The government must start a conversation with the Nigerian people about the need for deregulation in order to reduce ineffective subsidies, address the country’s energy crisis, and reduce additional shocks the global economy may bring in the coming year. This was the unanimous opinion of stakeholders in the country’s downstream sector.
After subsidizing Premium Motor Spirit (PMS) for such a long time, the stakeholders, in particular the Major Oil Marketers Association of Nigeria (MOMAN), claim that Nigerian institutions are now less equipped to handle the current domestic energy crisis. They also claim that any disruption in the supply chain results in ripple effects and creates lines at stations.
Speaking yesterday during a webinar, MOMAN Chairman Olumide Adeosun expressed concern that subsidies are no longer viable, emphasizing the necessity of dialogue with Nigerians to identify, negotiate, and reach agreements on identified concerns before starting implementation to save the downstream industry, which has been in freefall due to a lack of investment to maintain, renew, and grow assets and facilities like refineries, pipelines, depots, trucks, and modern filling stations.
He stated that as a nation: “we must begin the process of price deregulation to reduce this inefficient subsidy. If the country wishes to implement a subsidy, it must be in areas targeted to help those it should help such as in agriculture and transportation to reduce food price inflation and generate more jobs for Nigerians.”
“In tandem, the country must find a way to liberalise supply. It must bring transparency and competition into supply to ensure steadier, more efficient supply at optimum prices. Imported products must compete with locally refined products to find a meeting point between the need for local refining and competitively low but cost-recovered prices for Nigerians for sustainability.”
“These lack of investments contribute in no small measure to fuel distribution inefficiencies and high costs. Neither the new refineries nor the refurbished refineries will survive with the refining margins at current pump prices.”
James Gooder, vice president of Argus Media’s Crude and African Markets, noted that while reduced oil prices have made deregulation easier to approach, freight and other considerations still need to be carefully taken into account because prices are not constant.
He reaffirmed MOMAN’s stance on the necessity of preparing the general public for the effects of deregulation and added that, despite current low oil prices, market instability cannot be expected.
He continued, “The market has a self-correcting mechanism, and this needs to be strengthened. Gooder cautioned that there may be freight volatility from January before the prohibition on Russian long-term diesel in February, as diesel contracts expire in December, in light of the EU embargoes on Russian seaborne crude oil taking effect on December 5 and on refined oil products in February.”
In addition to decreased volume entering West Africa due to Europe’s demand for diesel, he stated that during the first half of 2023, freight rates, particularly on long- and medium-range tankers, are anticipated to remain high.
“Freight moved from about $10 per tonne to about $80. Volatility in the freight market is affecting the cost of petrol and diesel. As Nigeria moves towards a deregulated market, freight costs need to be put into consideration as oil prices are not the only indicators that determine the retail price of the product. There should also be transparency in the markets.”
“A deregulated market reduces the incentive to smuggle products out of the country and ensures better flow of product into the country;” he added.
Bello Rabiu, the Chairman of Dankiri Farms & Commodities and a former Chief Operating Officer (Upstream) of the former Nigerian National Petroleum Corporation, clarified that complete deregulation goes beyond simply eliminating government subsidies to include the creation of a competitive market environment that can ensure that customers will receive goods at market prices.
A robust regulator, he continued, is needed not to set prices but rather to oversee and promote honest competition among participants. He also suggested that the regulator should exercise effective control over natural monopolies like pipelines to safeguard consumers and avoid market domination.
“Full Deregulation of Downstream Petroleum Sector is a critical national economic and strategic endeavor requiring the support and cooperation of all stakeholders to implement. All hands should therefore be on deck to ensure the attainment of a transparent, competitive, efficient and sustainable liberalized downstream petroleum sector in Nigeria”, he added.
“After staking almost N70 million on a single truck, the cost of doing the business is not sufficient to keep the business running. The return on investment on trucks is not encouraging and that is why people are moving away from the trucking business. Assets renewal is hinged on cost recovery. We need to explore ways to efficiently deliver products nationwide”, he added.