Nigeria has no choice than to deregulate, remove subsidy
The Chairman, Major Oil Marketers Association of Nigeria (MOMAN), and Managing Director/Chief Executive Officer, 11Plc, Tunji Oyebanji, in this interview with FEMI ADEKOYA, talks about the need for deregulation in downstream sector, considering that investments are being stifled and a good percentage of subsidised fuel finds its way to neighbouring countries.
Last year, MOMAN engaged with some stakeholders on the need to clear the Apapa gridlock. What is your assessment of the situation at this time?
If you look at the bridges today, you will see that most of the trucks that are on those queues are trucks for dry goods. Hardly will you see any tanker that is parked indiscriminately in Apapa. To that extent, I think we have worked hard to make sure that MOMAN members and other companies that are coming to lift from our facilities have places where they can park their trucks without being a distraction. However, the overall problem of Apapa still remains. On our own side, in our own industry, a good percentage of the imports into Nigeria come in through the Apapa ports. So that is a problem, although it has been decentralised to a certain extent so people also go to places like Calabar and Warri to lift products.
But the vast majority comes into Apapa. So that is one problem. Secondly, the major ports here, Tin Can and Apapa ports are still here. So most of the dry goods that are imported into the country again, are coming in through the same ports that were built several years ago, despite an increase in volume. So, I would say the major problem is really lack of investment. if the country has invested in more ports’ receipt facilities, infrastructure in this area in different parts of the country then, we would not really have this problem. Until that fundamental problem Is addressed, we are going to continue to see this kind of problem intermittently. In addition, the roads are bad, not only in coming into Apapa but all over the place and that has also compounded the issue.
For me, you have to decentralize this place. l do not think any new tank farm should be allowed here. We already have enough. They should take them to other places. And then if the roads are also fixed that will improve.We have a big truck pack. Most of our MOMAN members have truck parks and we are able to park our trucks. But I think it’s something that needs to be done for not only the petrol tankers or trucks coming into Apapa.
How come most of the multinationals have left with the exception of Total. How is Total able to do it?
Well, what I would say clearly is that the downstream in Nigeria is not healthy. As you know, we operate on a fixed margin. The last time any review was done on our margins was in 2016. inflation continues to rise, workers continue to demand a higher salary as well as an increase in all the inputs. If you want to build a mega station now, the cost is probably two or three times over what it would have cost a few years back and yet our margins remain the same. Today, NNPC is the sole importer of fuel; so all of us have to go cap in hand to NNPC to beg for allocation. So with all the stress and combination of things, regulations are not applied to all. In some cases, you will find this regulation will be applied here, for another person the same will not be applied.
So those kinds of differential ways of doing things and then, when you add to all these multiple taxations, every local government, every environmental agency, three different agencies can come requesting for the same things and charging you huge amounts of money, all coming from a fixed petrol price on a fixed margin. With that, it doesn’t take rocket science to know that things will be bad. And that’s why I think people have left. For TOTAL, I think the only reason why they are still here, I can’t speak for them, but I believe Africa is a corner piece of their own strategy. So they have been expanding significantly in Africa and maybe that is why they feel it’s important to remain in a large economy like Nigeria. But for other people, that made a business decision that this is not a sustainable economic environment that can keep their companies going and they have decided to vote with their feet.
What solutions will you proffer to these problems you mentioned?
Well, we are a competitive industry. We believe in competition. We believe that when you allow players in the industry a free hand to go into the market and to compete effectively, it brings out the best in them and the investment that is lacking. You can see the trucks on the road, most of the trucks you see on the road are not good, many of our stations you see are not what you call state-of-the-art stations. If you go abroad, you can see much better service stations. Many of our facilities are old and getting older. We believe that the government needs to free up the industry just like it has done in so many other industries and we have seen the massive development there. I believe that we should deregulate the industry. Deregulation doesn’t mean there will be a lack of regulation. The regulation will still be there but the government will concentrate on setting standards and making sure that everybody is playing according to the rules, and that people are not creating monopolies in terms of oppressing people.
Today, even though the margins have not been touched for quite some time, they are fixed and they are known. At least you know what you are dealing with. In a deregulated environment you may not know what those margins are. In fact, your margins could go negative if possible but at the end of the day what that means is that, those who are not running the business efficiently would die and the strong will survive or there’ll be consolidation in the industry, which is part of what you see happening in the banking sector because the competition is stiff. People have to consolidate.
With all the benefits you outlined, why do you think the government is yet to sign up on deregulation?
It is from a political standpoint and it is always going to be a challenging thing. Unfortunately the longer you wait, the more difficult it is going to become. It is not going to run away. You really have to take the bull by the horns because what we keep on doing is that, when there is an attempt to deregulate and there is a lot of pushback, eventually when the government has to take a step backward what they end up doing ultimately is just to increase the price. Deregulation is not about just increasing prices periodically. What usually happens is that when the pressure on government finances becomes so much, they have no choice and they will say we want to deregulate and immediately they say that there’s outrage, people in different places carry placards, strikes and all that.
First and foremost, what government really wanted to do was to take its hands off and let things float by itself. But when they backtrack, there is an increase in price and this gets people agitated. The answer is to remove hands completely from it then competition will set in. Yes, it may be tough at the initial stages because one, we haven’t done it for such a long time and what has happened now is we are trying to bridge the gap that you initially need to make a very big jump. But once that happens, people will adjust and over time, what you would find is competition will set in and people would price out at the barest minimum.
I think what government needs to do is to have a plan. It is difficult to do this overnight. There are implications but what we recommend is to have a plan and say look either you use the Dangote refinery as a target or you set a date. I think today people are wary of deregulation. If we do deregulate and we remove these subsidies what will happen to these savings? Is it going to go into the right things? Because what we are doing now is, I don’t know how I can describe it, but it seems to leave very much to be desired. We are borrowing money as a country at very significant levels and yet in many states, they can’t pay their salaries, and yet at the same time, we are spending close to N1 trillion on subsidy.
So, because we want to ensure that people have very cheap fuel, we are indirectly not able to pay people’s salaries. Deregulation is a big multiplier that needs to be implemented so that the economy can be freed from the burden of subsidy. We all think it is a great thing to be having cheap fuel but all around us, all the countries, Cameroon, Benin, all those places, there’s nothing like subsidy.
And people would argue that some of the fuel that is being imported into Nigeria at a subsidized rate is finding its way across the border to other places. When the price differential is so much, even if you put all the law enforcement agencies across the whole border, it won’t matter because the gap is so much that everybody along the value chain can make their own cuts and the man who is doing the activity will end up making a profit. The attraction to continue to move products in this form is so much because of this gap between what is paid here and what is paid in the neighbouring countries. Are people in those countries not poor? There are poor people in those countries. Nobody is saying it’s easy or that we should look at it and just take it lightly, but we need to have a plan because if we don’t, we are mortgaging the future of our country and all of us are in it together.
How much do you think the government would save if it stops subsidy?
The numbers out there are probably close to N1 trillion every year and you know in the budget is about N7 trillion. So you can imagine what portion of that is on subsidy.
There is this perception among certain segments of the public that oil marketers are behind the price increase of PMS. What is your take because people find it hard to believe that oil marketers also complain about the state of the industry?
Well, I think it is first and foremost those who are wearing the shoe that knows where the shoe pinches. They obviously are the people that are affected. But I think some things are very easy to see.
One, all the multinationals that have left the country, I think that is very clear evidence if anybody is observing the industry. Some are asking, why are all these people leaving? Then some of the indigenous companies that are even buying some of the assets from multinationals are also divesting. When companies are closing down or divesting, as long as it doesn’t affect them they don’t see that. Another thing you would notice.
Just looking through the papers you will see AMCON is forever selling off terminals and depots of people owing money. Many of them are marketers who have been involved in the business, but they are owing banks because the government did not pay the subsidy bills for a very long time; interest was mounting and at the end of the day AMCON has now moved against many of those terminals.
What is the position of MOMAN on price management and deregulation?
What MOMAN would advocate is for a free and deregulated market. We cannot control government policy; ours is just to advise. We have to try and operate in whatever system that exists, but we believe based on what we have seen in many other countries, especially since many of us are heritage companies/multinationals, the long-term survival and sustainability of the industry will come in a deregulated environment. When the government is controlling everything, it is unable to respond freely because sometimes political considerations outweigh economic considerations. I have always had the personal belief that you cannot solve a problem that is basically an economic problem by political means; it is not sustainable. You can do it for some time, eventually, the numbers would not add up. What you are trying to do is just trying to patch this situation because you don’t want the political fallout on it. Ultimately you have to find an economical solution to an economic problem. Our position as MOMAN is that a free and deregulated industry is better for the country. Governments should then concentrate on making sure that quality products are brought in and that nobody is overcharging consumers. The government needs to ensure that people are not forming monopolies and doing what you call price gauging, in order to ensure that standards are maintained by all players in the industry as well.
Today government, through NNPC is busy importing fuels and doing things that should have been left purely to the private sector. There is no way that government will do business efficiently and that is reflected in the fact that our refineries, as you see today, are not working, purely because of the way the government is set up. If you look at our refineries, they are just like an old Peugeot 504 bought and driven many years ago, yet the same car is being put on the road in 2019, even when it was not maintained regularly. Such a car will not survive.
What will be your advocacy agenda to the government?
As a country, we have no choice than to remove subsidy. The oil that we are depending on is not going to be there forever. If we do not have oil today, we wouldn’t be having this debate because there’s no way the government would have been able to afford the subsidy. So we really have no choice. All the countries around us are operating in a deregulated, subsidy-free environment. We have to bite the bullet and deal with it. What we need is to have a plan and we work towards that plan. It may not happen overnight or on a fixed date but we need to plan for the moment. People need to come away from the idea that marketers are just raking in money, as some people used to assume subsidy is money that comes to our pockets. That is just not the case. Subsidy at that time was just the difference between the landing cost and the price we are forced to sell the product locally. What I would say again is we really do need to bite the bullet. This is not good for our country, it is killing us in installment; a lot of the products we are subsidizing is finding itself to neighboring countries. So, we are just bleeding and we need to do something to stop that bleeding, for the sake of our children and future generation.
Is the government still owing oil marketers?
Government is still owing us. I can’t say the figure categorically now. They have given us some promissory notes to adjust. Interestingly, when we import the fuel on behalf of the country, what happens is that with a letter of credit, you pay certain amounts to the overseas supplier to give you products. When you bring it to Nigeria, the government determines this is how much you can sell. So there’s a difference. But you know, you have already paid that overseas supplier. So the government now promises that they will pay you that money within 45 days.
In some cases, it will take over three or four years for that money to be paid. So, imagine the interest that has accumulated over that period. Now when you finally give it to us, rather than giving us cash, you give us promissory notes that have a future date as its maturity date. How do you expect that kind of industry to be healthy? So, the simple answer to your question is yes, they have paid off some in the form of promissory notes but there are still a lot of outstanding debts and those who can survive are still surviving but many have fallen by the wayside and many of those companies have had to fold up now.