With the recent agreement between the Federal Government and organized Labor Unions, stakeholders in the oil and gas downstream sector of the economy are once again letting their voices to be heard to guarantee a full and transparent deregulation process in line with DEMAND and SUPPLY principles of economics.
This follows the pronouncement by the Minister of State for Petroleum Resources in September 2020, that the Federal Government had stepped back from fixing the price of petrol and that prices will be determined by market forces and the crude oil prices. Marketers were astonished at the recent price reduction especially when most marketers have stocked up products at higher costs before the new prices were announced last week, to ensure that there would be product availability during the Christmas, New Year celebrations and beyond.
With the several disruptions experienced in product supply over the past years, ‘the proactive approach adopted by marketers to stock up product for the Yuletide this year towards ensuring adequacy in product distribution will result in huge losses from this price reduction which was effected following agreements with Labor Unions. This current price reduction by the government, again brings to light the question as to whether the Federal Government would compensate marketers because the Minister of State for Petroleum Resources had clearly stated that “there was no going back to the subsidy regime” following the announcement of the deregulation of the market in March of 2020.
Also, months after the ending the petrol subsidy era, deregulated the downstream petroleum industry and given private independent marketers permission to resume importation of petroleum products, the marketers are yet to participate in the importation business due to their inability to access foreign exchange (FOREX).
They argue that the interference by government through price reduction and their inability to source FOREX at the official Central Bank of Nigeria (CBN) market rate remains some of the major challenges to a full and transparent deregulation process, adding that the cost of operations would be further increased if they had to result to the parallel/black market in search of forex because of its expensive nature, as well as if government continues to reduce petrol prices after they had purchased stock at a higher rate.
They noted that petroleum marketers including the Depot and Petroleum Products Marketers Association of Nigeria (DAPPMAN), Major Oil Marketers Association of Nigeria (MOMAN), the Independent Petroleum Marketers Association of Nigeria (IPMAN) and other stakeholders in the sector have continued to depend on the Petroleum Products Marketing Company (PPMC), the petrol importing arm of the Nigerian National Petroleum Corporation (NNPC) for the supply of products and as such the deregulation of the sector is still be riddled with some of the inefficiencies that the deregulation process is meant to address.
In September of this year, The Group Managing Director (GMD) of the NNPC, Mallam Mele Kyari, had assured the marketers that concrete steps were been taken to address their main concerns, especially the issue relating to the availability of forex, stressing that the (CBN had already taken the first step of merging all forex windows to have a unified exchange rate, though this is yet to see the light of day.
Quoting the GMD, “It is really not in our interest to be the sole importer of PMS in the country. We have taken definite steps to exit the situation. This is a definite step taken and the details would be communicated to stakeholders like DAPPMAN, MOMAN, IPMAN and others outside this forum,” Kyari had stated at a forum with marketers.
However, three months since the assurance was made, marketers are yet to see any change and are still encountering the same challenge posed by difficulty in accessing FOREX, as such NNPC continues to play the role of sole importer of petrol as only it can access forex at the official rate of about N380 or thereabout, to a dollar, thereby still holding an unfair advantage in terms of access to FOREX, which is critical to securing importation of petroleum products.
According to the Chairman of DAPPMAN Mrs. Winifred Akpani, “the inability to source FOREX from the official CBN FOREX window by independent marketers is continually hindering the effectiveness of the principles of DEMAND and SUPPLY market forces to correct the current inefficiencies in the pricing mechanisms adopted in the deregulation process”.
Mrs. Akpani also explained that inability of marketers to source FOREX creates a situation which can be described as “pseudo subsidy” in the market.
Mrs. Akpani said a large portion of marketers’ costs are FOREX dependent and must be sourced from the parallel FOREX market. “There still exists some form of indirect subsidy within the market and this can be attributed to reasons why price of petrol continues to have an upward trajectory even when international crude oil prices are going downwards’” she added.
Also commenting on the challenges faced in sourcing FOREX, The Chairman of Major Oil Marketers Association of Nigeria (MOMAN), Mr. Adetunji Oyebanji reiterated that “Nothing has changed. The Forex issue is still like that. And as you can see, the government has also extended that DSDP (the exchange of crude for refined petroleum products) arrangement. That’s a signal to you that foreign exchange may not be there for us to access,”
In line with his statement, many marketers believe that the deregulation process should do away with country operating the DSDP system where crude is swapped for petroleum products through the NNPC and PPMC, rather they should put in place a system that allows the country sell its crude to raise the needed FOREX and allow operators access some of these foreign exchange through the CBN FOREX window to source products at the best possible prices, thereby allowing the forces DEMAND and SUPPLY dictate the economics of the sector for a more efficient deregulated market.
Also, in recent times, marketers have continued to let out their voices with regards to the inefficiencies in the deregulation process brought about the monopolistic supply nature of the system, which they believe are still passing some of the inefficiencies of the past into the current deregulated system. Some of the inefficient costs they complained about that are still been associated with the current deregulated market include costs such as Petroleum Equalization Fund (PEF) costs, as well as FOREX cost associated with charges paid to the Nigerian Ports Authority (NPA) and Nigerian Maritime Administration and Safety Agency (NIMASA) as these FOREX costs are sourced through the parallel foreign exchange market.
The Managing Director of Financial Derivatives Company, Mr. Bismarck Rewane, had said that aside petrol pricing, another major element of petroleum marketing that had not been fully deregulated was access to foreign exchange, saying private importers of petroleum products did not have access to foreign exchange.
As marketers continue to complement the steps taken by government in the deregulation process, they believe that to set the right systems and processes in place, they must ensure that independent marketers have access to FOREX through the CBN official window, as well as stop interfering in the pricing mechanisms by setting out the right policy and implementation framework that would allow marketers in the sector participate fully in the deregulation process that allow consumers feel the right impact of a full and transparent deregulation process thereby creating the ideal economic environment for the creation of new and increased investment in the huge opportunities available in the industry and other sectors.
