Marketers say N97 per liter petrol feasible with total deregulation

Nigerian oil marketers have advised the Federal Government to hands off and deregulate the downstream sector of the petroleum industry instead of enforcing price control on the sale of premium Motor Spirit (PMS) otherwise known as petrol.

Ibe Kachikwu, minister of State for Petroleum Resources, disclosed at the National Assembly Monday, plans to move the fuel price from N87 to N97 per litre in 2016 as well as a total removal of fuel subsidy next year, in line with an earlier exclusive report by BusinessDay on Monday.

  However, marketers who spoke to BusinessDay said if the sector is completely deregulated, the oil marketers would be left to resolve things by  themselves when it comes to the issue of price.The marketers added if government limits its role to regulation, the industry would have better form and direction by way of progress made and service rendered.

The managing director of one the oil marketing companies who chose not to be named, said if the price of petrol was set at N97, at the current rate of international crude oil prices (of about $38 per barrel) it would be profitable for marketers to sell at that price.

He asked, “If the price of crude oil goes up, would the government still adjust the price of petrol to suit the prevailing higher oil prices in the future?”

He further observed that if the pump price of petrol was put at N97 per litre, the subsidy would be as good as gone and that this would allow for the interplay of market forces.

“If the previous government had not lowered the price from N97 to N87, by now, the marketers would probably have been paying some money to government. Again the upward swing of the dollar to the naira has prevented Nigerians from enjoying cheap fuel,” he added.

Moody’s in a Dec 15 report, significantly lowered its price assumptions for Brent crude and West Texas Intermediate crude, as continued high levels of production by global oil producers exceeded growth in oil consumption.

Moody’s lowered its price assumption in 2016 for Brent crude oil, the international benchmark, to $43 from $53 per barrel.

The rating agency expects Brent oil prices to increase by $5 per barrel in 2017 and 2018, according to the report “Oil and Natural Gas Industry — Global: Threat of Prolonged Oversupply Drives Prices Lower.”

If the Moody’s projections are correct, it means that Nigerians could see a 2 – 3 year period of low (near N100 per litre) to marginal increases in petrol prices.

Olufemi Adewole, the executive secretary of Depot and Petroleum Marketers Association (DAPPMA), in response to questions, said marketers have always advised the government to deregulate and if a step towards deregulation is taken, it would just be perfect for the marketers.

Meanwhile the Federal Government, Nigerian National Petroleum Corporation (NNPC) and oil marketers have sealed a deal to flood the market with about 860 million litres of petrol between now and December 31 to help ease the present fuel scarcity across the country and stabilise the supply system.

This figure would only sustain supply for 21 days if everybody concerned adheres strictly to the terms of agreement between the government and the marketers, sources say.

According to the agreement, the NNPC is expected to flood the market with 460million litres of petrol, while the marketers   have agreed to bring into the system another 400million litres.

Nigeria’s daily consumption of petrol on the average is put at 40 million litres.

A source close to the marketers said they are doing all they can to honour the agreement reached with the minister, despite the challenges of raising funds.

Some of the banks are however not ready to open letters of credit for the marketers, while other are showing some consideration, he said.

The deal, which BusinessDay gathered was sealed between Ibe Kachikwu, the minister of State for Petroleum and the marketers, shortly before they began to receive their payment of the subsidy arrears, also led to discussions on the best ways of sourcing foreign exchange, so that the oil marketers would be able to seamlessly bring   fuel into the country.

According to a source who was privy to the discussion with Kachiukwu, the plan was that the allocation to Lagos would be increased so that tankers would increase their up-take to the hinterland.

The next  strategy is that the NNPC would give part of  it products to private depots  in  Warri, Calabar and Port Harcourt  and  from these depots,   some  tanker  drivers  from the north can access the product and transport them up north,  since  getting to the  north from Lagos  has now become very difficult because of bad roads.

The source told BusinessDay that it takes three days now to get to Jebba from Lagos because of the terrible state of that segment of the road between Ilorin and Jebba in Kwara State.

Commenting on this, Olufemi Olawore, executive secretary, Major Oil Marketers Association of Nigeria, (MOMAN) said efforts were being made to ease the situation. Olawore added that one of the marketers was about discharging about 31 million litres at a jettiy in Lagos, while another would bring in about 40 million litres next week.

The Pipelines and Products Marketing Company (PPMC), a subsidiary of NNPC is also bringing in fuel ,from which it would service some other depots scattered across the country.

Industry analysts say  a deregulated  downstream sector  would lead to employment  opportunities and  other benefits  in   Nigeria, as  the various companies may expand their investments which would lead to employment   generation within  the economy.

A vista of opportunities would be opened, as more refineries, petrochemical and fertiliser companies would be built and these would lead to huge employment generation. With more people gainfully employed government revenue through taxes would also increase, they say. 

Deregulating the downstream could also lead to attracting more  international players in the sector and expanding the  Nigerian market sphere of influence to the  West Africa sub region.

Improving efficiency in the industry implies product availability, proper functioning of the distribution networks and availability of storage facilities and depots, to avoid scarcity of products in order to force down prices.

Deregulation would lead to the uninterrupted operation of the refineries and guaranty steady supply of petrolium products by enabling stakeholders and independent marketers to participate in product, importation and marketing.

  It would further reduce the rents that regulation creates for workers, incumbent producers, and service providers, and allow competition on product, labour and capital markets to determine the winner of rent transfers, the analysts said.

OLUSOLA BELLO