Despite FG’s assurance, petroleum downstream sector awaits full deregulation

The Federal Government on Thursday said that it had deregulated the downstream petroleum industry. It, however, said it would continue to intervene in determining the pump price of the Premium Motor Spirit (PMS), also known as petrol, to protect the consumer – in violation of the basic concept of deregulation.

In a deregulated environment, experts say market forces determine prices and government’s role is limited to regulation. In a liberalised market, on the other hand, the government maintains a control price band and puts a cap on profits.

Timipre Sylva, minister of state for petroleum resources, said deregulation came into effect March 19, 2020 but the government would continue to intervene in fixing fuel price due exploitative pricing practices of petroleum products marketers as is seen in the case of diesel.

Unlike petrol, the diesel market in Nigeria is fully deregulated. Operators are supposed to arrive at prices after removing operational costs but they are accused of operating a cartel, selling at a determined price.
“Look at our battle with marketers. We brought down the price of PMS because the landing cost had come down, but the marketers had refused to bring down the prices of diesel and other deregulated commodities, even though their landing costs had come down also,” Sylva said.

Diesel often escapes intense scrutiny because unlike petrol, which is consumed by the vast majority of Nigerians in their cars and generators, its biggest consumers are industries and power plants.
“PMS and kerosene are strategic to the country, hence we cannot allow their prices to be determined wholly by marketers. Consumers had to be protected. This is what obtains globally,” Sylva said.
But this comes at a cost, analysts say.

Ronke Onadeko, an oil and gas expert, said a fully deregulated downstream sector would yield improved tax returns, remove inefficiencies and allow private companies who are more effective to run things.
The true test of deregulation is in access to foreign exchange. In the past, the Nigerian National Petroleum Corporation (NNPC) got dollars at preferential rate of N306 while others got it at N360, allowing the government-owned oil firm to keep pump prices at N145 even when landing cost was over N160.
Full deregulation will mean that the NNPC along with other marketers will scramble for dollars at the prevailing rate.

Sylva bemoaned the fact that despite the slash in the pump price of PMS, prices of food items and other commodities were yet to come down but were instead going up, noting that if the prices were increased by a little margin, prices of food items would have skyrocketed.

He said government was aware that the price of crude oil would rise again shortly, which would also affect the pump price of PMS, and government was already in the race to provide a cheaper alternative to PMS, in the form of Compressed Natural Gas (CNG). But Henry Adigun, analyst at the Facility for Oil Sector Transparency and Reform in Nigeria (FOSTER), said a slight recovery of oil prices would test the Federal Government’s resolve on petroleum downstream sector deregulation.

Speaking further, Sylva said the Federal Government was kick-starting the Liquefied Petroleum Gas (LPG) penetration policy June ending, hopefully, after the COVID-19 pandemic forced it to postpone the commencement twice, in April and May 2020.
The minister said the government was planning to set up 32,000 micro-distribution centres (MDC) for LPG, also known as cooking gas, across the country, and would see the engagement of 5,000 youths across the country while the existing illegal roadside LPG dealers would also be inculcated in the programme.
He said the LPG penetration programme would create a lot of jobs in the country and would encourage more Nigerians to use LPG.

Mele Kyari, group managing director of NNPC, said there was a gradual easing of the crude oil glut issue, as uncleared transactions were now being cleared.
He also stated that the government was committed to the rehabilitation of the Port Harcourt refineries, noting, however, that the COVID-19 pandemic had stalled work on the project, as it had hindered the mobilisation of manpower needed to undertake the rehabilitation.