Deregulation: The Right Thing At The Wrong Time?

Consultations have been in top gear with major oil companies operating in the country, the labour unions and other stakeholders in the petroleum sector, to ensure a take–off, devoid of hitches, of the deregulation programme, which has been in the pipeline for some years now.

Topmost on the deregulation agenda of the federal government is the removal of petrol subsidy.

The issue of deregulation of the downstream petroleum sector is considered very volatile and one capable of plunging the nation into another major crisis akin to those witnessed during the tenure of President Olusegun Obasanjo, who initiated and championed the deregulation of the oil sector and removal of subsidy.

In September 2003, the President Olusegun Obasanjo administration liberalised the downstream sector of the Nigerian oil industry. By implication, this means that the industry was opened up to competition among its numerous players.

With the opening up of the sector, government’s expectation was that Nigerians would begin to enjoy the fruits of competition, as is obtainable in some other sectors of the national economy such as telecommunication, banking, aviation, as well as education, among others.

The Obasanjo administration also hoped that liberalisation of the downstream sector would put a stop to the incessant scarcity of products and other related problems that have plagued the sector in the past.

The downstream sector of the Nigerian oil industry, which comprises refining, supply and distribution network, has over the years remained on the verge of total collapse. The sector has been characterised by periodic and sometimes prolonged scarcity of petroleum products, with the attendant loss of productive man-hours, as vehicle owners are often made to queue for hours and sometimes days at fuel stations. Illegal market operators also often subject Nigerians to unjustified high prices of products. There are also the problems of mishandling of petroleum products leading to fire outbreaks and a corrupted products subsidy, leading to limited resources for development.

The Obasanjo administration sought to put an end to these problems plaguing the downstream sector. In order to achieve this, it set up a 34-man committee comprising various interest groups in the country, including the Nigeria Labour Congress (NLC).The committee, Known as Special Committee on the Review of Petroleum Products Supply and Distribution (SCRPPSD), deliberated on the problems for more than three months and recommended total liberalisation of the sector as the only viable solution. By this, the committee meant that the various aspects of the downstream sector of the oil industry should be opened up to participation by individuals and corporate bodies who have the wherewithal and the technical expertise to invest in the sector.

The committee also recommended that Nigerians must be adequately enlightened on the need for and the benefits of liberalising the downstream petroleum sector The fall out of the recommendations of this committee was the commencement of the full liberalisation of the downstream sector, which was kick started by the Petroleum Products Pricing Regulatory Committee (PPPRC), on January 1,2002, when ceiling prices of three white products were announced.

Obasanjo met the price of fuel at N11 per litre but within his 8 years rule, he raised the price to N70 per litre,a development that helped escalate the inflation in the country and left Nigerians worse off in terms of availability of petroleum products and their standard of living, than when prices where N11 per litre.

When President Umaru Yar’Adua assumed the leadership of the country, he reduced the price in no time to N65 per litre, thereby bringing relief to Nigerians. However, the Petroleum Products Price and Regulatory Authority(PPPRA) had said that the new price of N65 per litre was temporary. The minister of State for Petroleum, Odein Ajumogobia who announced the new price of petrol at that time, had also told Nigerians that fuel subsidy was unsustainable and that government could no longer continue to subsidise petroleum products. These were indications that the era of petroleum products price hikes was not over in the country.

Presently, government is said to be considering putting the price of PMS at about N98.2 per litre, based on the current indicative price of the PPPRA that the price of PMS should be around N98.2 per litre.

Government is said to be considering that the price of PMS be allowed to settle within the range of N89.78 per litre to N93.73 per litre, depending on the location–coastal or inter–land; reflecting cost-saving measures recently approved by the government and additional measures derived from the reports of two consultancy outfits on the review of the PPPRA template.

Despite stiff opposition from the various unions, it is apparent that government will go ahead with its deregulation policy. President Umaru Yar’Adua stated unequivocally that, “It is imperative that, we tell each other a few hard and bitter truths. The scope and pace of change sweeping across the global oil and gas industry over the years has called into question the adequacy of the policy, regulatory, operational, fiscal and managerial frameworks that govern the country’s oil and gas industry.”

The minister of Petroleum Resources added that, “It has become obvious to us at the dawn of the new century, that the legal and regulatory framework governing our country’s oil and gas industry are in–adequate.”

For 50 years, Nigeria had no policy “laws governing its oil and gas sector and has nothing to show for all its oil wealth”, Minister of State for Petroleum Odein Ajumogobia had told a visiting team of Ugandans who where in the country to learn from Nigeria’s oil and gas experience, having discovered oil recently in their country

Nigeria’s major oil company, the Nigerian National Petroleum Corporation has failed woefully. The NNPC was born in 1977 from the merger of the then Ministry of Petroleum Resources and the Nigeria National Oil Company. This merger resulted in the concentration of the policy, regulatory and operational functions of the country’s oil and gas industry in one entity called NNPC. Today, the NNPC is modelled along an integrated oil and gas company, wholly owned by the state and made up of 10 wholly owned subsidiaries.

Almost all of Nigeria’s oil and gas production and development projects are owned by joint venture operations (and production sharing contracts) between the government owned NNPC and multi–national corporations.

Over 95 per cent of Nigeria’s oil and gas production put at 2 million barrels of oil per day, is carried out by multi–national corporations, under various schemes as joint ventures, production sharing contracts.

The NNPC’s direct daily oil production through the NPDC is far less than 100,000 barrels, according to Dr Mohammed Ibrahim, a member of the Oil and Gas Implementation Committee(OGIC).

The three refineries in the country–Port-Harcourt, Warri and Kaduna–are owned by the NNPC. so also are the two petro-chemical plants attached to the refineries in Kaduna and Warri.

The federal government through the NNPC owns and manages most of the strategic infrastructure in the downstream sector of the industry mostly depots and pipelines.

Most of these assets are non–functional, resulting in Nigeria over the last twenty years earning the unenviable position of being one of the world’s leading importers of the following refined petroleum products:PMS,AGO,L/HPFO,LPG bitumen and base oils.

The governance structures that had been designed since the 1970s cannot adequately cater for the requirements of contemporary Nigerian oil and gas,Ibrahim said, even as he identified some factors as being responsible for the dismal state of the Nigerian oil and gas industry.

According to him, the key legislation that governs the industry, the 1969 petroleum act is outdated and grossly inadequate for a modern oil and gas industry.

Also, the 1977 NNPC Act, despite the various amendments, remains principally responsible for the fusing of the policy, regulatory and commercial functions into one octopus and amorphous organisation–the NNPC. The Ministry of Petroleum Resources as currently constituted, is a civil service outfit and ill-equipped to conceive and formulate the required policy for such a complex, strategic and sophisticated industry.

Also identified as problems are the underdevelopment, under funding, lack of capacity and incessant interfererence in the activities of the Department of Petroleum Resources and the NNPC.

The present reform agenda of President Umaru Yar’Adua’s administration in the oil and gas sector popularly tagged Deregulation, which is rather a continuation of the Obasanjo policy in the sector, seeks to reposition the oil and gas sector in view of the contemporary challenges within the sector both globally and in the domestic sphere.

It also seeks to clear delineation of roles and responsibilities and put in place orderly apportionment of liability.

The primary instrument to achieve these reform goals is the piece of legislation before the National Assembly–the Petroleum Industry Bill (PIB).

The PIB, since its introduction to the National Assembly, has been generating controversy and there are no indications that it will be passed into law this year. The PIB is an embodiment of new tough terms for oil and gas operators in the country.

Nigeria’s oil giants, Royal Dutch Shell, Chevron, Exxon Mobil and other oil companies, hope to persuade the government to ease tough new terms in draft legislation. They are also locked in negotiations over leases to oil fields they have held for 40 years, with the government asking for billions of dollars to renew them, according to reports.

The PIB seeks to establish new institutions that will regulate the oil sector. The question many Nigerians who are not too conversant with the petroleum sector are asking is, what is regulation? Experts describe regulation as a form of secondary legislation which is used to implement a primary piece of legislation appropriately, or to take account of particular circumstances or factors emerging during the gradual implementation of, or during the period of, a primary piece of legislation.

Other forms of secondary legislation are statutory instruments, statutory orders, by-laws and rules. Some of these (but not all of them) need to be referred back, before being implemented, to the primary legislative process.

The objective of a regulator is to develop or create a self–adjusting mechanism which balances the nuances of satisfying the needs of societal interest, while accommodating the desirability of investments as the catalyst for socio–economic development, which presents and protects the germination of a harvest and benefits by all the stakeholders in an ever evolving atmosphere.

The stakeholders in the federal government’s regulatory regime are government promoting the public policy for public interest, the investor and the citizenry.

The new regulatory institutions are the Nigerian Petroleum Inspectorate(NPI),the National Petroleum Assets Management Agency(NAPAMA) and the Petroleum Products Regulatory Authority(PPRA).

Government has almost exhausted all avenues to persuade Nigerians to accept deregulation. But the reason why Nigerians will not accept deregulation and why they consider it a right thing done at the wrong time, is because government attaches increase in the prices of petroleum products to deregulation. Experts and analysts in the industry are beginning to ask if deregulation must amount to increasing the prices of petroleum products.

There are clear indications that the issue of oil deregulation may again plunge the country into a fresh crisis very soon, as labour has mobilised for a show down with government should this happen.

Concrete arrangements have already been put in place by the Nigeria Labour Congress (NLC) and its allies in the civil society to mobilise its affiliates for a nationwide protest should the federal government make good on its intention to deregulate the down–stream petroleum sector, with increases in prices of petroleum products.

NLC and its affiliates are at the opposite end, not trusting the federal government on deregulation, even as the federal government insists deregulation will position the Nigerian oil sector to compete internationally and lead to products’ availability and at affordable rates.

The NLC hinges its position on the fact that former president, Olusegun Obasanjo raised the price of petrol eleven times and yet this did not translate into concrete development of the country.

In a recent statement, the NLC stated that its position on the matter has not changed and warned the federal government not to go ahead with the deregulation exercise, as as it would lead to the fiercest labour unrest ever witnessed in the history of Nigeria

The statement, signed by its general secretary, John Odah, said the Congress would not allow government to send more Nigerians into economic recession.

The NLC holds a strong view that the deregulation policy will inflict untold hardship on the poor and ordinary people of Nigeria, who constitute more than 70 per cent of Nigeria’s over 140 million people.

The statement read in part: “The Nigeria Labour Congress (NLC) wishes to reassure workers and Nigerian people that it remains, as ever before, strongly opposed to the total deregulation of the downstream sector of the oil industry.

“The Nigeria Labour Congress, therefore, calls on its affiliates and the masses to remain resolute in their opposition to deregulation or any policy which is against the interest of the masses and prepare themselves for a fierce battle if and when the Federal Government makes real its plans to inflict more woes on already distressed Nigerians.”

NLC was apparently reacting to an alleged plot by government to deregulate the downstream petroleum sector with its usual pattern of raising the prices of petroleum products by November 1.The government had denied this allegation and called on Nigerians to remain calm, as deregulation would not inflict more woes on them.

The feared hardship of the full deregulation of the downstream petroleum sector by the NLC had already emerged with the recent fuel queues experienced in different parts of the country, especially the federal capital city of Abuja.

Some motorists in Abuja who spoke with leadership weekend blamed the recent fuel scarcity on petrol marketers, whom they said are no longer supplying the product.

According to a motorist who spoke at the Total petrol station near the NNPC in Abuja, “The marketers are no more bringing petrol, but they have promised us that when the price is increased , we will be getting all the products regularly. They said they will supply each filling station in the country with one tanker of fuel, kerosene and diesel every day and there will be no scarcity again”.

The Nigerian National Petroleum Corporation (NNPC) also attributed the recent scarcity of petroleum resources in some states of the federation to the planned deregulation of the downstream sector.

The group executive director, Commercial and Investment of NNPC, Alhaji Aminu Baba Kusa, stated this while fielding questions from newsmen in Kano. He said marketers who wanted to capitalise on the possible escalation of prices when government finally withdraws its subsidy are responsible for the shortage of the products.

According to him, some “selfish marketers buy the products and stash them in their stations without selling, or sell from only one pump.”

The executive director disclosed that some marketers drain their stations of fuel and divert it to sell outside the stations, with the intention of making the price higher.

However, the pertinent question is, what lies ahead for common Nigerians who always bear the brunt of government policies which do not translate into regular electricity or infrastructural development?

Can the government hold back on deregulation or stop the NLC and its affiliates and other groups which have threatened action such as the , Yoruba socio–political organisation, Afenifere Renewal Group (ARG),which has warned the federal government not to go ahead with its planned deregulation of the downstream sector?

Facts emanating from government quarters do not suggest that it would hold back on its deregulation policy. However Lukman has given assurance amid growing anxiety over the deregulation of the country’s downstream petroleum sector, that deregulation will be implemented in the best interest of Nigerians.

He said the Petroleum Industry Bill that is before the National Assembly and that has passed second reading, was a conscious effort made by the federal government to reform the oil and gas industry in its entirety, in line with best global practices.

Lukman told members of the House of Representatives Committee on Gas Resources recently in Abuja, that the bill seeks to transform the downstream and upstream sectors of the industry for the socio–economic benefit of Nigerians, through the proposed institutional and legal frameworks.

He said that government is aspiring to derive as much revenue from gas as it does from oil, and that “government has plans to add value to our crude oil and generate employment, thereby removing Nigeria from the toga of a mere crude oil exporting country.”

To realise this ambitious programme, he said, licenses have been issued for refining plants to be established. However none of the investors given licenses have utilised them. The panacea to this laudable policy, according to Lukman, is to deregulate the downstream sector.

The group managing director of the Nigerian National Petroleum Corporation (NNPC),Dr Mohammed Sanusi Barkindo has also said the deregulation of the down stream petroleum sector does not necessarily lead to increases in the prices of petroleum products. Barkindo said Wednesday in Abuja that the planned reform of the downstream sector of the petroleum industry would not necessarily lead to a hike in the price of petroleum products, as is generally believed.

The NNPC boss who made this clarification during a presentation at the National Defence College, Abuja, explained that deregulation was not synonymous with price increase, as the reform is aimed at increasing local refining capacity to end the circle of dependence on importation, which is one of the factors responsible for the high price of products and huge subsidies paid by the federal government.

If Barkindo is not playing the ostrich and deregulation will not lead to price increases, then many Nigerians will welcome the idea wholeheartedly.

But the real issue being hammered upon by international experts in the industry is Nigeria’s need to tackle corruption. Fact being made available by the oil marketers indicate that the oil subsidy amounting to almost a trillion naira annually does not go into the oil sector, but into the pockets of a few Nigerians.

Dr Ray Umorien,a Nigerian in the diaspora who was on a visit to Nigeria recently, told leadership that the paramount issue in Nigeria’s oil and gas sector is corruption and once this is tackled the problems currently being faced by Nigeria in its downstream sector will be over.

The Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) has also noted that the subsisting poor supervision and monitoring of downstream sector activities, lack of commitment to regular turn around maintenance (TAM) of refineries, pipelines maintenance and unattractive enabling investment environment to stimulate participation in the downstream sector, are the major issues bedeviling the industry.

It is apparent that government has a good case for deregulation, but it is a right thing at the wrong time?