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Anxiety mounts as more stakeholders divest from downstream sector

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UGO AMADI, BUSINESS EDITOR

The recent outburst by the Major Oil Marketers Association of Nigeria (MOMAN) on tough operating environment in the downstream sector of the Nigerian oil and gas industry which has warranted many players in the industry divesting while some close shops has become a source of worry to stakeholders.

This confirms that the sector is in desperate need of reforms as Stakeholders in the sector has kicked against government’s interference in the value chain, saying its activities are fast destroying and frustrating downstream-focused businesses.

The operators appealed to the government to take its hands-off the downstream sector and argued that the potentials in the downstream sector could only be unlocked in a deregulated environment.

According to the stakeholders unsettled challenges continue to stifle private sector players’ enthusiasm as some companies are divesting from the downstream sector.

Invariably, one of such companies is Forte Oil Plc., whose chairman, Mr. Femi Otedola, recently declared his intentions to sell all his shares in the firm’s downstream business.

Recall that, the duo of ExxonMobil and Oando Plc. in 2016 divested 60 per cent of their shares respectively. Leaving only Total Nigeria as the only International oil company still playing at the downstream sector.

MOMAN new chairman, Mr. Adetunji Oyebanji stated that the nation’s downstream oil industry is “in serious trouble.” , stressing that majority of the oil marketing companies doing business in Nigeria are running at a loss.

“Today, many of the players in the industry, not necessarily MOMAN, have closed shop; now people are divesting while some people are closing shop”, he said.

He cautioned that the fact that there are fuel products and no queues at the fuel stations should not warrant that the health of the industry is good.He said the situation where the oil industry keeps going on a downward trend is something that calls for urgent concerns, “a day will come when things will get very bad and we end up having only a national oil company because all the other entities have closed shop.”

He described the situation where government looks only at the immediate and not on the long term, stressing that in five years to come the country will face very great challenge.He called on government and the appropriate authorities to look at reforms that will change the future of the oil industry in Nigeria.

Presently, the Nigerian National Petroleum Corporation has been the sole importer of petrol into the country for more than a year as private oil marketers stopped importation due to shortage of foreign exchange and increase in crude oil prices, which made the landing cost of the product higher than the official pump price of N145 per litre.

The Federal Government had on May 11, 2016 pronounced a new petrol price band of N135 to N145 per litre, a move that was described as a partial deregulation as it signaled the end of fuel subsidy.

The Minster of State, Petroleum Resources, Dr. Ibe Kachikwu said that subsidy on Premium Motor Spirit (PMS), otherwise known as petrol, currently stands over N1.4 trillion.

Many stakeholders have therefore, conversed for a total deregulation of the downstream sector of the petroleum industry as it would unlock the huge private investment potentials in the sector and also stimulates sustainable growth.

They also expressed worried over the huge amount of money spent by Federal Government annually of subsidy payment, which they said such sum could be used to develop other sector of the economy.The stakeholders said this became imperative for government to embark on total deregulation of the downstream sector to attract investors and to also save the country from the huge amount spent on subsidy.

A former Executive Secretary, Petroleum Products Pricing Regulatory Agency (PPPRA), Mr. Reginald Stanley said it was crucial that the private sector would drive the downstream subsector, while the government would make policies and provide the enabling environment. He added that there was an urgent need for the restructuring of the downstream sector.

Speaking to our correspondent, The Director General, Lagos State Chambers of Commerce and Industry (LCCI ), Mr. Muda Yusuf said that perhaps the biggest burden on the economy today is the petroleum subsidy regime.

Yusuf said the government should encourage private sector players to take over the downstream sector of the petroleum business.
He said, “When this is done, most of the challenges we see as regards subsidy, refineries and others will be adequately addressed. The government should only play a regulatory and not an operational role.

“Government has no business refining petroleum products, retailing or distributing fuel as well as the marketing of these products. We cannot continue to carry that kind of burden in the oil sector,’’ he said .

Yusuf added: It is a big hole in the finances of government. It puts tremendous pressure on the foreign exchange market and foreign reserves, just as it exerts immense stress on the nation’s treasury.`It remains a cause for concern that the subsidy regime had subsisted, especially at time when the economy is facing unprecedented fiscal challenges.` `At a time when productivity in the economy is constrained by acute infrastructure deficit; at a time when public institutions are finding it hard to pay salaries. There cannot be a better example of resource misapplication.

According to him “There are two components of this; the first is the genuine subsidy, which is the differential between the pump price and the landing and other costs of fuel.

“The second and more disturbing component is the transparency problems inherent in the fuel subsidy administration, including the petroleum equalization policy. For several years, the economy suffered severe bleeding from this phenomenon.

Muda said that one of the critical elements of the oil and gas sector reform, particularly the downstream sector, is the complete deregulation of the sector. “This is the spirit of the Petroleum Industry Bill (PIB) which, regrettably, has again got stuck in the legislative process.

“The reform of the oil and gas sector would create a number of advantages for the economy. The DG said that total deregulation of the downstream would enhanced free resources for investment in critical infrastructures such as power, roads, the rail systems, health sector, education sector etc.

He said that deregulation would also unlock the huge private investment potentials in the downstream oil sector especially in petroleum product refining.He said that this will ultimately reduce importation of petroleum products and ease the pressure on the foreign exchange market as well as the burden on our foreign reserves. He said that deregulation would eliminate the patronage, rent seeking activities and corruption that currently characterize the downstream oil sector.

“Full deregulation will create more jobs for the teeming youths of the country in the downstream oil sector as investment in the sector improves, “It will permanently eliminate the fuel queues. The subsidy regime has done incalculable damage to the economy over the years.’’

Also, the Executive Secretary, Depot and Petroleum Products Marketers Association of Nigeria (DAPPMAN), Mr Olufemi Adewole said that one of the few challenges is that the sector is fully regulated and is a closed sector. He said that the call for full deregulation does not remove supervisor and control by government established agencies but deregulation will ensure that prices are controlled by market forces.

He said that deregulation of the sector will stop the subsidy challenges and smuggling of PMS to other West African states. According to him, it is obvious then, that the fuel subsidy programme is placing a huge financial burden on the nation’s resources

Adewole said that continuous payment of subsidy is not sustainable, while urging government to liberalised market and encourage “free entry, free exit’ to attract investors in the sector.

According to him, it is obvious then, that the fuel subsidy programme is placing a huge financial burden on the nation’s resources.“One of the proposed reforms in the petroleum industry bill is the deregulation and the liberalisation of the downstream oil and gas industry which recommends that the deregulation proposition.

“If fully, implemented, will eradicate waste and corruption currently ravaging the country as a result of the tightly regulated economy; and that monies saved from fuel subsidy can be optimised for development projects that will be beneficial to the people.

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