Friday, 2nd June 2023

Government set to deregulate oil sector as scarcity persists

By Collins Olayinka (Abuja) and Sulaimon Salau (Lagos)
10 May 2016   |   1:15 am
There are indications that the Federal Government will abandon its price modulation policy this week and embrace deregulation.
Minister of State for Petroleum, Dr. Ibe Kachikwu .Photo Ladidi Lucy Elukpo.

Minister of State for Petroleum, Dr. Ibe Kachikwu .Photo Ladidi Lucy Elukpo.

• PPPRA decries opposition to policy • Petro may go up to N130 per litre
• DPR warns marketers, to arrest street hawkers • Oando begins LNG Project

There are indications that the Federal Government will abandon its price modulation policy this week and embrace deregulation in order to allow private marketers resume importation and sell at profitable margins.

Already, the petroleum downstream sector seems to be going through another round of fuel supply challenges as queues are beginning to build up at filling stations while many marketers have resorted to rationing products.

A source at the Ministry of Petroleum Resources who revealed this development yesterday said that the policy would likely push the pump price of petrol to about N130 per litre at retail outlets.

Besides, the Petroleum Products Pricing Regulatory Agency (PPPRA) yesterday decried opposition to deregulation by a section of the stakeholders in the sector. The Executive Secretary of the PPPRA, Sotonye Iyoyo, explained that there was the need to allow the deregulation of the downstream industry in order to pave the way for efficient and competitive products supply and enhanced investment.

The PPPRA boss also hinted that the continued delay of the passage of the Petroleum Industry Bill (PIB), non-implementation of the proposed Open-Access, Common-Carrier regime for downstream logistic facilities and non-availability of viable alternative fuel to the three white petroleum products – PMS, AGO and HHK – as formidable factors that are inhibiting availability of products in the country.

Her explanation: “There is the need for the development of a pricing framework to encourage local refining and discourage importation of petroleum products in the long term. We need to move quickly to ensure the passage of the PIB to provide a vibrant legal and regulatory framework for the oil and gas industry. Deregulation of the downstream sub-sector would enthrone transparency, sanity and healthy competition. It also provides savings to the government for other infrastructural developments. It will stimulate economic growth and improve and secure refined petroleum products distribution infrastructure.”

Iyoyo also identified a sustainable strategic fuel reserve policy for petroleum products as a security measure against emergency situation in the country, which the Federal Government is currently considering.

She called for the automation of the PPPRA operations for improved efficiency and transparency and building of a national strategic stock reserve.

She insisted that the role of PPPRA in a deregulated downstream sub-sector would be to provide a level playing field for all the operators and promote investments, which will lead to job creation and enhance local participation.

The PPPRA chief urged the Nigerian National Petroleum Corporation (NNPC) to negotiate with Indorama Petrochemicals, Eleme not to export cracked C5 especially during fuel scarcity. Cracked C5 is an important refining blending component to boost PMS volume. The component can be supplied to the refinery in exchange for Propylene-Rich Feed (PRF) from the Fluid Catalytic Cracking (FCC) Unit.

She hinted that the PPPRA in conjunction with other stakeholders would soon be meeting to work out the commercial framework for the Strategic Fuel Reserve (SFR) for 90 days sufficiency as envisioned by the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu.

She hinted that PPPRA was also encouraging marketers to develop Single Buoy Mooring (SBM) to eliminate delays during the discharge operations at jetties.

It was learnt in Abuja yesterday that the special account created at the Central Bank of Nigeria (CBN) for accruals from the over-recovery during the low price of crude oil that rose to about N3 billion may have been depleted which now necessitates a rethinking on the adoption of the price modulation regime.

According to the template of the price modulation, the PPPRA ought to have affected a new price regime on April 1, but the agency failed to release the template. It, however, released it on April 29 retaining the price regime.

It was learnt that after several meetings between oil officials and marketers, government last week gave approval to source foreign exchange from the parallel market, which means that the price of petrol may overshoot the regulated pump price.

The government, according to the source resorted to full deregulation to end the perennial fuel scarcity and avoid subsidy payments. Stakeholders in the industry have widely pushed for full deregulation of the downstream sector, which they said would open up the industry for fair participation by all players, and halt incessant fuel supply crisis in the country.

As at yesterday, the PPPRA template showed that fuel price was still N86 for NNPC and N86.50 for other marketers. The expected open market price (landing cost plus margin) is N98.62 per litre, while the subsidy stands at N12.62 per litre.

The Guardian’s investigations yesterday around Lagos Metropolis showed that many filling stations were lacking Premium Motor Spirit (PMS) otherwise known as petrol while the few ones that had were rationing the limited stock available.

In Ogun State, about 85 per cent of the retail outlets were yet to comply with the official pump price of N86.50 per litre, as fuel sells for between N100 and N130 per litre.

Worried about the situation, the Department of Petroleum Resources (DPR), has cautioned the depot operators, marketers and other stakeholders in the downstream petroleum sector to desist from sharp practices that could distort fuel supply across the value chain.

The NNPC said it supplied an average of 33.7 million litres of PMS in March, while the independent and major marketers supplied the balance to meet the 40 million litres estimated daily national demands.

Facts on the breakdown showed that 310 million litres were supplied to Lagos axis followed by Abuja with 150 million litres and Oyo State with 69 million litres daily.

As the fuel supply crisis continues, the corporation said, the three refineries produced 202,791 MT (about 1,486,864 barrels) of finished petroleum products during the period.

NNPC, however, said it was intensifying efforts with the Central Bank of Nigeria (CBN) to provide $180-$200 million forex to support major private importers.

A fuel marketer yesterday told The Guardian that $200 million forex plan was not realistic, as marketers were finding it difficult to access the fund.

According to the source, the marketers are still lobbying for forex and sometimes pressurised to patronise the black market and thus shoot up the cost of importation.

However, it was learnt that the intervention products approved by the NNPC to some marketers were not showing any difference at the designated locations and may have been diverted in transit.

A vessel tagged ‘United Enterprise’ imported by the NNPC yesterday discharged a 20,000 Metric Tonnes (MT) of fuel to NIPCO facility in Apapa jetty under a thru-put arrangement.

The DPR, in a statement made available to The Guardian by Deputy Manager, Communications, George Ene-Ita, cautioned against “spot marketing” which it said had become very rampant at petroleum products depots across the country.

Consequently, it said all security agencies had been put on alert to arrest those negotiating, buying and selling of products at depot premises.

The statement reads in part: “Bulk purchase of products with the intent to resell to marketers has no place in our operational guidelines. Therefore no depot is allowed to sell products to unlicensed outlets or unidentified locations.

“The attention of the general public is hereby drawn to the fact that security agencies have been advised to arrest and prosecute illegal hawkers of petroleum products on our streets.

“The DPR has set up a call centre with the following numbers- 234(1) 2790000 & 9037150 (auto voice prompts are available in Hausa, Igbo & Yoruba languages) as well as social media platforms: twitter@dprhotline & tag chief dpr for feedback from the public,” it stated.

The source said top level secret meetings had been going on all-week to weigh the security implications of the possible fallouts of the policy.

One of the meetings was held at the headquarters of the State Security Service in Abuja where the Minister of State for Petroleum Resources, and his counterpart in the Ministry of Labour and Employment, Chris Ngige, met with heads of security agencies to fine-tune possible security response should Nigerians pour into the streets to protest against the policy.

Meanwhile, Oando Gas & Power Limited (OGP), the foremost indigenous developer and provider of gas and power solutions, and a fully-owned entity of Oando PLC, has commenced development of a mini-Liquefied Natural Gas (LNG) facility through its Transit Gas Nigeria Limited (“TGNL”) subsidiary in Ajaokuta, Kogi State.

The pioneering 20 mmscf/day liquefaction plant is primarily directed towards fulfilling the gas supply requirement for captive power plants, embedded generation, and industrial clusters in the Northern region, as well as stranded customers in the South. Off-takers, particularly, power plants and industrial customers who currently utilise liquid fuels such as diesel and LPFO, will be able to lower energy costs by up to 40%, while significantly decreasing carbon emissions.

Commenting on the initiative, OGP CEO, Mr. Bolaji Osunsanya said: “The establishment of the Ajaokuta mini LNG project is in firm alignment with our mid-to-long term gas conversion strategy.”

This venture further emphasises our push to broaden our asset portfolio and strengthen our market play within the gas sector; and by providing the gas advantage, we will help spur the development of self-sustaining industrial clusters to bolster the country’s socio-economic growth.

LNG is a viable provisional solution and an industry game-changer for the development of gas markets ahead of the actualisation of a far-reaching nationwide gas pipeline network as stipulated by the Nigerian Gas Master Plan.”

With an unlimited supply radius across the country, the Ajaokuta mini-LNG project will provide the solution to the perennial power challenges suffered in certain regions by supplying gas to key foundation off-takers including strategic power plants and commercial concerns.
OGP provides gas and power solutions to over 170 industrial and commercial customers nationwide ensuring cost-savings across board, powering economic development, and engendering environmental awareness.

The company commissioned its expanding Compressed Natural Gas (CNG) program in 2013, and is currently spearheading several long term projects including a 400km South-West to North-West gas pipeline and a Central Processing Facility (CPF) which will serve as the primary gas gathering and processing hub in the Niger Delta.

Commenting further on the company’s strategic direction, Osunsanya said, “We are focused on aggressively developing Nigeria’s gas infrastructure and the Midstream sector at large as evidenced by the ongoing expansion efforts of our various assets. We are poised to conclude the 10km Ijora to Marina expansion of our Greater Lagos pipeline to increase our supply capacity and market, while providing a cheaper power solution for industries and commercial enterprises along the axis. In cooperation with the Rivers State Government, we have also begun the 8km build out of the Central Horizon Gas Company pipeline franchise within the Trans-Amadi area which will have a socio-economic multiplier effect via the availability of power generated, job creation, and the growth of businesses.”

Though Nigeria boasts proven natural gas reserves of 187 trillion cubic feet (TCF), the 8th largest in the world and the largest in Africa, the gas industry has failed to realise its true potential due to a number of challenges including the lack of a suitable long-term fiscal and regulatory framework, insufficient infrastructure, sabotage in the Niger Delta, and slow market consolidation. Analysts have continually touted gas as a means of diversifying Nigerian revenues from the usual reliance on oil.

“Gas must occur as a market-driven development, and Nigeria is not an exception. With oil, there is a ready global market existing for the product. However in gas, you start with an end market and then you develop the gas infrastructure, including extraction, processing facilities, pipelines and connecting infrastructure,” said Osunsanya.

Oando’s holistic gas integration strategy includes methods of transmission and distribution through virtual pipeline solutions such as LNG and CNG to fulfill market requirements while the gestation period for the implementation of the Nigerian Gas Master Plan elapses.
The multi-billion Naira Ajaokuta LNG facility will commence operations in Q2 2017.

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