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Thursday, June 24, 2021
Home Analysts Interview ‘Without price deregulation, NNPC will remain sole importer of fuel’

‘Without price deregulation, NNPC will remain sole importer of fuel’

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Mr. Clement Isong is the Executive Secretary of Major Oil Marketers Association of Nigeria (MOMAN). In this interview, Isong explains the reasons no oil marketer will take the risk of importing petroleum products into the country, what government should do further do to encourage more investors to the nation’s downstream sector, and how the Federal Government is resolving the more than N800 billion subsidy arrears with the marketers. Excerpts:

What is your take on the current petroleum pricing regime in the nation’s downstream sector?

I will start by dividing the question to two different subjects. The first is importation and the second is distribution margin. I guess the most important aspect of the importation would be the question of foreign exchange. Access to Foreign Exchange is quiet tight in Nigeria because of the crash in crude oil prices so the Nigerian National Petroleum Corporation (NNPC)/ PPMC today, remain the major importers of petroleum products. One or two people have tried to bring in products earlier on but as at today nobody can bring products. I think the template being used is N385 as exchange rate. I am not sure if anybody can access forex at that rate today and that is essentially what the problem is, access to foreign exchange. Another thing is to have a clear understanding with the PPPRA as to what the real importation costs are. We are still in discussion with them to try and arrive at a realistic importation price. If we are unable to arrive at that price, essentially what will happen is, PPMC will remain the sole importer of products because investors cannot really bring in products at that price. The second one is the distribution margin; distribution margin in Nigeria is about N90.37k per litre. That is what is due to the marketers. The problem is that the margin does not cover the cost of distribution in Nigeria. That is the second problem that also needs to be discussed with the PPPRA.

It seems major marketers are not encouraged to return to petroleum products importation?

It’s likely, with the current situation for NNPC to continue as sole importer of products in the country. Remember there was a subsidy regime that the country went through before this administration came. There was a methodology adopted in which case government told people to go and import and when you bring in the product, we shall make payment of the difference between the cost of your importation and the pump price which has been determined. The challenge was that that really did not happen and ever since then marketers are owed subsidy for over six years. However, we have been given promissory notes, some of which would expire in three or four years’ time, meaning that for eight to nine years, marketers would be owed and this have had difficult impact on people who had imported and I think it has made a lot of them a little wiser. I’m not so sure people will again be willing to take such risk to import, which is why this government through NNPC has been the sole importer because they are the only ones that could take such risk without subsidy.

There is this analysis of allowing market forces to control the price, particularly the price of PMS?

I think is just two different philosophies. I think the world has moved towards market forces. If not, the alternative is to subsidise, and government will continue to pay the subsidy. I think we should all come to terms with the fact that, for over 10 years, the subsidy has been in excess of N10trillion. I think we can imagine what the country could have done with such amount of money. Right now we are in facing COVID 19, and N10 trillion could have provided us decent healthcare and education for all our citizens; N10 trillion could have provided us with essential infrastructure, but instead, we have burnt it through fuel consumption. So, on the other side we did pay market prices for product. What would happen was that we are able to take that money we pay on subsidy and invest on human development of the country. We would have been able to develop mass transportation, for instance. Currently, we are investing in railway, which is commendable, we are investing in road but we are borrowing but some of us believe that the best way to grow the economy is to allow market forces to determine, rather than to go back to subsidy regime. I think it’s now the national consensus to do away with the subsidy and allow market forces to determine the prices of petroleum products in the country.

In your thought, do you think that total deregulation of the downstream sector is the best option for Nigeria?

When you say total deregulation, let me define that. When we talk of deregulation, we are talking about deregulating prices and I think prices should be deregulated. However, the industry needs to be regulated. Downstream sector is a highly volatile business that commercializes very volatile products. HSE and quality of products is extremely important and regulation is key. In most countries, regulation focuses on HSEQ but for the price of products, I think it should be allowed to react to the market forces. Deregulation of prices is the way to go.

We know of debt being owed marketers by the Federal Government, how far has government responded in payment?

We need to thank the Federal Government for the level we are now. As I said earlier, many of the debts were inherited from the last administration and the debt went as high as N800 billion at a point but what happened was that, there was an intervention by government through the Central Bank of Nigeria (CBN), the interest rate was frozen on this debt, I think on July 1, 2017, and after that, the debt itself was frozen and government has paid through Promissory notes. Some of the Promissory notes matured this year, some will mature in the next two, three and four years. So, it’s been really rough for companies in this sector but we recognize government’s efforts, it has been struggling for revenue. Let me made it clear, yes, payments have been made but were in promissory notes. However, not everybody is happy with that but what can you do?

Aside the Forex issue and what government has done in term of payment, what other things do marketers expect from the government to make fuel available in the country?

The first thing I will say is that we need access to foreign exchange. We need to know at what rate we are accessing foreign exchange, where to go to access it. Let us know the methodology to access it. Thereafter, the preference for any market is deregulation. So what we need government to do is to deregulate importation and allow the marketers to compete in the market place. That is the best case for us. However, if government insists on fixing the prices, then we need to reflect the actual market prices, the cost of importation as well as cost of distribution. If you are in a country where you get $100 per metric ton, most country are in the range of $60 per ton, that is manageable but when you start getting to $50 per metric ton for distribution cost that is a problem. In Nigeria, distribution margin on pay-back is about $30, $31 per metric tons. So, most marketers are running PMS at a loss.


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