• Sunday, May 26, 2024
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Deregulate downstream sector to allow private refineries operate

Idle NNPC refineries lose N227.4bn since shutdown

It is instructive to know that despite the many assurances of the president and the management of the Nigerian National Petroleum Corporation, NNPC, the fuel scarcity and queues that overshadowed the yuletide celebrations in Nigeria have continued unabated in many parts of the country just as petrol is being sold for between N185 and N350 in different parts of the country except the city centres in Abuja and Lagos. This, perhaps, also puts a lie to the President’s New Year day address where the president blamed saboteurs rather than a simple law of demand and supply for the shortage.

But it is clear to all that the problem with the sector has to do with government’s firm control of the industry and its monopoly of fuel importation. The pricing template set by the Department of Petroleum Resources, DPR, in 2016 when government claimed to have liberalised the sector became anachronistic some months after when the Naira/dollar rate rose about the N280 to $1 it was based and the price of oil began to rise in the international market.

Naturally, independent marketers stopped importing fuel and the NNPC became the sole importer of petrol into the country even when it was clear to all that the NNPC does not have the capacity to sorely satisfy local demand.

The solution to the problem then is to simply deregulate the downstream sector of industry and get out of the business of fuel importation and restrict itself to the regulation of the sector just like what obtains in the telecoms sector. The job can be better performed by major marketers, independent marketers, depot owners and so on. They need a favourable policy environment to operate maximally. But the president has refused to countenance deregulation and liberalisation.

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Not only has the refusal to deregulate the sector impacting negatively on fuel supply, it is also preventing the establishment of private refineries in the country. A report on the status of private refineries in the country has it that 19 holders of the 25 licences for private refineries given by the DPR in 2015 are yet to commence projects. Out of the 25, only six have moved from Licences to Establish (LTE) to Approvals to Construct (ATC) levels. Of these, only two, including the Dangote Refinery, have begun projects. This has been the case since the DPR started granting licences for construction of private refineries.

Most of the investors who obtained the licences over 10 years ago have not invested anything or constructed visible structures in any part of the country. They had obtained the licences on the hope and/or understanding that the downstream sector will be deregulated, but the government has consistently failed or refused to deregulate the sector. Investors too have refused to invest in an environment where market forces are not allowed to determine prices. As a result, Nigeria continues to use its scarce foreign exchange for the importation of refined petrol.

We believe government control of the sector is no longer tenable or profitable. The government needs to summon the will to do the needful and allow the sector blossom. Deregulating the sector will not only lead to availability of petrol in the short term, but will also lead to influx of both foreign and local direct investments, creation of jobs and increased industrialisation in the country.