The euphoria surrounding low pump prices of petroleum products in Nigeria may prove to be short-lived as a result of uncertainties surrounding the price modulation policy of the PPPRA.
The PPPRA is statutorily responsible for moderating pricing for the petroleum industry in Nigeria. In performing this role, the agency announced a new price band for petroleum products in March this year. This was in reaction to the crash in prices of crude oil in the international market prompting the Nigerian government to reduce the petrol pump price from NGN145 to NGN125 per litre.
On the 4th of June, the PPPRA issued notice of the “Market Based Pricing Regime for Premium Motor Spirit (PMS) (“MBPRP”) Regulations, 2020. Acting in exercise of its powers under sections 7 and 24 of its establishment Act and with the approval of the President, the Agency asserted that it has removed the price cap per litre for Premium Motor Spirit (PMS), and that a market-based pricing regime for the product will henceforth take effect.
It also asserted that it shall monitor market trends and advise the NNPC and Oil Marketing Companies on the monthly guiding Market Based Price, crucially noting that “the price of Premium Motor Spirit (PMS) advised by the Agency shall be the guiding retail price at which the product shall be sold across the country.
While the removal of the PMS price cap and implementation of a Market Based Pricing Regime was first announced by the Minister of State for Petroleum Resources, Timipre Sylva in March this year, the PPPRA has made it clear that marketers are not allowed to fix pump prices of petroleum products, particularly, PMS.
Energy Lawyer and Chairman, OTL Africa Downstream, Emeka Akabogu, speaking via Skype on a monitored television programme on Wednesday, said that there seemed to be a conflict in government’s disposition to the total deregulation of the downstream petroleum industry.
“There seems to be discordant tunes from the government with the minister saying one thing and the PPPRA saying another. The PPPRA has acted within its remit under section 7(g) of the PPPRA Act, which empowers it to: “maintain constant surveillance over all key indices relevant to pricing policy and periodically approve benchmark prices for all petroleum products”. The summary of that position essentially is that there is no full price deregulation as at today. This means that the control of petroleum products pricing in Nigeria is still absolutely the control of the PPPRA and not the market. That is the reality that operators have to deal with,” he said.
Akabogu acknowledged that while the Regulations does not define “Market-Based Pricing Regime”, such a regime generally involves the process of establishing a price for a product based upon existing market conditions where prices follow agreements between buyers and sellers.
According to him, “The implication of what the PPPRA has set out is simply that marketers and investors will neither have the confidence nor the guarantees to go out and import petroleum products. The reason is because there are no policy guarantees and the situation which we have now can change at any time whatsoever. Therefore, a marketer who is going to put down a significant amount of money to bring in a parcel of products has no guarantee of Return on Investment.”
Akabogu argued that even if operators decided to proceed with the current regime, there was no clarity as to the variables which PPPRA considers in arriving at the price regime. He explained that while the PPPRA may have standard basis for determining international benchmark prices for the market, it may not always have the peculiar circumstances of each market operator in mind when it comes to other cost drivers such as demurrage, storage, trucking.
He said that “There are cost drivers that are peculiar to individual operators; and in a competitive environment, individual operators will price their products according to the final cost at the pump or Ex-Depot. These scenarios make it such that the position is clearly uncomfortable for marketers and one that offers no guarantees. I don’t expect any significant imports by private sector operators until a clear, positive policy for both the market and consumers has been defined.”
Akabogu also observed that though the Regulations are stated to commence on the 20th of March 2020, there is no precise end date stipulated. This means that government may be able to withdraw the Regulations at any time. He noted that provision has not been made for the collateral impact of such a cessation of the application of the Regulations and it would seem that for as long as the regulations are in effect, it is expected that pricing of petroleum products shall be subject to its terms.
On obsolete price control Acts, Akabogu held that there was an urgent need to review the laws in view of prevailing circumstances. He noted that that the PPPRA Act gives it power to set the price band; the Minister of Petroleum could also decide to set prices independently based on the petroleum Act, while the Price Control Act also gives the President the power to set a price cap on several commodities including petroleum products.
“If truly we want to deregulate, what needs to be done is actually simple. “There could be a long term, medium term or short term approach to complete deregulation. The long term would be to overhaul the existing legal framework by passing the PIB. There may be challenges to doing that because antecedents have shown the lack of political will. The medium term option may be to amend the Petroleum Act, PPPRA Act and the Price Control Act only to the extent that these Acts insist that prices may be capped either by the President or PPPRA,” he advised.
In addition, “The short term approach which could be a quick win pending when the government decides on a long term option, could be to amend the gazette on the regulations which PPPRA has just issued. This is within the power of the PPPRA with the approval of the Minister.
Akabogu suggested that in amending the gazette, the PPPRA needs to include an express commence date to the application of the terms they have put forward and also include a very clear duration for the application of the duration. What this would mean is that importers and marketers could in the near term import with confidence within the duration of the application of the regulations. Therefore, even if after the expiry of the application of the regulations, cargo which has been brought in within the duration could be sold at market driven rate thereby guaranteeing RoI.
He also noted that the PPPRA could assume a new responsibility as a competition regulator, whose role is to ensure that cartels do not materialise to fix prices. In this role, the PPPRA will be able to determine at what point in time operators are taking advantage of positions to the detriment advantage of consumers. “At that point it will no longer border on price regulation alone, but also incorporate operations and morality regulation,” he said.
He stressed the need for an end to end involvement of regulatory interventions to ensure that priority products have the access they need and the cost of bringing in these products remains minimum to ensure that the market pricing is also reasonable in the circumstances.