The fuel crisis of the past few weeks once again underscores the need to urgently review the current policy framework for the petroleum downstream segment of the oil and gas industry. The consequences of the current policy regime include the following:
Recurring and protracted fuel scarcity
Considerable loss of man-hours as a result of long fuel queues and associated traffic issues on the highways.
Transparency issues in the petroleum products supply chain.
Financial commitment to subsidy payment, even at a time of dwindling government revenue.
Proliferation of black market for PMS where the product sells at very exorbitant prices.
Disincentive to private investment in the downstream sector.
Enormous pressure on the foreign exchange market resulting from massive importation of petroleum products.
We have concerns over lack of clarity on the deregulation and liberalization of the sector. This policy lacuna has put many investments in the sector at risk; while many other investment decisions have been put on hold. The concentration of petroleum products supply in the NNPC remains a major cause for concern. The arrangement is an inherent entrenchment of the dominance of the NNPC to the detriment of private investors in the sector.
The Downstream petroleum sector currently suffers from overregulation which has profound negative consequences for growth, investment and job creation in the sector.
Evidently, the current model of managing the downstream petroleum sector is not sustainable. It is at variance with the present administration’s vision to diversify the economy and create jobs. It perpetuates the phenomenal of rent economy and detrimental to economic competition. It is important to stress that the citizens are the ultimate beneficiaries of a competitive market environment.
The weak compliance with the regulated price of PMS in parts of the country is largely a symptom of much deeper problems and distortions in the petroleum products supply chain. The Department of Petroleum Resources [DPR] has been spending valuable time and energy fighting the symptoms of a problem, rather than addressing the fundamentals. We need to situate the issues in a causative context.
Way Forward:
The government needs to urgently liberalize the downstream petroleum sector for unfettered private sector participation and investment, subject of course to an appropriate regulatory framework. There should be a level playing field for all operators, including the NNPC. This would put an end to the perennial problem of fuel scarcity in the country and the hardships suffered by citizens to fuel scarcity. This would also attract more investment, generate more jobs and reduce the pressure on the country’s foreign reserves.
The role of the NNPC needs to be clearly defined. It should not be an operator and still have regulatory powers. A model that would allow for a level playing field for all operators including the NNPC should be adopted.
The roles of the DPR and the PPPRA need to be better defined. There are currently several instances of overlapping and duplication of activities and responsibilities. This poses a problem for investors in the sector.
The refineries should be operated as commercial business entities. The NLNG model [which allows for private sector management] should be adopted for the refineries. This would improve efficiency and reduce the burden of the refineries on the nations’ treasury.
The pipelines should the concessioned for a more efficient management and reduction of road haulage for fuel.
The CBN needs to ensure a more transparent process in the allocation of foreign exchange to petroleum products marketers. It should also ensure the payment of matured LCs to their offshore fuel suppliers.
