‘The right policies will strategically pull required investment to oil, gas sector’

ABAZIE KENNETH, Chairman, Petroleum Downstream Group at the Lagos Chamber Of Commerce & Industry, LCCI in this interview with KELECHI EWUZIE, shares his thoughts on challenge of infrastructure, policies in oil and gas space amid the economic realities today. Excerpt 

What is your analysis of the infrastructure connected to the downstream sector in the country?

The gross decadence in infrastructure is the bane of the crises that Nigeria is currently going through, especially in the oil and gas sector. The fact that all the refineries in the country are producing at an epileptic average of less than 15 percent of its installed capacity is a shame. We have 4 non-functioning refineries built in 70s and early 80s. Now, compare that with Saudi Arabia with a population of 26 million, which has 16 functional refineries with another two ready for commissioning later this year. 

With the infrastructural imbalance we have in refining capability, Nigeria can never get it right and so people should stop insulting our collective intelligence by promising that there is a quick fix to the issue at hand. 

Nigeria requires about 40-45 million liters of refined petroleum products daily but we are scarcely supplying up to half of the requirement currently. The gap in supply has been due to the policy somersault of the present administration which has been fuelled by the attempt by the government to supply all the needed petroleum products of the country without private marketers’ participation.

The crises got to its peak when the government allocated to itself the importation of over 78 percent of the required petroleum products. The effect of short supply and gap is what we are experiencing now.

The truth of it is that there is no quick fix to the current petroleum products availability. The in-balance in the quarterly allocation for petroleum allocation needs to be revised for the private sector to import as much as 85 percent of the requirement and government bringing in 15 percent for strategic reasons.

What is your reaction to deregulation or new price band as announced by the federal government recently?

The Federal Government did not call it deregulation. They put in place a “new price band” of between N135 – N145 per litre.

For us at petroleum downstream, you cannot have deregulation and you put a ceiling on the price. Government should come out and announce equivocally a complete and full deregulation of petroleum downstream. Now is the best time to take that decision and save Nigeria from unnecessary bleeding by way of subsidy regime.

We believe that this is the best opportunity that Nigerian government would have used to completely deregulate the petroleum landscape. We believe that there could never be again this kind of opportunity in nearest future. The international oil price is plummeting, the dollar exchange is at its highest ever in the history of the country and the government is pretending as if it can carry on as usual.

Government as a matter of urgency must declare emergency on the refining of petroleum products in Nigeria. It is a big shame that after over 55 years of the commencement of drilling of crude oil in Nigeria, we do not have a functional refinery. Government should go out of its way to get investors to invest in refinery in the country. Nigeria should be able to refine all its 45 million litres daily requirement and even export.

Nigerian should strategically expand its petrochemical and fertilizer manufacturing capacity which is directly related to the petroleum sector. This is an area of great growth potential.

What is your take on the issue of cost reflective tariff for power?

What is happening in the Power sector is a reflection of lack of will in policy formulation. Failure to implement cost-reflective tariffs tops the list of barriers militating against large-scale investment in Nigeria’s power sector.

The tariff structure is not only unsustainable; it is also not investment friendly. Nigerians in our various homes, in an effort to generate domestic power, spend three times the cost they ought to pay the power generating companies, DISCOs. The resultant effect is colossal loss of revenue on the part of investors, low return in investment, default in service of capital and an impending break down of the whole process.

Currently most of the DISCOs are only doing business with service providers that are ready for self-financing or extended credit regimes especially in their metering projects.

What is your assessment of the petroleum downstream sector in relation to the current economic realities in the world today?

Statistics have shown that proceeds from the crude oil sale contribute about 88 percent of the total revenue accruable to the Federal government of Nigeria. This trend has remained so in the last 50 years without any significant infrastructural development in the downstream.

Government must systematically dis-engage from undue participation and rather strengthen its regulatory function of the business.

What are the best ways to grow the Nigeria downstream industry considering its peculiar size of market?

We believe that the best way to approach the challenges of the downstream is a complete deregulation of the industry. Time has come for the government to only set the rules and allow the private sector engage in the operations.

The current situation whereby the government is the regulator, importer, distributor, marketer have never worked and will not work. Government does not have the capacity and the will power to stem the enormity of the challenges confronting the industry alone.

Level playing ground must be set for genuine investment in the industry to be attracted. This is only the minimum expected to engender growth.

We must all agree that there is no way one will expect the market price of a product that originated from Kano would be the same at a Diobu market at Port Harcourt, the same applies to meat. There is no commercial sense to believe that petroleum products should be sold at the same price across the country. This would distort the basic essence of commercialisation.

From an expert point of view, what are some of the challenges that petroleum players in the downstream sector face, and what is the way forward?

We believe that the major challenge we have in the downstream today is policy somersault and inconsistency. We have arrived at a situation whereby investors are not sure of their investment.

The situation neither allows for proper planning nor would it stimulate investment, be it internal or external. We should not expect any meaningful growth in this sector for now. This is not good for investors and the country at large.

You must also remember that, refined petroleum product are imported and funded by forex. The unavailability or inadequate volume of foreign exchange and its price has gone a long way to cripple a lot of companies in the downstream. This has in a very painful way affected the volume of import that our members have been able to execute in the last eight months. 

KELECHI EWUZIE