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Nigeria: Why petroleum Industry Must be Fully Deregulated – 11 PLc Boss

Adetunji Oyebanji, Managing Director/CEO of 11PLC ,a sole distributor of Mobil fuel and lubricant brands in Nigeria has given his support for the full deregulation of the Nigeria sector ,saying that continued regulation of the industry is a recipe for disaster as already being witnessed in the country.

Oyebanji spoke at 2021 Strategic International Annual Conference, organised by the Association of Energy Correspondent of Nigeria (NAEC) on Tuesday in Lagos.

Speaking on the topic, “Deregulation: A Panacea for Economic Actualization in The Downstream Sector”, he noted that over two million Nigerians owe their direct and indirect employment to the Downstream Industry, which has a key role to play in offering Nigeria and Nigerians excellent service that complies with best practices, which is fundamental to the sustenance of the economy.”

He however regretted that, over the years, emphasis has been placed on regulation to the detriment of the petroleum sector and the nation at large. He expressed delight at the on-going effort to deregulator the sector provided the exercise is carried in transparent manner by the managers of the industry.

Oyebanji noted that currently, the Federal Government has just put in place the Petroleum Industry Act in August 2021, with refineries operating at below 25% capacity in the last decade and in the last two years however, there has been no output from the refineries.

In spite of her huge endowments, Nigeria is the only oil and gas producing country that relies solely on importation of refined products of the raw commodity it produces and exports, with over 90% of refined products imported to meet daily demand.

NNPC is the major PMS importer (DSDP Programme) while the PMS, largest consumed petroleum product and still regulated and remains lowest price of PMS across West Africa

The government has on many occasion made pronouncements about deregulation but this has not been fully implemented even as downstream remains comatose resulting to poor investment returns in the downstream industry.

Presently also, there are issues of no access to FOREX to import by the private sector, non-transparent petroleum products costs and pricing, negative reputation of the industry, exit of IOCs and dearth of industry infrastructure as well as declining industry expertise and unlevel playing field for marketers in the sector and over regulation by federal, state and local agencies

Oyebanji identified where the country’s petroleum sector should be headed as follows: “transition to a market driven environment through policy backed legislative and commercial frameworks, enabling the sustainability of the entire downstream sector, standardization and the development of technology in the industry, building of core industry competencies and growing the use of gas as an alternative energy source

Others include changing the petroleum landscape by growing the local refining capacity, and growing ancillary industries, making Nigeria the refining hub of West and Central Africa and a net exporter of petroleum products, and access to foreign exchange to importers – at the official rate.”

Giving further reason the country oil and gas sector must be regulated , the 11Plc boss said “it was the economic policy of the Federal Government of Nigeria (as in other centrally controlled economies around the world) to control prices. This approach was a way to manage the goods / products demand vs. supply crises.

According to him, “subsidies on petroleum products were first introduced by the government of Nigeria in the 1980s to act as a temporary measure to control the prices of petroleum products while the refineries underwent rehabilitation

“However, price control and central government-controlled market policies were doomed to fail because it typically leads to corruption, fraud, shortages and inefficient markets

“Its adoption by Nigeria has been marred essentially by corruption and political considerations, leading to our current levels of fraud and the failure to grow the economy and raise the country’s productivity levels.”

On fuel subsidy , he said that government’s artificial intervention has resulted in exorbitant costs: N10.7 trillion spent in the last 10 years and N750 billion spent in 2019 alone.

Oyebanji said that total deregulation is more than just the removal of price subsidies, because the exercise “ is aimed at improving business operations, increasing the investments in the oil and gas sector value chain, resulting in the growth in the nation’s downstream petroleum sector as a whole.”

“Steps have been made, but larger and faster leaps are now required,” he said.

According to him, “deregulation requires the creation of a competitive market environment, will guarantee the supply of products at commercial and market prices unrestricted and profitable investments in ,infrastructure, earning reasonable returns to investors and a strong regulator to enable transparency and fair competition among players, and not to regulate prices.”

“Deregulation also encourages the growth of the petroleum sector through the deployment of technology, good governance and international best practices Nigeria has moved away from state control.

“Salt, sugar, milk, newspaper prices have been liberalized. However, petroleum products have also been deregulated with exception of PMS and this has resulted to increased debt burden, Stifled growth and employment, increased fraud / corruption.”

Speaking on opportunities of deregulation, Oyebanji said it will require a shift from crude oil production to crude oil full value realization through deliberate investment in domestic refining and refined products distribution, creating the opportunity to transform the dynamics of the downstream petroleum sector from one of ‘net importer’ to one of ‘net exporter’ spurring the growth of the Nigerian economy.

It will also require investment in local refineries effective reforms and regulations as key drivers for the growth within the refining sector.

Non-functional refineries cost Nigeria over $13billion in 2019. If the NNPC refineries were operating at optimal capacity, Nigeria would have imported only 40% of what it consumed in 2019. Full deregulation of the downstream sector remains the most glaring boost to potential investors in this space.

However, as crude oil prices will fluctuate depending on the prevailing exchange rates, it would be astute to trade in NGN to avoid inevitable price swings.

In recent months, several refineries producing over 2 million bpd have had to shut down. Margins in this business remain slim, with the lowest profit margin reported in July 2020, the lowest since 2010.

Deployment of refineries would propel Nigeria’s oil and gas sector and expand its domestic refining capacity, they however need to ensure operational efficiency through innovation, maintenance & upgrades, optimization, be in close proximity to consumption clusters, etc., to improve profitability and gain competitive edge.

On the future of the Nigerian downstream industry Oyebanji said there needs to be a balance between ensuring the sustainable growth of the crude oil value chain (upstream through downstream) and providing value for the Nigerian consumer and the Nigerian economy

The philosophy should be for the government to put the legislative and commercial framework in place and let the market develop by itself.

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