FG should allow policy drive investments in oil, gas sector – Akabogu

Emeka Akabogu, chairman of Oil Trading & Logistics, a pan African platform promoting business and policy in oil and gas downstream sector speaks to BusinessDay’s ISAAC ANYAOGU on the reasons behind some far reaching recommendations made at the OTL conference in last year.

What is your view on the current model of downstream operations?

We have always been of the view that it is a sub optimal solution to the challenge the country face.

At the time that the NNPC and the ministry of Petroleum Resources through the minister announced last year that the industry was being deregulated we thought we are going to witness an absolute full deregulation of the market, but what we have is a situation where the government announce deregulation but caps the price of petroleum products, at least fuel.

So capping of the price automatically removes any pretence to deregulation and the chickens have come home to roost now that the foreign exchange differential between the open market and the government’s central bank rate is widening.

So at the end of the day, the only reason why the NNPC is doing all the import is because the marketers simply cannot afford the petroleum product at the capped rate which has been set, they cannot afford it because they are not getting foreign exchange at the government rate.

There is no way they will be able to sell at the capped rates and make profit, so for that reason, there is no point importing refined products.

Now if you want a situation where the market is flowing, where there will be competition, then you got to ensure that the price cap which you have put in place is removed, once you remove it then you are talking of fully regulation because the marketers even with all the foreign exchange challenges can import, using their own business networks, financing models and with the range of options available make specific plans around importation and be able to sell commercially. The challenge is the foreign exchange and to the extent that it remains, it impacts on the market.

In your communiqué, you advocated for an oil and gas protection squad, what about and how is this going to be implemented?

Essentially, what it is a team developed from the oil and gas industry players themselves, who have the interest, who have the knowledge of the environment and who are able to lock in these interests in a commitment towards ensuring that the pipelines are secured.

We have a lot of technology which is available to be deployed in terms of monitoring of the entire pipeline network. The government and IOCs who have the full knowledge of the network are able to work together to deploy monitoring technologies which relates not just to the movement of products on various platforms.

If the government is able to deploy these technologies at the very least for the purposes of identifying key points of typical compromise of the pipelines, they can then begin to plan towards either preventing or dealing sustainably with those key areas which those things happen.

Ultimately, it is a technology driven proposition which is focused on monitoring of the pipeline not from a patronage based point of view which is what we currently have but from an empirical technology based point of view.

But the larger issue relating to the development of the Niger Delta if is not resolved, how will this work?

Of course the developmental issues of the Niger Delta should be part of the framework that is why I said the key stakeholders who have these interests must be involved.

Evaluate the level of compliance for local content and Cabotage Act.

I think there has been significant compliance as for as the oil and gas sector goes. The challenge has been the availability of local capacity. There is still need for more transparency in the entire system both within the IOCs and the government circles. The IOCs could claim to be carrying the flag as far as compliance is concerned.

As far as Cabotage act is concerned, it is not the same story and that’s curious given that the Cabotage initiative was birth much earlier than the Local Content initiative and for me that’s a question of the commitments and competence of persons charged with implementing it.

The approach of the regulator is what is responsible for the consequences which we have seen.

Your communiqué also called on the government to review provisions requiring your members to pay tariffs and fees in dollars, how is lack of foreign exchange impacting your activities?

The problem has become serious particularly at a time like this where the availability of foreign exchange is so limited and the disparity between rates proposed by government and rates available is wide.

The range of fees payable to Nigerian Maritime Administration and Safety Agency (NIMASA) and Department of Petroleum Resources (DPR) are natural fees such as, port dues, berthing dues. These are basic dues you have to pay. These are statutory dues which are payable.

We you have products you have paid levies in foreign exchange or at the open market rate, why don’t we have a rate which form the onset is denominated in naira terms.

There won’t be a problem if all rates are denominated in naira from the onset; you are able to make projections in naira that is the issue. These charges in foreign exchange causes serious depletion of availability foreign exchange because of high demand and this weakens the naira.

Liquefied Petroleum Gas (LPG) is currently an issue, the price has skyrocketed, what policy intervention is required to get the country out of this situation?

I think that capacity needs to be developed to produce more. The Nigerian Liquefied Natural Gas Limited (NLNG) has dedicated a percentage of its production for domestic needs but we are also aware that NLGG has long term contracts with other international offtakers and these commitments have to be met.

Many times, the most important challenge affecting the local market is not really a challenge of availability but relating to logistics of supply and storage and transportation.

Currently, there are just two LPG storage facilities in Lagos, one owned by NIPCO and other by NAVGAS. In the east it is even much more limited. The parties involved in bringing LPG are concerned about the nature of the market, compared to the potential market which exits; the market is still very limited.

The Nigerian LPG market hovers between 250-400 metric tonnes per annum while ideally we should be talking about something in the range of 3-5 million MT.

So a lot of investments are still required within the LPG value chain to ensure that the Logistics which are needed are in place but for those investments to happen decision makers from a business case point of view need assurance their investments will be worth their while.

I also think that foreign exchange consideration also play a major role because there are times where despite the NLGN domestic obligation, logistic challenges ensure that those domestic obligations are not met.

Some of the larger operators will need to bring in gas when they do, they bring it using foreign exchange and they have to reflect this high exchange rate at the point of sale.

Ultimately, a logistic challenge promotes the importation of LPG when it is available but simply can’t come in due to infrastructure challenges.

There is an overall need for policy to promote and prioritize LPG, then the infrastructure requirement will be promoted. Government does not need to build storage facilities but it should facilitate the construction of these by policy means because there are operators who need to have certain guarantees in relation to market, even in terms of taxes when they are constructing these facilities are lessened or modified.

 

ISAAC ANYAOGU