly placed government protégés are defrauding the country, it is believed that they also argue that what is required for sanity is to expose such people, hold them to account and institute a corruption-free system.
While a deregulated oil sector will open up more private sector investments as more players will be attracted into the sector as against the present situation where it is regulated and under government’s control, such diversified investments in the sector will further lead to the establishment of allied industries which will use crude oil by products for production. It is beyond doubt that Nigeria needs to diversify its mono based economy to ensure a more economically stable future.
Furthermore, with local industries set up in the country, there will be less dependence on imports which further deplete the country’s foreign reserves. Aside the above gains, a deregulated oil sector means more revenue to government through taxes by the new investors. Also, there will be drastic reduction in the quest for foreign currencies which impacts negatively on the value of the Naira.
