Downstream Deregulation A Road Not Taken
THOUGH, normalcy is gradually returning to fuel stations nationwide, this may be temporary after all, as marketers are insisting on full subsidy payment by the Federal Government.
Government’s assurance to end current fuel scarcity during the week was based on the opening of letters of credit worth $500 million to enable oil marketers import refined petroleum products.
But the marketers are insisting that debt owe them from subsidy, which is about N255 billion, be paid for them to be solvent enough to continue to import the essential commodity.
The Executive Secretary of Major Oil Marketers Association of Nigeria (MOMAN), Obafemi Olawore, who spoke with The Guardian on phone, two days ago, said his members would continue to import the products, if government is able to pay them all that is being owed.
According to him, with the payment in full, his members will be liquid enough to import petroleum products without any interruption, adding that government still has about N255 billion balance to pay the major oil marketers. He, however, acknowledged the payment by government of N100 billion from the main subsidy debt, and N30 billion out of the N200 billion owed his members from interest and foreign exchange differentials.
“They should pay us all these debts so that we would have enough money to import more,” he said, as he debunked speculations that the association might soon approach the government for a special foreign exchange window in the face of escalating exchange rate.
THE delay in the payment of marketers and the disconnect created by the devaluation of the Naira and the inability of banks to provide marketers the enabling window to import fuel, the non-passage of the Petroleum Industry Bill (PIB) and the opposition to deregulation are some of the serious issues that must be considered in the search for enduring and flourishing downstream sector.
Olawore said the permanent solution to the incessant fuel scarcity lies in the deregulation of the sector, adding that the non-passage of PIB has delayed the needed deregulation of the sector.
The PIB, which would have ensured deregulation of the oil and gas sector, has been at the National Assembly without passage. The bill, which seeks to overhaul the industry, as well as increase the output from the sector, has not shown any sign that it would be passed.
The delay has equally taken a toll on the nation’s economy, as it has denied the country of some vital investment needed to cushion the effect of the dip in the prices of petroleum products, globally. It is alsoblamed for the current fuel scarcity, which has become a recurring issue in Nigeria’s recent history.
“Our own thinking is that the delay in passage of PIB is dangerous, because it is affecting investment in every area of the industry. If the bill is passed, deregulation would come down to the downstream, meaning that the refineries would come back alive, and new ones would emerge to generate more employment…”
The continued procurement of petroleum products at government-controlled price has encouraged all manners of sharp practices, especially within the labour, which has emerged the most vociferous antagonist of deregulation.
To the labour movement, deregulation could be suicidal and detrimental to majority of Nigerians, as they pointed at the telecommunication sector, where interaction between market forces to determine the price has not been strong enough for the emergence of a new paradigm of inward mobilisation and local inputting.
Speaking while carrying out on-the-spot assessment of the situation in Abuja with the Group Managing Director of NNPC, Dr. Joseph Dahwa, the Executive Secretary of the Petroleum Products Pricing Regulatory Agency (PPPRA), Farouk Ahmed, said the sign of trouble started when banks were no longer willing to issue letters of credit to fuel marketers for importation. The situation, he said, emanated from the present situation when the Central Bank of Nigeria (CBN) devalued the Naira.
However, the PPPRA boss was quick to add that the Minister of Finance has moved to arrest the situation. In fact, there was a meeting between the major oil marketers and the government on Wednesday, when they were paid, in part.
“All these said and done, the Coordinating Minister for the Economy (CME), Dr. Ngozi Okonjo-Iweala, has approved issuance of Sovereign Debt Note (SDN) to marketers against March 30 and payment will come. In the case of foreign exchange differentials and interest, which was the concern of both the marketers and banks, the CME has been working closely with the DMO, and this morning, we had meetings with DMO, and PPPRA has already issued one batch of about 17 marketers for payment and we are working on the second batch.”
To ensure speedy process, he hinted that the PPPRA was verifying the submission of marketers, saying, “there is already confidence, and the way things are going, we are expecting cargoes to arrive and Petroleum Products Marketing Company (PPMC) has brought in about 8000 metric tonnes, which is about 1 billion litres to come in within the month of March, other marketers are also bringing in their products and so by the end of the week, hopefully, everything will be cleared and we do not want people to resort to panic buying because everything will be cleared.”
PPMC: Deficit In Workable Pipelines
THE Managing Director of PPMC, Haruna Momoh, said the situation would not have been that chaotic, if the nation’s pipelines were in perfect condition.
“If we had our pipelines fully in shape, within two days, we would have had this situation cleared, because our supply is much more robust as at today. We have quite a number of vessels that arrived during the week, and we are expecting more at the weekend. The quickest, safest and most environmentally friendly and easiest way to transport petroleum products in a country that is as large as Nigeria is through the pipelines, ” he said.
He added that the PPMC would be commissioning two additional depots, very soon, in the middle belt and in the Southeastern zone of the country, even as he decried the rising cases of pipeline vandalism in the country, saying it has led to the use of over 1212 trucks for products distribution nation wide.
“In addition to that, when we have a situation of this nature, which is not normal, we want to supply much more than 40 million litres every day into the market to quickly flush out the queue and arrest the scarcity, but we have to resort to trucking, which is not healthy at all for our environment. That is why we keep pleading that it is necessary for our pipelines to work,” Momoh explained.
Dahwa said the tour was to afford top management team assess the situation with a view to proffering quick -fix solution. While expressing optimism over quick disappearance of the queues at fuel stations, he hinted that more trucks would have to be dispatched from the Suleja depot and Lagos to clear the queues as quickly as possible.
The Director of Department for Petroleum Resources (DPR), George Osahon, who said fuel diversion has reduced to the barest minimal, explained that DPR was working in conjunction with PEF, through ‘Project Aquila’, to minimise the incidence of diversion.
“The problem now is, people hoarding fuel so that price will go up and that is the issue we have now to handle. Over the course of time, several things will come up to enable us pinpoint, who is hoarding, but now, we still use the dip stick system to determine the volume of product in tanks. What we are trying to do isto ensure that those people hoarding fuel do not hoard fuel and those who have fuel and want to sell at higher prices, we will try as much as possible to shut down minimal number of filling stations so that we don’t create additional problems for people.”
He promised that DPR would have to work with security agencies to enforce marketers sell product in their stations, while supporting both the PPPRA and PPMC to ensure the queues are cleared within the next few days.
Deregulation: The Labour Argument
TO the labour movement, deregulation simply means handing over the masses to the gallows’ men; to the operators in the oil sector, and to the government, it would promote corruption because regulated environment has failed to benefit the poor of the poorest, which it is meant for, in the first instance.
Going memory lane, on Tuesday, March 10, 2009, the National Executive Council of the Nigeria Labour Congress (NLC) met in Abuja to deliberate on the planned deregulation of the downstream sector of the oil industry.
Indeed, the NLC empowered a 10-man committee to examine the merits and demerits of deregulation and submit a report to the NEC of Congress. Tagged, ‘Committee on Deregulation’, it had Peters Adeyemi, as Chairman with Isa Aremu; Peter Akpatason, Kiri Mohammed, Henry Odugala, D.D. Bissalah, Mike Okeme, Bidemi Alafiatayo and Emma Akin Ayeoribe as members, while John Odah was the Secretary.
The committee had engagement with critical stakeholders across the oil sector: the government, political leadership and civil society. The committee was asked to look at three aspects of the problems and thinking among stakeholders who might have had previous conclusions on the issues concerning the sector.
The first issue from the report states: “There are clear problems in the downstream, which requires a holistic and rigorous approach to resolve them. In the past, government’s push to enthrone a regime of deregulation in this sector of the industry has been borne out of the pursuit of an ideological conviction that ‘government has no business in business’ and that free market must be given free reign. Under this situation, the underpinning drive of government is to make more revenue for itself and big business (marketers and oil companies) at the expense of the welfare of the mass of our people. Under this guise, deregulation translates into just increase in the prices of petroleum products. This will not address the fundamental issues afflicting the sector. Clearly, support for either side to this scenario can be extracted from the arguments for and against deregulation as captured by the Committee in Chapter Eight of this report. In essence, this scenario stipulates that if government (as has been known to do) proceeds with a one-cap-fits-all solution via increase in price of products, in the name of deregulation as a panacea to the problem of the downstream, then our response as organised labour to such must be to continue our resistance as we have done over the years.”
The second issue to be examined by the committee was an acknowledgement by both government and organised labour that the nature of the crisis in the downstream requires that all hands should be on deck, and that stakeholders would have to work together to find a lasting solution, which will be beneficial to all and the Nigerian people. “This partnership will enable the downstream sector of the oil industry to be holistically restructured to aid its transformation.”
According to the reports, the transformed and restructured downstream operation will ensure the followings:
• The complete repairs and functioning (in full capacity) of the existing four refineries.
• Establishment of additional refineries, either solely by the NNPC or through joint partnership with oil companies, or through private sector initiative, to ensure that the estimated 40 per cent petroleum products, which would otherwise still be imported, can be refined domestically in the country.
• Pricing being one of the elements in deregulation; we will need to agree with government what will be done with the money (estimated at N600 billion yearly), which will be freed if government subsidy on petroleum products stops.
• We will not hold on to existing pricing regime.
• Regulatory agencies will have to be properly strengthened to sanction potential defaulters.
• There is need to reach a pact with government on short, medium and long term programme for the transformation of infrastructure and commitment to funding of social services.
• The Putting in place a re-opener clause in whatever agreement we reach with government, which will state clearly that should government default in carrying out agreed programmes and plans, organised labour would be free to revert to the option as articulated in scenario one.
The committee was also expected to look at the third aspect of the same earlier report, which acknowledged that the crisis in the downstream sector of the oil industry and successive governments’ penchant for increasing product prices as a panacea for solving crisis has more often tasked the energy, time and resources of organised labour.
“We also noted that over the years, we have been forced to devote more energy and resources of the labour movement in fighting against this policy option to the detriment of our primary responsibility. Flowing from above, we should therefore leave Nigerians to their own devices in fighting deregulation. This will hopefully enable us to refocus greater attention at the mirage of the problems facing Nigerian workers. The import of this scenario will be to adopt the famous stance of siddon-look (do nothing approach).
Odah told The Guardian that labour movement did not reject deregulation outrightly, as being speculated, but made suggestion on how government could revive the collapsing social infrastructure.
“In the report, we made suggestion on a number of critical infrastructure that must be rehabilitated before deregulation can take place. In fact, most of the things that Sure-P was set up to do were part of the committee’s recommendations as far back as 2009. I am not aware if the NLC has raised any other committee on deregulation since then. The current leadership has not asked relevant questions about how this Sure-P thing should work.”
The chairman of the committee, Adeyemi, also spoke in the same vein, asking eventually, “since the completion of the committee’s work almost five years ago, has the NLC empowered another committee on the matter? What we did is still the guiding document of Congress on deregulation.”
OBSERVERS have flayed the present day NLC leadership for offering so little in providing the leadership to tackle government on the ills afflicting the petroleum sector.
A labour leader said: “What do you expect from the movement? While we see what Sure-P is doing at the federal level, can we see what the states are doing with their share of Sure-P funds? Labour has failed to provide leadership at the state level to interrogate governors over what they are doing with Sure-P.”
A member of Sure-P and former President of PENGASSAN, Peter Esele, told The Guardian that neither PENGASSAN nor Trade Union Congress (TUC) opposed deregulation, but insists on knowing how government intends to spend additional money that will accrue after deregulation has taken effect.
He also provided an insight into the reasons why the TUC has consistently joined the NLC to protest petrol price hike, in spite of its non-opposition to deregulation.
“When we talk about where the money is going to, we are talking about, which sector or areas government will spend the money. There is no infrastructure in the country and the only thing that the ordinary people can feel is a reduction in the price of petrol. Every time, Nigerians drive to the pump station and buy petrol for N87 per litre, they feel the presence of government. So, we in the labour movement want to know where government will spend the additional funds. In the developed economies of the world, there are basic social amenities that government provides for the people. There are health insurance, pensioners are guaranteed good life after retirement, students have access to study loans, those unemployed have unemployment benefits paid to them, the aged is taken care of, and so on. So, what is provided for the ordinary Nigerian who has to generate his own power, provide water, pay for his health, pays for his children school fees? Our thinking and position has always been to use the Liquefied Natural Gas (LNG) model. The NLG has shown that it is still the best option. The model is 49 per cent to 51 per cent ratio, where the operators will have 49 and government have 51 per cent. The unions have since moved on, and that is why we feel unmoved when people say labour is no longer talking. For how long are we going to keep on repeating ourselves?”
Is Deregulation All About Price Increase?
GOVERNMENT has insisted that labour was looking at deregulation from the perspective of price increase only, oblivious of other benefits that are inherent in a liberalised oil and gas sector.
The Director General of Budget Office of the Federation, Dr. Bright Okogu, recently said the notion that deregulation policy of oil sector translates to upward review of petroleum products’ prices was misguided.
His explanation: “Any government that has control over an important sector like the oil and gas sector tends to interfere in the running of the sector. It is well documented globally that in deregulated environment, investors will have the freedom to take investment decision swiftly without any fear of interference beyond market fundamentals. Deregulation is not really about price and this is where most Nigerians get it wrong. It is not just because government is desirable of increasing the price of petroleum products that inform deregulation, but to free up the entire system in a manner that will enable industry players to invest. A deregulated environment will enable more players to invest in the sector, and that will in turn generate massive employment beside opening up the sector for rapid growth in terms of opportunities.”
And from the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, came a declaration that regulation of the downstream sector could be fiscally unsustainable, resource demanding, discourages investments, adding that it would benefit only the rich, not the masses in the society that the regulated environment was intend to protect.
Though, the upward movement in the price of crude oil may have halted somehow, hovering around $60 and $65 per barrel, it offers an almost perfect timing for government to deregulate. But with the elections just a few weeks away, removal of subsidy is an unlikely scenario.
It was gathered in Abuja at the weekend that Jonathan government is likely to prioritise and spearhead the passage of the PIB if it is re-elected because the bill is seen as one that will usher in a bright new era for the entire spectrum of the oil and gas sector.
As currently packaged, the PIB is unequivocal about the need for Nigeria to fully deregulate the downstream sector as stated in its part five. It declared that the pricing of petroleum products in the downstream product sector is deregulated to ensure a market related pricing; removal of economic distortions and the creation of fair market value for petroleum products in the Nigerian economy.
On pricing, it proposes: “The Agency (Downstream Petroleum Regulatory Agency) shall monitor the prices of petroleum products applying in the domestic market to ensure that there is no pricing collusion or manipulation; any activity of any operator in the downstream petroleum sector that, in the opinion of the Agency, is likely to adversely affect the prices of petroleum products.”
The idea of the petroleum industry bill was muted in 2007 following the recommendations of a presidential committee set up to carry out a comprehensive reform in the sector. The sector reform was expected to form the basis of the country’s aspiration to become an industrialised nation by 2020.
Those who came up with the idea were of the opinion that the major revenue source for the nation would need to be repositioned for greater efficiency, openness and the evolution of competition built on corporate governance as obtainable in either oil-rich countries.
They, therefore, proposed the PIB legislation in order to design and strengthen the capacity of indigenous companies, so that they could compete with international oil companies in the search and acquisition of hydrocarbons in Nigeria. The measure was also aimed at reducing exploitation in the sector and limit, to the barest minimum, Federal Government’s exposure to oil and gas exploration and production through joint venture operations.
The bill, if eventually passed, will give priority to privatisation and commercialisation in a manner that retains government interest only as a stakeholder as all the joint venture arrangement will enjoy the freedom to source funds independently for their operations.
The PIB is expected to provide for the establishment of an independent regulator, an energy council, a national petroleum directorate, an inspectorate commission and a national petroleum company that will open and ready to embrace competition, professionalism and good business ethics.
The PENGASSAN has continued to condemn the continuous delay in the passage of the bill by the National Assembly. In a communiqué after meeting of its National Executive council recently, in Port Harcourt, the Association expressed dismay at the negative impact on activities in the critical sector.
The communiqué, which was signed by the president, comrade Francis Johnson and General Secretary, comrade Bayo Olowoshile, demanded in clear term the passage of the bill before the expiration of the current National Assembly.
The body, however, warmed operators in the oil and gas sector not to use the prevailing trends in the sector as excuse to carry out rationalisation.
‘‘The NEC in session therefore resolves to resist the growing redundancy in the industry under the guise of the effect of the global drop in oil prices.”
PENGASSAN also at the meeting criticised operators for their divestment policy and its attendant job losses and urged the government to provide friendly environment to encourage existing and new entrants.
The Nigerian Society of Engineers had also condemned the delayed passage of the bill, saying it was harmful to the economy. According to the society’s President, Isaac Olorunfemi, the bill would also encourage domestic gas utilisation that will promote rapid industrialisation, safe, sustainable and efficient infrastructural development in the sector besides the deregulation and human capital development that will open doors of employment for more Nigerians in the sector.
Part of the delay of the passage of the bill is the attack from all fronts as stakeholders continue to protect their own interests, despite the general clamour for the deregulation of the sector.
Some of the issues it contain includes, the 10 per cent petroleum Host Communities Fund, the alleged enormous powers granted petroleum minister, the proposed fiscal regime, which the international oil companies perceived as unfavourable to them.
The lawmakers from a section of the country have consistently rejected the 10 per cent Host Communities Fund, a provision that was meant to bring hthe industry and host community relations in line with international best practice.
The proposed fiscal regime contained in the proposed bill is also in contention, as it intends to give government more revenue from the sector than it is currently getting. Those, who are opposed to this provision, believe that attempt, could stifle investments and scare potential investors.
The two workers unions in the sector, NUPENG and PENGASSAN have therefore advised the government and the Oil Producers Trade Section (OPTS) to reconcile their disagreement on the matter.
The group also criticised the institutional framework of the bill, saying it should be in line with global practice, where the minister and ministry of petroleum are concerned with broad policy framework, rather than day-to-day running of the industry.
Under the PIB, the Nigeria National Petroleum Corporation (NNPC) would be broken into three entities, the National Oil Company (NOC), the National Petroleum Asset Management Corporation (NPAMC), and the Nigeria Gas Company (NGC). The stand of both groups on this is that government should reduce its stake and allow the organisations run as profitable commercial entities.
Although the bill is expected to end the importation of refined products in Nigeria, it failed to address the challenges Nigeria is facing with regards to availability of petroleum products.
A lecturer and consultant on oil and gas at the University of Lagos, Yekini Adeboye, said a lot of things were embedded in the sector, which the masses are not aware of due to the opaqueness of the industry. He said the government is worried that what happened to the default Nigeria Telecommunications Limited (NITEL) would happen to the Nigeria National Petroleum Corporation (NNPC) when the sector was completely deregulated. He said it is not as if NITEL was scrapped, they could not compete with the new telecommunication companies.
According to him, the NNPC has been enjoying monopoly, which he expects to be broken with the deregulation of the sector to allow public participation.
For now, the nation waits and will continue to endure the inadequacies of a poorly managed sector until the new dawn.
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