• Wednesday, November 29, 2023
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Petrol marketers, regulator see mergers as competition begins

Petrol marketers, regulator see mergers as competition begins

The deregulation of the downstream petroleum sector following the removal of petrol subsidy is expected to spur mergers and acquisitions as fresh competition begins to take shape.

Petrol marketers and the operator of the sector said this at BusinessDay’s Policy Intervention Series, titled ‘The National Dialogue on Transiting to a Deregulated, Sustainable Petroleum Products Market’, on Thursday, in Lagos.

The removal of petrol subsidy has opened up the market to increased competition, prompting marketers to explore strategic options to maintain or increase their market share.

Read also: Stocks of major oil marketers hit new highs as subsidy goes

Several speakers at the event said existing businesses may join forces or acquire other companies to strengthen their market position, improve efficiency, and gain a competitive advantage in the deregulated market.

Ogbugbo Ukoha, executive director of distribution systems, storage and retailing infrastructure at Nigerian Midstream and Downstream Petroleum Regulatory Authority, said there is a likelihood of mergers and acquisitions taking place among companies.

“It is possible we will see mergers and acquisitions go on. It is possible that retail outlets will be structured in a way that is highly optimised,” he said.

He said deregulation will unlock investment opportunities for pipeline infrastructure, coastal vessels for marine transportation, and reception facilities.

He said it will bring clarity to consumption figures, attract multiple players to the sector and foster competition among various fuels, including Liquefied Petroleum Gas (LPG), Premium Motor Spirit (PMS), and Compressed Natural Gas (CNG).

Olumide Adeosun, chairman of Major Oil Marketers Association of Nigeria (MOMAN), said the country needs investments to expand the fuels market.

“What we are going to see with the direction of flow of the market today is that there is going to be consolidation in order to optimise the barriers to entry,” he said. “27,000 stations is too much to offer quality service to customers.”

He said the adoption of technologies for improved distribution efficiency and customer experience, along with improved corporate governance and industry self-regulation, will be promoted.

Adeosun said fair tax policies will be sought to consolidate taxes and reduce the burden on the industry.

Ikem Isiekwena, managing partner at Simmons Cooper Partners, highlighted mergers and acquisitions as a strategic response to the changing market dynamics to optimise operations and improve overall competitiveness.

He added that restrictive agreements, often referred to as cartels, must be dismantled to promote fair competition and prevent anti-competitive practices.

Read also: ‘Blame’ is new petrol as NNPC, oil marketers overwhelmed

“Dominant market players must be cautious not to abuse their position by excluding competitors or engaging in discriminatory practices and pricing strategies,” he added.

Isiekwena added that the NMDPRA and the Federal Competition and Consumer Protection Commission Lagos should collaborate and have a harmonious regulatory framework that provides clear guidance.

Yemi Kale, partner and chief economist at KPMG Nigeria, highlighted the importance of attracting investments in alternative fuels such as CNG and LPG.

He said creating an attractive investment climate will require improving the means of doing business in Nigeria, ensuring favourable returns on investment, and addressing factors such as ease of doing business, production, and cost.

Taiwo Oyedele, fiscal policy partner and Africa tax leader at PwC Nigeria, highlighted the impact of petrol subsidy removal on urban low-income earners and small business owners.

He said to cushion the impact of the subsidy removal, businesses in the informal sector should be registered and provided with tax-free credits for a period of at least two years. This registration process, according to him, will also generate a valuable database for future economic decision-making.

He said: “I would expect that state and federal governments, because of the savings from this subsidy removal, should pay salary, pension, and contractor arrears.

“These are some interventions that will help stimulate growth in the economy and cushion the impacts of subsidy without you creating another form of subsidy that is unsustainable or to fund some level of corruption.”

Marketers oppose diesel tax, warn of price hike

Oil marketers have called for the reversal of the 7.5 percent value added tax on diesel imports, saying it will lead to a hike in the price of the product at the pump.

“Diesel has been deregulated for some time, so people are already going through a particular pain… But you have the same government that puts a tax on an alternative fuel,” said Adeosun of MOMAN.

He said: “We cannot tax 7.5 percent on diesel when you just removed the subsidy. It is the opposite of the palliative. We must make sure that whatever we do is sustainable.

“If you are not trying to strangle the golden goose, then I do not know what kind of message that is. The best we can do as operators is to pass this charge onto our consumers.”

The Federal Government, on Monday, said it had commenced the implementation of the payment of 7.5 percent VAT on diesel imports into the country by Customs.

Customs has informed oil marketers in the country of its intention to begin to demand new payment from them for diesel imports.

Oyedele of PwC Nigeria said the 7.5 percent VAT on diesel “is inappropriate and insensitive to do at this time”.