MUM seems to be the watchword and graveyard calm in the operations of the petroleum downstream sector, as marketers are still groping in the dark over modalities for planned deregulation agenda of the Federal Government and its possible effects on their businesses. Already, operators are lamenting the poor profit margin since the approval of the pump price for Premium Motor Spirit (PMS), which crashed their margin from about N3.50k per litre to N1.72k at present.

The Federal Government, in the dying days of last year, set a new pump price of N86.50k per litre, which became operational on January 1. The ex-depot price is N77.00k. Aside from this; there is no provision for subsidy in the reviewed template and even in the national budget for 2016. The implication is that government may have indicated that it would not be committed to any payment on fuel importation during the fiscal year.

With the price of OPEC basket of 13 crudes standing at $31.79 a barrel in the international market, stakeholders believe that the new template would provide for normal cost that matches the new pump price. The major concern now is, who bears the brunt when the crude oil prices rebound, when government has pegged the domestic fuel price at N86.50k?

The Chief Executive Officer, Integrated Oil and Gas Limited, Captain Emmanuel Iheanacho, said the best thing for government now is to withdraw subsidy and deregulate, as this would save huge amount of money into government coffers to be used for developmental projects.

According to him, the situation on hand is worrisome, as depot operators are enmeshed in cost parity challenges, which puts them at risk deficit.

“What they should do is deregulate completely. They should not be physically regulating the price and quantities in the market, because if they don’t get their quantities right, there is going to be shortages all the time.

“There are so many elements of costs that are not captured in the official data we have seen published. There are so many things that happen in real life when you are bringing in cargoes. For instance, if you buy a cargo from NNPC with the assumption that the cargo will be delivered to your jetty, if you waited you will never get it, you will need to hire and this will cost about N20 million to N30 million, which also has to be accounted for in your cost details. So, I think that the best way to go is full deregulation. We must allow the price and the volumes to match in line with the supply and demand factors,” he said.

Meanwhile, the situation of kerosene is equally not clear to marketers, who believe that the new template has left the market open for them to take the risk of importing and selling at regulated price of N50 per litre.

The new template as at yesterday showed that kerosene is now left open for marketers to venture into with a view that many would focus on kerosene and flood the market with the product that has been scarce for over two years now. Before now, the NNPC had been the sole importer of kerosene, and facts from its latest monthly report showed that it imported about 1.5 billion litres of kerosene through the offshore processing agreements between January and November last year.

As at the time of revised Petroleum Products Pricing Regulatory Agency (PPPRA) template, the government was subsidising the product at N41.59 per litre, but since January 1, 2015, the template has been left open with no provisions for subsidy. Just as the elements under the PMS column showed no provisions for subsidy.

A top executive of a major oil marketing company in Apapa area of Lagos, confirmed to The Guardian yesterday that the template has crashed the marketers’ profit margin, thereby, making it unpleasant for many to engage in the marketing process.

He noted that many of them already have products in their tanks with a view to selling at higher prices, but the new regime came and crashed the price, thereby leaving them at a crossroad. Indeed, some of them that have the capacity to do throughput (that is, the rate of production or the rate at, which something can be processed) may be giving it priority over importation.

The source said: “The marketers are finding it easier to do throughput than doing importation. The template has slashed the margin by about 50 per cent down to about 1.50k.

“For us now, we have about N1.50 for service and dispensing, against the initial margin of about N3.50. So it is better to do throughput on behalf of NNPC than importing your own product. With the throughput services, you can still be sure of N3.50,” he said.

The depot operators have also lamented the high import cost elements that are not featured in the template.

The PPPRA template, as at yesterday, showed cost plus freight of N65.50 per litre, lightering expenses, N2.02; NPA is N0.36; financing (SVH), N0.31; jetty depot through put charges is N0.60; storage charge, N2.00 making a landing cost of N70.80. Distribution margins cost is N14.30 giving a landing cost of N84.78, while the retail price is pegged at N86.50 per litre. This amounts to a margin of N1.72k per litre.

The planned deregulation by the Federal Government has also created a huge gap between the professionals in the sector and the organised labour, as both bodies took different positions on the national enigma.

The divergent views are, however, creating confusion in the system, as stakeholders continue to worry on how government that could not sustain economic projects due to falling crude oil prices, would spend as much as N1 trillion on subsidy and yet Nigerians suffer to get the product.

The Independent Petroleum Marketers Association of Nigeria (IPMAN), Petroleum, Oil Marketers Association of Nigeria (MOMAN), Nigerian Association of Petroleum Explorationists, (NAPE), the Petroleum Club and industry operators have thrown their weights behind subsidy removal, but the NLC recently moved against the plan.

The Managing Director, Danvic Concept, and oil service firm, Afe Mayowa, said, “we have consistently clamoured for removal of subsidy, and at this point, I think government should not go back. Labour is saying no, but most of these labour people have filling stations.”

Mayowa, who is a former President, National Association of Petroleum Explorationinst (NAPE), said: “We as the professionals in the industry, what we are saying is that subsidy does not do this country any good. Let government revive the refineries and give licences to the private sector to establish modular refineries. It is not wise for government to continue to pay subsidy, especially, this moment when the crude oil prices have dropped to a record low.”

He also urged the Federal Government to intensify its effort on fighting corruption to ensure that the Turn Around Maintenance of the refineries are done ‘at the right time and the right amount’.

The National President, Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), Francis Johnson, said: “The unions are not against the policy in any way, rather deliberate steps should be taken to address weightier issues of employment, sectorial development, corruption, inefficiency and profitability for the Nigerian state.

“In fact, the Labour movement in Nigeria have been in the forefront of restructuring of the downstream sector for a long time. Sometime ago, between 2000 and 2003, the Unions participated in the various interventionist committees set up by government to address the problems in the industry.

“At a point, we proposed phased deregulation of the downstream sector to enable the Federal Government fix the ailing refineries, grant licenses to private refiners, stimulate investment drive, improve human capital capacity, institute legal and regulatory framework and a whole lot of institutional policy to engender sectoral development.
“If the proposals were taken seriously, we definitely would not be where we are today 15 years after. So, we are not ready for full deregulation yet until those concerns are addressed, otherwise we shall be riding in the air,” he said.

An economist and public analyst, Suleiman Lame, said: “What is happening in this country is confusing at times. What I will like to say is that the government should declare their intentions and make sure that their policies have the interest of the masses. There have been problems in the sector for some times with the crude oil prices going down and having impact on national earnings, so where do we think government should get the money. Government has shown that they want to remove subsidy and they have even gone ahead to reduce the pump price, which shows that they have the interest of the people at heart.”