The Government of Nigeria and the country’s petroleum products marketers have throughout the last decade stoutly held up the total deregulation of the petroleum downstream sector as prerequisite for attracting much needed investments into the industry.
At daggers drawn with labour unions on the matter however, the government sustained its subsidy policy until mid-2020 when the Petroleum Products Pricing and Regulatory Agency (PPPRA) made an announcement to that effect. Claims that the downstream petroleum industry has been fully deregulated were also made by the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC) as well as the Minister of State for Petroleum Resources.
Is Nigeria therefore on the advertised running a fully deregulated regime devoid of government imposed price caps where market forces reign supreme? Is deregulation simply a policy issue as posited by NNPC’s GMD Mele Kyari; and thus requiring only the policy statements from government to be actualized?
Industry experts at the highlight session of the just concluded Oil Trading and Logistics (OTL) Africa Downstream Week themed “Post-Deregulation Agenda for Nigerian Downstream Petroleum” have faulted this position.
Offering his insights, chief executive officer, OVH Energy, Hubb Stokman, raised doubts as to the sincerity of government’s intention to deregulate the market as advocated in the PIB. “While the government has categorically stated its intention to deregulate the market, removal of subsidy is not the same thing as deregulation, as deregulation has to be backed by law”, Stokman said.
He listed three building blocks comprising Fair Market practices; Consumer Protection and sound Legislation as conditions for effective downstream deregulation. “The existence of a fair interest credit market is about operating on a level playing field to avoid market distortion. Elements of fairness in this case include market driven pricing based on operators’ structural efficiencies; equitable and transparent access to foreign exchange and access to infrastructure such as pipelines, jetties and depots on equal terms.”
He continued “Deregulation must be built on the bedrock of legislation as the law needs to remain valid into the future. The legislation needs to be an Act of Parliament that will eliminate government interference and ensure that price regulation cannot be introduced under any guise.
Consequently, current legislation should be reviewed while the roles of the Department of Petroleum Resources (DPR) and Petroleum Products Pricing Regulatory Agency (PPPRA) need to be repurposed.”
In the area of Consumer Protection, Hubb noted the necessity of establishing an authority to ensure fairness for consumers and operators. “The body would be required to focus on price monitoring; regulate market competition to eliminate predatory business practices; enforce compliance and with technical approved standards and enforce sanctions for violations”, he explained.
Propagating the concept of self-regulation in the new dispensation, Chairman, Major Oil Marketers Association of Nigeria (MOMAN) warned against the erroneous notion that deregulation does not mean lack of regulation.
“On the contrary, self-regulation is the best form of regulation to encourage best practices and build confidence and trust in the industry. To be driven by industry associations, self-regulation must brace up over and beyond what is provided in the PIB and develop based on industry operations”, Mr Tunji Oyebanji said.
He noted that in a deregulated market, industry associations would be required to consult and contribute to guidelines provided by the official regulator. He outlined action points for industry associations among which include advising on business development models, promoting HSEQ, attracting investment, regulating standards and advising on global policy issues such as climate change.
Reviewing provisions of the National Petroleum Policy (NPP) in view of Nigeria’s ambitions in the petroleum industry, Executive Secretary of the Major Oil Marketers Association of Nigeria (MOMAN), Mr Clement Isong reiterated the significant role of industry associations in a deregulated market.
“We have not done very well in the past three decades and the petroleum sector has been dominated by state ownership and dominant market power. Consequently, the private sector has been constrained while the lack of regulation impacts governance and cost efficiency. As a result, state control has limited the growth of self-sustaining industries”, he submitted.
On his part, Chairman, Energy Institute Nigeria, Mr Osten Olorunsola, expressed optimism that the PIB, if hinged on critical success factor, would soon morph into the Petroleum Industry Act. He listed some of these factors to include corporate governance, level playing field, commercial operations, robust regulation and effective collaborations.
Olorunsola, asserted that with passage of the PIB “We will witness increased revenue and an improved economy; significant impact on cost savings; and reduction in overhead costs.”
Examining the legal perspectives, Senior Partner, Akabogu and Associates, Emeka Akabogu, advocated for a full blown change of the law for deregulation to exist. He strongly believes that the removal of fuel subsidy has not changed anything, negating the position of the GMD NNPC on the current state of deregulation.
Akabogu said it was important for the industry to realise that against the backdrop of extant laws, provisions exist that provide for price fixing by the government and until those laws were changed, anything being done now was just pandering to market and budgeting realities which could change at any time.
“In Section 6 of the Petroleum Act, the Minister of Petroleum is able to fix prices. In section 5 of the Price Control Act, the government can fix prices of some good including petroleum products, meanwhile, in section 9 of the Petroleum Act, the Minister can determine the amount of crude oil to be supplied to a refinery and the price at which the refinery may sell its refined products”, he disclosed.
Akabogu described these as the realities of the situation until the industry transits from the Petroleum Act and exiting legislations, to the Petroleum Industry Act.
He called for government guarantees in the form of gazetting the policy and in the short-term, repealing the PPPRA Act; the Petroleum Equalisation Fund (PEF) Act; the Price Control Act; and the relevant provisions of the Petroleum Industry Act immediately.
Akabogu also called on the industry to engage the PIB and peruse it carefully to unearth hidden conditions which may thwart principles of deregulation. He also suggested the need for industry engagement with the bill from a position of knowledge to deal with ambiguities. He said investments in the sector must be made on the strength of certainties and constitutional guarantees.