BusinessDay

Marketers fear PIB removes level playing field in petroleum products importation

In the new PIB passed by the national assembly, only owners of refinery licences would be allowed to import petrol into the country to meet any shortfall raising fears that lawmakers are removing a level playing field for everyone.

Section 317 (8) (2) of the Senate version of the PIB states: “License to import any product shortfalls may be assigned only to companies with active local refining licenses and proven track records of international crude oil and petroleum products trading.

Section 317 (8) (3) further states: “Import volume to be allocated between participants shall be based on criteria to be set by the Authority taking into account the respective refining output in the preceding quarter, the share of active wholesale customers competitive pricing and prudent supply and distribution track records.

The House of Representatives version also contains a similar provision in section 197 on the grant of a wholesale petroleum liquids supply licence, the lawmakers provides:

(1) Subject to sections 111 and 174 of this Act, the Authority may upon approval of an application and payment of prescribed fees, grant and issue a qualified person a wholesale petroleum liquids supply

(2)A company who is a lessee producing crude oil or condensates or both or is a holder of a crude oil refining licence is a qualified person for the purpose of subsection (1) of this section and shall be entitled to apply for and be issued with a wholesale petroleum liquids supply licence by the Authority

Read also: Now that 9th National Assembly has passed PIB, what next?

These provisions seek to create a protective environment for Nigerian local-based refineries by restricting the importation of all petroleum products: including diesel, aviation fuel, lubricants, base oil – products that are already deregulated to only operators with refinery licenses.

Some operators in the downstream sectors view these provisions as extending crony capitalism in the downstream sector but refused to speak on the record for fear of retribution from the government.

The lawmakers claim the motive is to reduce the importation of refined petroleum products; however, similar restrictions in the past have had the opposite effect while raising costs for consumers.

According to data by the Department of Petroleum Resources, Nigeria has so far awarded 26 refinery licenses. While the bulk of licenses issued are for capacities lower than 30,000 barrels per day capacity, some operators have bigger capacities.

Three of the biggest licence holders are Gasoline Associates International Limited and Resource Petroleum &

Petrochemicals International Incorporated both with 100,000 barrels per day capacity and then humongous 650,000 bpd capacity Dangote Oil Refinery Company. None of these refineries are ready.

Nigeria’s refineries managed by the NNPC are undergoing rehabilitation but these provisions further burden the corporation to continue importing petroleum products as it is the supplier of last resort.

However, there are smaller capacity refineries that have recently come on stream including the 5,000 capacity Waltersmith Refining & Petrochemical Company Limited.

Some industry operators say the impact of such a policy would be to lock in inefficiencies and encourage profiteering as is currently the case in cement pricing.

An industry expert said that with few refineries operators are given the license to import not just petrol, but all other petroleum products, there could be the arbitrary setting of refined products prices which will certainly translate to uncompetitive high prices at the pumps.

By limiting imports to refinery size and output, the lawmakers have gifted a handful of players the opportunity to corner the market by law rather than by competitive advantage, analysts say.

Governments around the world protect consumers from anti-competition behaviour by large corporations. In the US, for example, there are moves that will prohibit internet giants like Google, Facebook, and Amazon from acquiring competitors.

However, some other analysts differ. “It is commendable that the importation of the shortfalls is hinged on companies with local refinery licenses, while allocation is based on their production in the previous quarter. This will not only drive investment in local refineries but also create more jobs for Nigerians and enhance the domestic production capacity,” said Omosuyi Temitope, an investment strategist at Afrinvest.

Ayodele Oni, energy lawyer and founder of Bloomfield law firm said it is not necessarily a bad idea as it is not unusual for countries to set such standards.

“There are going to be many licensees so it shouldn’t be a problem. It is also going to be a relatively dormant provision with the sort of activities going on in that sub-sector. It is unlikely that there would be such shortfalls in the near future.

Nigeria often grants subsidies for consumption and writes regulations that often favour out-sized corporations rather than the consumers, which accounts for the concerns of the industry operators.

Nigeria’s housing deficit, for example, continues to expand in a country with a growing population largely due to government rules that allow three players to corner the cement market and dictate prices.

Abdul Samad Rabiu, Chairman, BUA Cement Plc, at the company’s last annual general meeting called for the government to bring more investors into the cement sector.

“The high price of cement is of great concern for me, the price is actually high. We are 210 or 220 million people, 30 million tonnes of cement per annum is actually low for us.

The bulk of Nigeria’s cement is produced by BUA, Dangote and Lafarge. Rabiu said though more players would mean more competition for him but it was in the best interest of the country.