Downstream operators seek input in market deregulation framework

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A coalition of core interests in Nigeria’s downstream petroleum industry wants the federal government to accommodate their input in the legal framework that will guide operations in the deregulated market regime.

The stakeholders comprising of Major Oil Marketers Association of Nigeria (MOMAN), Depot and Petroleum Products Owners Association of Nigeria (DAPPMAN) and the Petroleum Products Retail Outlets Owners Association of Nigeria (PETROAN) made this call at the Nigerian Petroleum Downstream Summit webinar organised by the Oil Trading and Logistics (OTL) Africa Downstream Limited on Thursday.

During the webinar which attracted over 350 participants drawn from ranking oil and gas organisations within and outside Nigeria, as well as major downstream petroleum regulators, the set of vibrant panellists dissected the issues attendant to market deregulation including pricing, business models, competition, new investments and value-creation in the downstream petroleum Industry.

The panellists included Mr Adetunji Oyebanji, Managing Director, 11 Plc and Chairman, MOMAN; Dame Winifred Akpani, Chief Executive Officer, Northwest Petroleum and Gas Company Limited and Chairman, DAPPMAN; Hajia Amina Maina, Group Chief Operating Officer MRS Holdings Limited and Mr. Huub Stokman, MD OVH Energy Marketing Limited. Others included Dr. Billy Gillis-Harry, National President, PETROAN; Dr. Timothy Okon, Managing Partner Teno Energy Resources Limited; Mr. Stanislas Drochon, Head of Africa Strategy and Transformation, PUMA Energy; and Mr Emeka Akabogu Chairman, OTL Africa, who moderated the event.

Initiating the discussions, Tunji Oyebanji, Managing Director, 11Plc and Chairman MOMAN, said that recent pronouncements by government have compelled industry operators to scale up the discussions around deregulation and present a unique opportunity for Nigeria to take some fundamental decisions as far as the downstream industry is concerned.

“You are aware of recent pronouncements to the effect that there will no longer be subsidies and that the industry has been deregulated. As far as we are concerned, there needs to be input from private sector operators while such policy is being put in place, so that we can have a policy that is beneficial not only to the industry but to the economy as a whole,” Oyebanji said.

He said it was gratifying to note that government for the first time was actually thinking very seriously about taking this bold step, adding that “We believe there is need for additional clarity; there needs to be input from us the operators and our position is simple. We need to embrace the idea of turning back the regime of subsidies and create an environment for the market to determine prices all through the value chain in order to spur investments.”

Oyebanji added that “If we are really going to make fundamental changes within the downstream space, then we need the appropriate laws backing it up so that we don’t keep going back and forth over this issue in the future. What we are trying to let government understand is that when you retain control of prices, overtime there is a need to increase prices, the government will be under tremendous pressure because of political considerations.”

Speaking from the perspective of depot operators, Mrs Winifred Akpani, CEO< Northwest Petroleum and Chairman DAPPMA, said that “Over the years, as government has taken over operations in the downstream sector to a large extent, it has become difficult for a lot of depot owners to survive especially those who haven’t made further investments into other areas of the downstream value chain.”

Akpani acknowledged that while it cost a minimum of NGN4 billion to construct a standard depot, the NGN2 per litre storage margin fixed by the NNPC as far back as 2016 has made it impossible for most depot operators to sustain the business. The result is that most operators have defaulted on their loans or are embroiled in issues with the Asset Management Corporation of Nigeria (AMCON).

She noted that due to several other expenses that are underprovided for by the storage margin, less than 30 per cent of depot remain in operation today. She adds that while some have entered into receivership, others are just coasting along waiting for proper market deregulation thus hindering expansion and investments in the sector.

Also speaking, Hajia Amina Maina, Chief Operating Officer, MRS Holding Limited said that in anticipation of complete market deregulation, her organisation invested in West Africa’s largest petroleum jetty facility with capacity for 100,000mt LR2 vessels with a view to improve efficiency, save costs and transfer the savings to customers.

“In a deregulated market, there will be competition and competition should drive prices. In a deregulated market, our concern will revolve around what we can do to make our prices competitive, to ensure that customers are satisfied with services and ensure that prices are fair and transparent,” she said.

Reacting to an assertion that petroleum retail outlet owners have been indifferent to market deregulation because their margins are protected and they do not bear the risk of foreign exchange and demurrage charges among others, Dr. Billy S. Gillis-Harry, President, PETROAN says contrary to the assumption, his association completely supports total market deregulation.

Rather, he insists that all the pressure from deregulation weighs heavily on last-mile operators as they are the operators in direct contact with consumers. He adds however, that deregulation must address and eliminate subsidized foreign exchange for oil marketers.

On his part, Mr Huub Stokman, Managing Director OVH Energy dispelled concerns that deregulation would lead to an increase in shady practices by operators who might take advantage of consumers. He said that by the nature of complete market deregulation, only operators with the best prices and quality of products, as well as superior customer experience would be able to survive.

Dr. Timothy Okon, Managing Partner Teno Energy Resources Limited, speaking from an economic perspective said Nigeria does not influence the dynamics of crude pricing & naturally, cannot set the price of a derivative of crude.

“We aren’t doing a good job of defining the ‘Terms of Cost Structure’ because we cannot set a fixed price for a commodity whose price we do not control,” he asserted and advised the authorities to adopt an auto-regressive analysis to determine what the price of products will be whenever oil prices change again as they would definitely do.

Also speaking, Mr Stanislas Drochon, Head of Africa Strategy and Transformation, PUMA Energy, noted that “As much as governments on the continent may want to support their people with low petroleum prices at the pumps, there is a need to enforce regulation to avoid market distortion. The Nigerian market is very competitive & market-based rules will help operators come to terms with the dynamics of a completely deregulated sector.”

Drochon acknowledged the political implication of high petroleum product prices on African governments but encouraged countries to adopt deregulation to increase efficiency, improve competitiveness in retail marketing and storage; and competitive marketing for access to supply. He also emphasized the need for fair play and enforcement of rules to guard against malpractices.

On concerns that deregulation would encourage the growth of cartels, Amina Maina countered the claims stating “There will be no such things as cartels or cabals in a deregulated sector. If you are looking for an industry where operators are constantly trying to outdo each other, downstream is the place. Everyone wants to sell at the lowest price and there is not enough cooperation between operators to form a cartel.”

On the issue of foreign exchange, Oyebanji confirmed that talks were on-going with the Ministry of Finance and Central Bank of Nigeria to work out modalities for non-preferential access to capital by all oil marketers. He implored the federal government to expedite action on the repayment of subsidy debts as the funds would help with liquidity and access to forex.

Addressing regulations, Dr Okon opined that the framework for regulating a deregulated regime should focus on standards, a stricter HSE regime, standards of distribution networks and planning of retail outlets and depots. He also proposed that the Consumer Protection Act, Federal Competitions and Consumer Protection Act as well as the Federal Inland Revenue Service are incorporated in regulating the regime.

On pipeline investments, Stokman highlighted the need for investments in pipeline infrastructure as the safest and most efficient means of transporting fuel from the coast to the hinterlands. He also noted that they would be crucial in maintaining parity between the price of fuel in the north and in the south in the new regime.

Acknowledging that about $63 billion was spent on subsidies between 2006 and 2018, stakeholders advised government to be faster in response, take advantage of the low cost of oil and allow market forces determine prices.

Also, owing to the pivotal nature of the downstream sector to the health of the economy, stakeholders agreed that the sector required significant investments. They also resolved that total deregulation with an appropriate framework and standard consumer protection is the way to go to ensure fair practices.

The stakeholders added that this moment required political will and leadership and urged government to adopt a strategic approach to ensure key legislation such as the Petroleum Equalization Fund Act, the Petroleum Products Pricing Regulatory Authority (PPPRA) Act and Price Control Act are all reviewed in line with the new regime.

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