Whether it is the downstream sector or the upstream sector of the Nigerian oil and gas industry that you want to examine, what you see is nothing but doom and gloom. And the evidence is there right on the streets where petrol is now being sold at scandalous prices and in the number of hours Nigerians who would not patronise black market spend at fuel stations. Very soon, the people will also begin to feel the pinch in their pockets, assuming many are not already doing that. So we can safely conclude that for our country, the “years of plenty” are over without having had a “dreaming Joseph” to prepare us for the “lean years” that now lie ahead.
What complicates the situation is that we are in a period of transition with no certainty as to the direction the next administration will take on critical issues. That perhaps explains why many Nigerians are waiting for the president-elect, Muhammadu Buhari, to make his first critical appointments which could then serve as a window to peep into how he would lead the country. And if there is any appointment that stakeholders in the oil and gas industry are waiting for, it is that of the Petroleum Minister.
I understand Buhari may play the Obasanjo card by retaining the Petroleum Ministry portfolio in which case he would only appoint a minister of state and a special adviser. I do not think that would be the best approach for the sector, especially at such a critical period like this. Buhari should not imagine he is the only honest man in town for a sector that needs a hands-on professional to deal with serious issues. That, however, does not suggest that Buhari should take a cue from President Goodluck Jonathan who has, for the last five years, imposed on the Petroleum Ministry a Sole Administrator!
The challenge within the sector is enormous with several idle depots around the country because of the limited use of the pipelines due to vandalization; a plethora of largely ineffective regulatory bodies (DPR, NOSDRA, PPPRA, PEF etc.) and a regime of over-regulation that sees government controlling supply, margins, transportation rates etc. There is also an absence of a level-playing field; inadequate investment due to the regulatory environment and the waste called local refineries that keep gulping billions of Naira annually in the name of Turn Around Maintenance (TAM) despite performing at sub-optimal level.
Whichever direction Buhari eventually goes, what is not in doubt is that the petroleum sector is one area where he would have to make what would be his first major calls. And one that is already waiting for him is the issue of fuel subsidy.
All factors considered, it is going to be a tough call, especially given recent experiences. I recall that early in 2009, as a presidential spokesman, I decided to publicly intervene on the issue, based on my experience in government and the information I was privileged to have at the time. I wrote a piece titled “Deregulation: If Not Now, When?” and syndicated it for publication on Sunday 8th March 2009, in virtually all the newspapers in Nigeria. Not surprisingly, many people attacked my position which was interpreted to mean that I was no longer “with the masses” even when some government officials did not exactly like what I wrote.
Since that intervention of more than six years ago still speaks to the current situation, I crave the indulgence of readers to quote extensively from the piece: “…According to the Petroleum Products Pricing and Regulatory Commission (PPPRA) template, the current pricing model for the determination of the domestic prices of petroleum products is based on an Import Parity Principle (IPP). This is because 90 percent of products consumed in Nigeria today are currently supplied through importation which in itself makes us a most vulnerable nation. But when the local refining capacity is developed and improved, Cost Plus Pricing Principle (CPPP) would apply.
“What this translates into is that some current cost components would either reduce or be eliminated from the pricing model if we can refine local needs at home rather than continue the regime of importation with all the attendant abuses. On the PMS template of the PPPRA for the month of February (2009) for instance, product cost is 65 percent while freight accounts for 5.75 percent. Another component called Lightering expenses account for 5.13 percent with Storage charge at 4.18 percent. Other charges are: Jetty-Depot Throughput, 1.12 percent; NPA, 1.62 Percent; Financing, 0.72 percent while margins for distribution account for 18.41 percent.
“There is currently a process audit of this template but even before that exercise is completed there are questions to be asked. In the year 2006 for instance, according to available data, the entire PMS refined locally was 1.623 billion litres while 7.701 billion litres of PMS were imported by NNPC and other marketers. In the year 2007, because the refineries were working at their lowest capacity, the quantum of their contribution to local supply had dwindled to 356 million litres of locally refined PMS while 9.867 billion litres of PMS were imported to the country by NNPC and other marketers. Last year (2008), 1.227 billion litres were refined locally with 10.867 billion litres imported.
“The big challenge has to do with the integrity of these numbers on which subsidy amounting to hundreds of billions of Naira is paid on a yearly basis and whether such an opaque system should be sustained. I recall that as a member of the Nigerian Extractive Industries Transparency Initiative (NEITI) between 2004 and 2007, a civil society member once described our efforts as ‘futile attempts to instil transparency in a secret society’.
“Now, I know what he was talking about.
“The pertinent questions now are: How much of the PMS purportedly consumed in the country between 2006 and 2008 was smuggled out of the country after it had been heavily subsidised? What percentage of that number is spoof since facts on the ground suggest some marketers import less than they claim but have valid papers to show ‘evidence’ of full supply? What is the place of our banks in all these shady arrangements? And then, what percentage of the ‘imported’ products were real and what percentage were actually the (relatively cheaper) locally refined products that were round tripped to the high sea and then brought back home so that subsidy money would be claimed?
“These are the kinds of distortions and racketeering that regulation brings to the market place, especially in an environment like ours. These are also some of the issues that inform the position of President Umaru Musa Yar’Adua that deregulating the market is the only plausible way we can open up the industry and rid it of unwholesome practices that have helped to distort a lot of things, including the correct price of PMS.
“There are people who argue that the solution lies in government simply building more refineries. Facts on the ground do not support this position even if the money were available because governments, especially in Nigeria, have not proved to be good managers of enterprises. The current state of the refineries against the huge sums that have over the years been invested in their Turn Around Maintenance (TAM) is a glaring evidence that government should stay out…”
The publication came at a time the federal government was in serious negotiation with Labour with a view to ending the subsidy regime. Unfortunately, not long after, President Yar’Adua developed the illness from which he never recovered and the rest, as they say, is now history. But today, we are back to the same issue with contention over the actual amount of subsidy debts owed to operators who accuse the Federal Government of non-compliance with the terms of the Petroleum Support Fund (PSF) and inadequate provision for subsidy in the 2015 federal budget.
Today all over the country, fuel queues are commonplace while most people buy their fuel at the black market where it is selling from between N150 to N300 per litre. Yet it appears the problem might be with us for a long time because of the uncertainty about what the incoming administration would do on the issue. But today, I present something that could be of help to Buhari and his team, assuming they are still undecided about fuel subsidy.
Three years ago, following the crisis that followed the unsuccessful attempt by President Goodluck Jonathan to deregulate the sector, the House of Representatives decided to intervene by setting up an ad-hoc committee to probe the subsidy regime. Even though its work ended with controversy following allegation that committee chairman, Hon Farouk Lawan, took bribe from Mr. Femi Otedola, chairman of Forte Oil, I got sufficient information from the effort to begin work on a book on the regime of fuel subsidy in Nigeria.
It took me two years before I eventually completed the work in June last year but given the political environment at the time, I wrote on this page that I would defer the publication till after the election. It is the result of that effort that I make public today.
Although I started the effort with a mind to put the resultant books up for sale, given how topical the issue of fuel subsidy has become today, I am releasing the manuscript with the hope that it would help Nigerians to fully grasp what the whole issue is all about. Perhaps with that, we can begin a structured and meaningful conversation on some of the difficult choices we may have to make if our country must prosper and thrive.
Interested readers can access the publication at http://bit.ly/1EY9s80
The Verdict Written By Olusegun Adeniyi and Culled from Thisday; email@example.com
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