By Jerry Lazarus<\/p>\n
I finally had an opportunity to go through the senate and house
\ncommittee reports on the PIB. The main thrust of the bill is to open up
\nthe Nigeria oil and gas industry to investment, strengthen industry
\ngovernance and regulation to expand, grow and maximize value capture for
\nNigeria and her citizens. This is long overdue and we must commend the
\nExecutive and the National assembly for prioritizing this bill.<\/p>\n
I however, have some concerns about certain provisions of the bill as it
\naffects the downstream. While the bill removed price controls on
\npetroleum products in section 205, the senate version of the bill has a
\nclause that constrains market competition by restricting importation of
\nproducts to only players with local refining capacity. This clearly
\ncounters the provision of 205(1).<\/p>\n
\u201cSubject to the provisions of this Section, from the effective date,
\nwholesale and retail prices of petroleum products shall be based on
\nunrestricted free market pricing conditions.\u201d<\/p>\n
The inserted section 317(8) in the senate bill are here re-produced:<\/p>\n
(1) The Authority shall apply the Backward Integration Policy in the
\ndownstream petroleum sector to encourage investment in local refining.
\n(2) To support this, licence to import any product shortfalls shall be
\nassigned only to companies with active local refining licences.
\n(3) Import volume to be allocated between participants based on their
\nrespective production in the preceding quarter.
\n(4) Such import to be done under NNPC Limited Direct Sale\/Direct
\nPurchase (DSDP) scheme.
\n(5) To safeguard the health of Nigerians, imported petroleum products
\nshall conform to the Afri-5 specification (50ppm sulphur) as per the
\nECOWAS declaration of February, 2020 on adoption of the Afri-Fuels
\nRoadmap.<\/p>\n
I think the provisions above will create a duopoly in a price
\nderegulated price environment thereby destroying the Nigerian downstream
\nindustry as we know it today. It limits importation of all petroleum
\nproducts, including PMS, diesel, aviation fuel, lubricants, base oil \u2013
\nproducts which are already deregulated, to only players with local
\nrefining capacity. In the near term, only NNPC and Dangote will have
\ndomestic refining capacity for PMS for instance, so they will be the
\nonly importers. This takes the industry back and could not have been the
\nintention of the bill.<\/p>\n
Moving from a state-owned monopoly in a price regulated market to a
\nduopoly in a price deregulated market is taking the industry backward
\nand exposing Nigerians to exploitation and further hardship. This in my
\nhumble view is not reformatory.<\/p>\n
Rather than seek to protect refiners, we should rather seek to protect
\nthe consumers by liberalizing and expanding supply sources. That is the
\nonly way prices will be \u201cmarket determined\u201d and consumers pay fair
\nvalue for the products they buy.<\/p>\n
The viability of local refining is not determined or enhanced by locking
\nout competition, it is rather achieved by price deregulation which has
\nbeen done in section 205. This clause gives statutory unfair advantage
\nto private players rather than through market competition. Indeed, the
\nlaw and the authorities have an obligation rather to protect the market
\n(other players including Nigerian entrepreneurs) and the consumers
\nrather than to encourage monopoly\/duopoly by locking out competition.
\nThis clause does not create a level playing field for all players in the
\nsector, and can indeed destroy existing Nigerian businesses that engage
\nin importation of other petroleum products like diesel, Aviation fuel
\netc with attendant loss of jobs and more economic misery for Nigeria and
\nNigerians.<\/p>\n
Governments all over the world do not create and encourage monopolies or
\nduopolies and that is why anti-trust laws are enacted and enforced to
\nprotect industries and consumers. Nigeria should not be doing the
\nreverse. A case can always be made about protectionist policies for
\nnascent or pioneer industries, but this is not the case with a long
\nestablished, once-thriving Nigerian downstream.<\/p>\n
This clause needs to be expunged from the PIB. The Authority should be
\nleft to develop regulations that are fair, inclusive and transparent for
\npetroleum product importation that ensures open and diverse market
\nsupply and hence competition, only then would the objectives of the bill
\nbe achieved.\u00a0 It is worth repeating that as price control is being
\nremoved, supply must be competitive, inclusive, transparent and seen to
\nencourage efficiency. Then, and only then will Nigerians and Nigerians
\nwin.<\/p>\n
Jerry Lazarus is an oil industry analyst and public affairs commentator.<\/p>\n","protected":false},"excerpt":{"rendered":"
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