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DEREGULATION: After Decades of Failed Attempts Will FG Reverse Again?

-By Gideon Osaka

Except for the recent threat by organised labour to embark on a strike, the seeming acceptance by Nigerians of the federal government’s decision to remove subsidy on petrol could signal that deregulation of the downstream petroleum sector may have finally become a reality after decades of missed attempts.

Valuechain reports that following the announcement of a new ex-depot price of N151.56 for petrol earlier in September by the Petroleum Products Marketing Company (PPMC) which automatically resulted in the increase in the pump price to about N160 per litre, the federal government had equally announced that it was no longer fixing the pump price of petroleum products in the country.

The increase in the pump price happened for three successive months before September and came at a time a new electricity tariff regime was kicking off, having been postponed from April 1, 2020.

President Muhammadu Buhari

According to the government, when oil prices collapsed at the height of the global lockdown, the price of premium motor spirit (PMS) also called petrol, was deregulated such that the benefit of lower prices was passed to consumers. Before now, the PPPRA had provided a price ceiling that marketers must not exceed, however with the deregulation of the sector, more marketers were free to import petrol.

Deregulation, according to the Minister of State for Petroleum Resources, Chief Timipre Sylva means that the government will no longer continue to be the main supplier of petroleum products, but will encourage private sector to take over the role adding that market forces will henceforth determine the price at the pump

Sylva stated that over N1 trillion had been saved by the country since the decision to remove subsidy and fully deregulate the sector adding that deregulation is expected to address the country’s refining challenges, as more investors would be attracted to investing in building refineries in the country, thereby, helping the country to end fuel importation and saving the country huge foreign exchange losses.

Valuechain reports that the federal government has in the last 20 years been considering deregulating the downstream oil sector through the removal of subsidy on petrol but the plan continued to fail due to several reasons including stiff opposition by organised labour and Nigerians.

Since the year 2000, there had been various interventionist committees set up by government to address the problems in the industry. Some of the committees proposed a 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.

Mr. Tunji Oyebanji

Specifically, in 2001 there was a government-appointed committee on liberalization headed by the then Secretary to the Government of the Federation, Chief Ufot Ekaette which submitted a White Paper report on Supply and Distribution of Petroleum Products, but implementation of the report did not materialise. In addition, the uproar that greeted the decision by the government to remove subsidy in 2012 and consequently deregulate the industry, meant that full deregulation could not be achieved.

However, the case is different today as there is seeming acceptance by all and sundry that deregulation has come to stay going by the reactions of some critical stakeholders in the industry.

Key players in the oil and gas industry are unanimous in their views that the policy would in the long run benefit the ordinary Nigerian, and positively change the fortunes of the industry.

The Chairman of the Depot and Petroleum Products Marketers Association of Nigeria (DAPPMAN) Mrs. Winifred Akpani said DAPPMAN remained in full support of the implementation of a fully deregulated regime which will make the downstream sector’s operations more seamless, enhance transparency, competitiveness and sustainable growth.

Mrs Winifred Akpani

“DAPPMAN is mindful of the commitment of the government and the functional organs managing the sector to ensuring value to every Nigerian and we salute them for this as we are indeed up against uncertain times. However, we believe that full deregulation of the sector remains the most viable option for Nigeria to effectively navigate this period and ultimately safeguard the future of our economy and wellbeing of 200 million Nigerians,” she said.

According to Mrs. Akpani, deregulation will open up the sector for fresh investments, market deepening, diversification, and expansion, culminating in stable demand and supply regimes which are critical to ensuring that consumers have uninterrupted access to affordable quality products without the huge financial burden currently borne by the government.

“DAPPMAN is aware of the considerations that have dogged the issue of deregulation over the years and we believe they are very important. However, we believe these considerations will be duly addressed with a deregulation regime that guarantees long-term benefits and empowers the government to commit savings made in the process to infrastructure development, job creation, agricultural revolution, education and health,” she added.

On his part, Chairman of the Major Oil Marketers Association of Nigeria (MOMAN), Mr. Tunji Oyebanji, said with the downstream sector deregulation, Nigeria had been presented with a historic opportunity to get it right this time as a country, to rebuild its economy for the benefit of all Nigerians.

He said: “We welcome government’s action in allowing the market to determine prices as we believe it will prevent the return of subsidies while allowing operators the opportunity to recover their costs. This will in the long run, encourage investments and create jobs. “We all must remember the country is broke and can no longer afford subsidy. There is no provision for it in the budget. With this, the incentive for smuggling will be reduced. More funds will be available to the government for investments in infrastructure, roads, health, education and power.”

Valuechain reports that one of the main oppositions to the deregulation policy so far, is that its implementation is coming at a time when majority of Nigerians are already facing financial difficulties, occasioned by the COVID-19 pandemic, which forced down the value of the naira; necessitated a hike in prices of utilities and essential commodities, and inhibited income of Nigerians among others.

Other skeptics argued that the country seems to be engrossed with the quest to deregulate the sector, without paying attention to the public utilities, like the pipelines, jetties, depots and even refineries and forgetting that deregulation is just an aspect of addressing the myriads of problems confronting the sector.

To some others in the oil and gas industry, deregulation would have been a non-issue if the critical issues of legal, regulatory and fiscal reforms as posited in the Petroleum Industry Bill (PIB) were addressed.

They noted that deregulation of the downstream sector of the petroleum industry is being talked about today as a single item whereas what is required is a complete overhaul of both operational and policy frameworks in the industry.

For instance, the laws currently in operation cannot support the demands of the sector, because it is in dire need of reformation. The 1968 Petroleum Act is what the industry is currently surviving on, an obsolete body of regulations that the country uses to still demand efficiency from an industry that has been stretched beyond its elastic limit

Commenting on this in a media interview, the immediate past Chairman, Society of Petroleum Engineers (SPE), Nigeria Council, Engr. Joe Nwakwue, said that there are some legal bobby traps the government failed to clear before going ahead with declaration of the deregulation policy.

“It is important to do this properly. Ministerial pronouncements are good but not enough. There are four legal instruments that need to be repealed for that to sustainably happen. Section 6 of the Petroleum Act 1969 (as amended), section 4 of the Price control Act 1977, the PPPRA Act and the Petroleum Equalization Act,” he said.

Crude oil, he continued, “is a finite resource, so yes it can finish. But that really is not the threat. The threat we face is about demand. If the world finds a more environmentally friendly and efficient fuel, the demand for oil will vanish and it will not be economic to produce. Just like stone and the stone age….while the stone age is over, we still have stone.

“Countries like Nigeria need to understand the urgency to maximizing the use of these resources to develop their country so it does not become obsolete in their hands. Nigeria is thought to have about 2.6 billion tonnes of coal that is now obsolete…I pray that will not be said about oil.”

Commenting on the initial impact of the policy, Professor of Finance and Capital Market, Nasarawa State University, Keffi Uche Uwaleke, stated that the solution remained the passage of the Petroleum Industry Bill (PIB), into law to pave way for investors in the oil refining sector. This, according to him, would also put a stop to the importation of petroleum products well before Dangote refinery takes off to fill the gap.

The views of a cross-section of analysts survey on the deregulation of the downstream sector point to some fundamental concerns about how deregulation would work under a products import regime as the combined products supply from the country’s refineries cannot meet domestic demand.

The way forward, according to them, is for government to show the will in eliminating inefficiencies and corruption in the sector by strengthening the regulatory agencies and guaranteeing their independence for greater efficiency. This is where, according to them, the much-anticipated passage of the PIB is important to deregulation as a policy. For deregulation to thrive, they said, all regulatory issues and laws capable of frustrating its effectiveness must be removed.