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‘Decade of Gas’ will be Highly Beneficial for Nigeria — Dr. Nnadi

Dr. Goddy Nnadi, an accomplished administrator, is the General Manager (Corporate Services) of the Petroleum Equalisation Fund (PEF). Exuding confidence and passion in his duties as the GM (Corporate Services), Nnadi has contributed immensely to the Fund in his nearly two decades of service at PEF. In this interview with Eddy Ochigbo, the media practitioner and communication expert bares his mind on the nation’s oil and gas sector, and other issues of national importance in the industry. Excerpts:

What is your assessment of the state of the oil and gas industry now, compared to a decade ago, taking into consideration the impact of COVID-19?

The COVID-19 crisis accelerated what was already shaping up to be one of the industry’s most transformative moments. The impact of the pandemic on the oil and gas industry in Nigeria has been a two side coin. It has both been detrimental and beneficial to the country. Detrimental in the view of Nigeria being a mono-product economy, heavily dependent on oil, the impact of the pandemic lockdown witnessed a decline in the price and demand for crude which resulted in dwindling revenue for the country and an economic downturn with a glut in the international market for a substantial period.

On the beneficial side, it highlighted the necessity of the need for economic diversification, and propelled the implementation of policies and regulations that were previously being considered. For example, we see the move to rehabilitate the Port Harcourt Refinery which will supplement the upcoming Dangote Refinery, ensuring adequate local supply of petroleum products. Also, the bid to replace pipelines and rehabilitate depots is in line with the Federal Government’s strategic objective to enhance performance, transparency and excellence in the sector.

Likewise, the Federal Government is committed to the realisation of the commercialisation of gas and its domestic utilisation in the country. This will ensure alignment with the global zero-carbon emission future, and the sustainable development goals of affordable and clean energy, climate action, and sustainable cities and communities. Recently, the National Gas Expansion Programme (NGEP) launched the push for the commercialisation of gas with the autogas launch. The availability of the CNG (clean natural gas) will be a clean alternative to PMS (premium motor spirit), and will create new markets, job opportunities and a safer environment. Also, there are ongoing efforts to encourage LPG as the fuel of choice for domestic cooking.

In the last one year, the oil and gas industry has been found to be quite resilient, encountering challenges, and bouncing back each time, along with the highs and the lows of the economic cycles. There has been considerable growth with marked progress in the Nigerian context. And the story is the same with the experience of the global effect of the pandemic. With the gradual return to business and normalisation of economic activities, the growth which has been evident in the last decade will continue to spur economic direction that will benefit the citizens of Nigeria. On its current path and pace, the industry could now be entering an era defined by strong competition, technology-led swift supply, waning demand, investor skepticism, and growing public and government pressure regarding impact on climate and the environment.

Nigeria is one of the oil-producing countries that still practices the concept of equalisation of fuel price. Give us a sense of how equalisation works here?

With the inadequate distribution of petroleum products and insufficient refining capacity, the Petroleum Equalisation Fund (PEF) was set up to ensure uniform pricing of petroleum products throughout the country. This is achieved by reimbursing a marketer’s transportation differentials for petroleum products’ movement from depots to their sales’ outlets (filling stations), in order to ensure that products are sold at approved price nationwide.  

The cost of equalisation is in-built in the pump price of the PMS, and the customer bears the cost; every time a litre of PMS is purchased, the buyer pays a certain amount. For effective implementation of the equalisation function, the country was divided into depot districts which are parts of the country served by a particular depot. The depot districts are further sub-divided into zones. These zones are progressive bands of 50-kilometre radius, with the depots as the centre-point to the maximum of nine zones, which is a total of 450 kilometres (km).

Marketers, who sell within 100km of a depot, pay in contributions, and from 101km to over 450km claim from the PEF(M)B. By compensating marketers for the cost of transporting their products to consumers, the Federal Government aims to keep the pump price in all states the same, regardless of how far a location is from a depot. The equalisation scheme is administered by a matrix of rates formulated to even out cost impact of distances covered moving from the depot to retail outlets.

Also, PEF(M)B’s business processes are automated, and configured in our bespoke application, Aquila, to determine contributions and claims without intervention. For instance, when a marketer lifts products from Depot A to Depot B, Aquila automatically deducts the necessary contributions, and prepares other amounts for claims.

These are all handled transparently and swiftly to ensure that marketers receive prompt payments for unhindered business operations and facilitation of efficient petroleum supply and distribution.

Given the current state of the industry, can Nigeria afford to continue the practice of petroleum product equalisation?

Equalisation is a global practice that relates to payments by a federal system of government to other entities to ensure a balance in the differences in resources, revenue or the cost of provision of goods and services for the benefit of its citizens.

In effect, it is a social scheme that is provided by government to ensure security and welfare of its citizens. With that objective, the practice is a beneficial one, and ensuring its continuity and improvement in its efficiency and effectiveness should be the emphasis.  The scheme itself is self-funded, and has been operating as such for the past four decades with no recourse to the Federal Government, except for the one time, to ensure a backlog of payment was cleared for continued efficiency.

The deregulation of the industry does not counteract the scheme, but rather acts as a supplement for industry-wide value-added service to the citizens. Also, PEF(M)B has institutionalised a progressive information technology driven-process which has enhanced service delivery along with a reservoir of skilled and highly motivated workforce; the institution and scheme is an asset and strategic vehicle in the curbing of socio-economic deficits that impact the citizens.

What do you think are the challenges facing the smooth and continued operation of the equalisation scheme?

One main challenge is that the PEF(M)B does not have the legal mandate that is required. Despite this, the Board has ensured that within its mandate and capacity, processes are in place to ensure compliance to its requirements before payments are made. We have utilised technology to a huge extent in our processes, and we will continue to, along that line, in collaboration with other government agencies. The Downstream Automated Fuel Management Information System (DAFMIS) is an ongoing project that is designed to deliver an end-to-end petroleum tracking and inventory monitoring solution across the distribution value chain for the benefit of the downstream sector and industry stakeholders. So, we have been mitigating and managing challenges, while working at ensuring that the identified areas are resolved.

How efficient is PEF in uniform pricing policy?

PEF(M)B has impacted on petroleum products price stability. It has compensated for infrastructure deficits, and has been a palliative and buffer for the adverse effect of price fluctuations and gaps in the sector. The ability to reimburse marketers the cost of transportation of petroleum products has encouraged and driven productivity in the sector and regions of the country, serving as a buffer to price exploitation and sustainable development in remote areas.

Also, the efficiency of the fund has encouraged micro and small businesses which, as you know, are fundamental to economic development and job growth.  For instance, we see the initial impact of Aquila on the investment in tank farms, retail outlets and trucks with ensuing generation of employment. The impact of the scheme is far-reaching, and consequences of discontinuing the scheme without the establishment of the reasons for which it was created may be devastating to the economy with an adverse effect on the citizens.

The deregulation of the downstream petroleum sector has sparked debate over the continued existence of an agency called PEF. What do you say to people clamouring for the scrapping of the agency?

Like I mentioned, the reasons for which the agency was established are yet to be addressed. Marketers are business people and profit driven. If they do not see the benefits of supply of products to areas that are far away, the regions will suffer decrease in the volume of products supplied to the areas, and supply will be focused on areas where there is high demand. In this instance alone, you see that PEF provides stimulus to marketers to go to regions that will, otherwise, have been unprofitable.

One of the issues raised concerning the PIB 2020 is around petroleum agencies such as PEF, and what exactly the government wants to do with it. What, in your opinion, would be the role of PEF post PIB?

PEF(M)B is poised to deliver its experience of over 45 years, a highly motivated and skilled workforce and world-class technological infrastructure for continuous service to the nation.  With the focus on the commercialisation and domestication of gas in the country. These resources that have been deployed in the petroleum sector can be utilised in the gas sector with the added capability of the promotion of infrastructural development in the industry.

It seems difficult to know or have accurate data of PMS consumption in Nigeria. Tracking of Nigeria’s PMS consumption figures is almost impossible, why is this so?

PEF(M)B has been a source of credible data for the sector. One of the objectives of the DAFMIS project is to be a source of energy information that will provide business intelligence for economic, social and security planning. With the collaboration of sister agencies and other government institutions, the supply, distribution and consumption of fuel will be efficiently monitored for enhanced decision-making by the government.

What’s your take on gas replacing PMS as transport fuel and Nigeria going through 2030 as decade of gas?

This is a highly beneficial development for the country and the global community as well.  As I mentioned earlier, this will align with the United Nations Sustainable Development Goals (UN-SDGs) 3, 6 and 7, while providing a cleaner, safer, available, accessible and affordable source of energy for the nation. There has to be an alternative to PMS for the benefit of the citizens. It will also spur generation of jobs, employment, businesses and infrastructural development.

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