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Petroleum downstream subsector poorly regulated – Marketers

By BusinessNews Staff on February 27, 2015

Oil marketers under the aegis of the Major Oil Marketers Association of Nigeria have described the country’s petroleum downstream subsector as a poorly regulated sector considering the degree of anomalies that have characterised operations in the subsector over the years.

The association, therefore, called for its complete deregulation, saying the move would encourage private investments in the subsector, especially in the area of building local refineries to refine crude produced within the shores of Nigeria.

The Executive Secretary, Major Oil Marketers Association of Nigeria, Mr. Obafemi Olawore, said this in a session with journalists in Lagos.

He said the oil industry needed very strong regulatory framework as is the case with some critical sectors of the Nigerian economy.

“In fact, the slogan is clear! No deregulation, no private refineries. Government cannot continue to set prices of petroleum products and expect private investors to come and stake their money in building refineries,” he stressed.

Olawore said actual subsidy arrears owed marketers for importing petrol was N164bn, while N100bn was the sum of interest accrued and foreign exchange differential.

It was, however, gathered that the Federal Government, rattled by the fear of possible resurfacing of Premium Motor Spirit (petrol) scarcity across fillings stations nationwide, had agreed to pay oil marketers a total of N264bn as subsidy arrears covering a part of 2014 and 2015.

The government, which promised to make the settlements between this month and March, according to the MOMAN scribe, had drawn a payment timetable for refund to marketers.

Olawore said the Minister of Finance and the Coordinating Minister of the Economy, Dr. Ngozi Okonji-Iweala, gave the assurance to oil marketers in a closed-door meeting the previous day.

The MOMAN spokesperson said, “The minister has given a schedule of payment, which is between now and March, and this has been agreed on by us. We expect that all parties will keep their own sides of the agreement.

“There was a drop in fuel supply in the country, but the good news is that we met with the Minister of Finance and we have been promised and assured that our money will be ready between now and March ending.

“We have agreed with the workings of the payment. We believe her and the fuel supply situation, which was low before, will pick up. If any tightness in the purchase of fuel was experienced before now, it was just temporal. Products will be made available, and we are going to play our part.”

Olawore said many oil companies had been overstretched because of lack of funds, and banks were threatening to stop funding because most companies had reached their credit limits.

On the recent reduction of petrol pump price from N97 to N87, he said government needed to reimburse oil marketers. He noted that the committee set up to revisit and subsequently review the prevailing margin structure for PMS was still working towards reaching an ideal compromise.

“Before the reduction in petrol pump price, we already had stock. To cover our losses, government did assure us that it would pay the difference, and that we are working on,” he said.

Lamenting over fragile exchange rate which had characterised the business environment in recent times, Olawore said rising exchange rates had continued to increase the landing cost for PMS and diesel, which he said was already putting pressure on the market variables.

On the Petroleum Industry Bill, Olawore said the delay in the passage of the bill was causing a major setback for the industry and Nigeria at large, adding that part passage of the bill could be looked at so that some progress could be made.

Last year, oil marketers under the aegis of the Depot and Petroleum Products Marketers Association also called for the deregulation of the downstream subsector of the country’s oil and gas industry.

Then, the DAPPMA Chairman, Mr. Dapo Abiodun, said the downstream sector deregulation would lead to a complete removal of subsidy for refined petroleum products, including kerosene.

In view of this, he gave an assurance that oil marketing companies had the capacity to import and sell kerosene at reasonable and competitive prices if deregulated.

He said, “Our association has closely been following the Senate proceedings on the issue that touches, among others, on the kerosene subsidy controversy.

“Generally, DAPPMA has for the past 10 years actively canvassed a complete deregulation of the downstream sector of the Nigerian oil and gas industry with its attendant benefits for the sustenance and growth of that vital sector of the economy.

“If indeed implemented, one of the key features would have been the complete removal of subsidy on refined petroleum products including kerosene.

“We strongly assert that based on our experience with diesel, which was completely deregulated years ago, Nigerian oil marketing companies have the capacity to import kerosene and sell same at reasonable and competitive prices if also deregulated.”

He described DAPPMA members as a ‘highly responsible and patriotic Nigerian entrepreneurs that have invested huge sums of money in developing very modern and well-equipped bulk storage facilities for the reception, storage and sale of refined petroleum products in Nigeria.”

“Not very many persons will want to invest in the real downstream assets in this kind of environment. The environment is heavily regulated. It is not like deregulation will solve all our problems, but it is very critical. The regulatory environment will stifle any investment and so I don’t see anybody investing to build refineries until we address those fundamental issues,” the Chairman, Committee on Petroleum (Downstream), House of Representatives, Mr. Dakuku Peterside, said at a recent conference in Lagos.

Nigeria has continued to create a lucrative market for refineries particularly in Europe and the United States as it imports more than 80 per cent of its refined petroleum products as a result of inadequate domestic refining capacity.

Meanwhile, other oil exporting countries are increasingly shifting towards meeting their domestic demand for petroleum products and exports of refined products by increasing their refining capacity.

[Punch]

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