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Why investments are falling in downstream sector

downstream sector
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Except urgent steps are taken by the government to create a more enabling environment for businesses in downstream section of the oil and gas  industry to thrive, investment into that sector may  fizzle out completely.

This would definitely compound the nation’s economic woes as many of the operators have shut down their depots while some have reduced their labour force in order to keep afloat.

One of the factors contributing to this is that their margins have been eroded by the fiat action of the Nigerian National   Petroleum Corporation, which changed the ex-depot price from N111 to N117 without the other aspect of the Petroleum Product Pricing Agency template changing.

There is also the issue of the promissory note of  N236 billion given to marketers by the government, but which is yet to be converted to money, a situation that has crippled many of the marketers economically at the moment.

Presently it is only NNPC that imports all the petroleum products and then allocates to markers. But this also is not as easy as one thinks because the marketers would have parted with some money or pay premium  before they get allocations.

According to one of the marketers that spoke on condition of anonymity: “Before now despite the fact that there is no deregulation we are still able to make investments and keep the industry going, but now the situation has become worse as the government through NNPC has taken over everything.  Other investors are being frustrated by the inactions of the supervisory agencies

Already a silent war is brewing between the oil marketers and their regulating agency, Petroleum Products Pricing Regulatory Agency, PPPRA, over the marketers series of allegations against the agency.

The marketers who said they are losing confidence in the management of PPPRA because of the deteriorating situation in the downstream sector of the   petroleum industry want it to live up to its responsibilities.

They claimed they are disgusted over the way the NNPC unilaterally changed the fuel template that had been fixed by PPPRA, a regulating government agency, from N111 ex depot price to N117 per litre of petrol, there by leaving the marketers with N-1.03.

This situation has clearly eroded the margins of the marketers.  “When the ex-depot price was N111.72   we were making N4 per litre margin but when the NNPC unilaterally increased it to N117, we are left with -1.03”, an industry source told BusinessDay

The marketers under the umbrella of Depot and Petroleum Products Marketers Association of Nigeria DAPPMAN and Major Marketers Association of Nigeria have in different letters to the PPPRA expressed disgust at the way the agency is watching things getting worse in the downstream sector of the petroleum industry with nothing being done to stem the obvious slide in the sub sector.

According to the letters, the marketers said they have  wanted to communicate in one way or the other with members of the board of PPPRA  for quite a while but  decided to hold on to see which action the agency would take regarding the travails of marketers which activities the agencies is supposedly regulating.

“It goes without saying from the records of the PPPRA that the number of active petroleum marketers is dwindling everyday and NNPC being the sole importer has also contributed to the number further depleting”, the letter stated.

It stated that PPPRA is not bothered about the number of marketers dwindling, nor bothered that the number of marketers submitting import proposal is also reducing by the day. “It is not disturbed that marketer’s payment converted to promissory note since last December 2018 has not materialised in monetary terms”.

The marketers said the PPPRA template has been obsolete for months and that even though the agency updates its data base daily, it seems to lack the courage to present same to the appropriate authority for necessary actions. The board of PPPRA would rather claim the exigencies of the moments and not take it rightful place and advise the FG appropriately. This means that elements on the templates are changing, PPPRA is aware but is either not advising government.

“The implication of elements here changing means that the prices all must change, but because it is a political hot potatoes nobody touches meanwhile the operators are dying gradually

“Despite spiralling costs that make nonsense of the price template NNPC/PPMC took up the duty of PPPRA to caution against selling outside the band weight but when competition forces marketers to sell below band weight nobody says anything.”

“When was the last time PPPRA called for stakeholders meeting? This April 2019, no board and stakeholders meeting held” the marketers noted.

In the letter, the marketers claimed that for several months they have called for a review of Calabar Port but nothing has happened and yet they bore the financial burden of operations there.

MOMAN says PPPRA has the statutory role to play in the regulation of the downstream sector, including the setting of prices and regulation of margins, but it regrets to observe the ineffectiveness of the agency in performing this role currently.

“We hereby appeal to the board of PPPRA to urgently look into the myriads of problems plaguing the sector to avoid a total collapse of the sector especially as it affects the margins”.

BusinessDay efforts to get the reaction of the PPPRA management were not successful as there were no responses to phone calls and text messages sent to Abdulkadir Saidu, the executive secretary. The general manager, public affairs of the agency, Reuben Apollo, said on the phone that something is being done about the situation.

 

Olusola Bello

1 Comment
  1. […] Why investments are falling in downstream sector Thu, 09 May 2019 Except urgent steps are taken by the government to create a more enabling environment for businesses in downstream section of the oil and gas industry to thrive, investment into that sector may fizzle out completely. This would definitely compound the nation’s economic woes as many of the operators have shut down their depots while some [] read more… […]

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