Four reasons marketer’s call for downstream sector full deregulation matters

The Independent Petroleum Marketers Association of Nigeria (IPMAN), Depot and Petroleum Products Marketers Association (DAPPMA) and Major Marketers Association of Nigeria (MOMAN) are calling for complete deregulation of the downstream sub-sector of Nigeria’s oil and gas industry.

At several forums, the marketers have insisted that total deregulation is the only panacea for fuel crises in the country, below are reasons why their call is actually the right one.

Lingering fuel crises

The current round of fuel scarcity began way back in November 2017 and has continued to defy all efforts at resolution. The NNPC as it is currently constituted is running out excuses to explain the scarcity. Marketers have been blamed for hoarding, the winter has been fingered, even panic buying by Nigerians.

But all these excuses have merely served to reveal the organisation’s incompetence at handling the problem. It was not even meant to in the first place, if it were being modest.

Since the deregulation of diesel, the spate of diesel scarcity has ended, NNPC continues to deny the solution because the president cannot stomach the reality of market-based economy. It seems weird that marketers have to remind the government of this reality.

Ineffective subsidies

Earlier this year, the NNPC issued a tender to buy up to 1.55 million tonnes of petrol from January to April in its continued effort to stave off shortages that continue to plague the sector

The tender sought 42 cargoes of gasoline, each 37,000 tonnes, on top of the volumes NNPC is taking through the ongoing crude-for-product swap contracts. Depending on the density of the petrol, each tonne contains about 1,386 litres and 1,554,000 tonnes of petrol translates to 2.1billion litres. By NNPC’s own admission, it is incurring N26 on each litre of fuel based on a landing cost of N171 while retail prices is pegged at N145 which brings total subsidy on this purchase to N55.9billion.

This amount is not budgeted for by either the NNPC or the Federal Government and much fund that could have been diverted into more productive sectors of the economy. Subsidy on fuel encourages more consumption of fossil fuel as well as corruption in the sector.

Address functionality of refineries

Nigeria’s four refineries currently with capacity to refine over 445,000 barrels of crude oil per day, on its best days the refineries perform less than 20 percent of their installed capacity.

NNPC has come up with several schemes to revamp the refineries and get them back to works.  Last year, it adopted a Merchant Plant Refineries Business Model that takes cognizance of the Products Worth and Crude Costs in handling the refineries yet capacity has only recorded negligible improvement.

However, a deregulated downstream sector will give incentives to professionals who can really manage the refineries and encourage the establishment of modular refineries.

Kachikwu further said that the long term solution to the perennial scarcity of the commodity is the fixing of the country’s refineries and that the business model of Petroleum in the country needs to be changed in terms of importation and distribution.

To this end, the minister of state said a presidential committee is looking for “how to cushion the effect of higher prices of crude and lower prices of downstream. It is an 18 months plan before private refineries come into stream from 2019.

Boost to investment in the downstream sector

A deregulated sector will create the needed boost for investments in the downstream sector as many players would be attracted to the sector. This will lead to job creation and establishment of new and ancillary businesses.

ISAAC ANYAOGU