Reforms In The Downstream Sector Of The Oil & Gas Industry
This is a statement by a consortium of civil society organizations seeking the reform of the downstream subsector of the oil and gas industry.
Following the recent outbreak of the novel Coronavirus pandemic and the resultant twin shocks on the global economy and the impact on crude oil prices at the international market, a virtual meeting was held on April 22, 2020 to enable civil society groups appraise the effects of recent events and the implications on the Nigerian petroleum industry.
After exhaustive deliberations on the evolving issues in the sector, we wish to make the following observations, suggestions and recommendations.
- The outbreak of the Coronavirus, also known as COVID-19, pandemic and the resultant global economic downturn has led to low crude oil prices, putting Nigeria under immense fiscalpressure.
- To reduce the pressure, we note the few policy measures by the government to optimize available revenues, including the review of the Federal Government 2020 budget Benchmarks and cut of the overall approved appropriation Act by N1.5 trillion and the proposal to remove subsidy.
- We equally note the disclosure by the Minister of State for Petroleum Resources, the decision by the Federal Government to adopt a modulation mechanism to regulate petroleum products prices, dictated and moderated by the interplay of market forces. We commend the step taken to reduce the pump price of Premium Motor Spirit (PMS), also known as petrol, from N145 per litre to N125 per litre as a positive step in that direction.
- We note further that since the announcement by the Minister of State for Petroleum Resources, the Petroleum Products Pricing Regulatory Agency (PPPRA) has released a price band for petrol put at between N125 (Upper Limit) and N123.50 (Lower Limit), effective April 1, 2020.
- We note the subsequent pronouncement by the Group Managing Director (GMD) of the Nigerian National Petroleum Corporation (NNPC), MallamMeleKyari, that subsidy payment by the government on petroleum products has been removed with immediate effect from the pricing templateby the PPPRA, in essence the end to fuel subsidy in the country.
- While we note that these difficult policy decisions align completely with our aspiration and advocacy for the reform of the downstream sector of the petroleum industry, we commend the Federal Government for the courage to tread this path at this time in our national history.
- We wish to draw the attention of the government to the important point that more still needs to be done to effectively lead the industry on a path of sustainable regulation based on globally accepted standards and practices. Consequently, we believe there are yet more issues that would require the urgent clarification by the government to bring every stakeholder on the same page and ensure all Nigerians are carried along on these important issues.
- As a matter of urgent national importance, we strongly support the call for the privatization of the country’s four refineries in their present condition to avoid further revenue losses. We suggest the adoption of a transparent merit based model for privatization either considering the NLNG for part privatization or an outright sale. We encourage the government to adopt favorable fiscal terms that bring about a renewed investors’ confidence and also help fast track the proposed 29+ refineries, which still have valid operating licenses.
- We enjoin the Presidency and the Minister of State of Petroleum Resources, Department of Petroleum Resources, and PPPRA to publicly support the declarations made by the GMD of NNPC on the removal of fuel subsidy through an official public statement on April 8, 2020 signed by the signed by the GMD-NNPC in various media appearances in recent times.
- We entreat the government to lay out defined processes and regulatory guidelines to support the announced removal of fuel subsidy. These should be pushed forward and announced by the Presidency and the Minister of Petroleum Resources to give the policy an official seal of affirmation to all Nigerians that we are not in another false expedition.
- We call forthe Federal Government to commit to the sustainability of the no-subsidy regime byentreating it in law, either through a stand-alone legislation, or through appropriate clauses integrated into the Petroleum Industry Bill (PIB) will allow for the sustainability of the no-subsidy regime.
- We require the government to clarify the role of the Petroleum Support Fund in the new no-subsidy regime. Clarity is required about how that fund is being managed, whether the over-recovery sums were deposited there and how they are expected to be spent.
- We encourage the government totransition the PPPRA and PEF into new roles to ensure the sustainability of the proposed 'non-subsidy policy'. Repeal of the PPPRA and PEF(M)B Act and transition them into efficient and competent institutions to support the reforms encapsulated in the proposed PIB are possible options to consider.
- We urge government to prepare for a post-price regulation era by prioritizing consumer protection to ensure that when the downstream sector of the petroleum industry is liberalized, the interests of the people would not suffer exploitation in the hands of profiteering marketers. We suggest anti-trust or competition propositions using the Federal Competition and Consumer Protection Act 2019.
- We encourage the government to consider providing varied options for Nigerians in terms of transportation systems in the country when inevitably, increases in price of crude oil increases result in the rise of the price of refined petroleum products.
- We suggest that the NNPC as the National Oil Company should not be given any advantage, whether comparative or competitive, over other petroleum products marketers in terms of access to foreign exchange to handle their importation of products activities to create a level playing field for all players. If the NNPC must remain a player in the market, it must strive to operate under the same conditions and rules as other players in the sector regulated only by the prevailing market forces and competition.
- While we await the conclusion of work on the PIB, we urge the government to take steps to delineate the roles of policy formulation, regulation and enforcement as well as operation in the industry. We suggest policy directions should be left under the purview of the Minister of Petroleum Resources, with the Presidency and Minister of Petroleum Resources and Minister of State for Petroleum Resources lending their support to the declarationsby the GMD of NNPC, to give weight and establish trust between the government and the people.
Having exhaustively deliberated on all the issues on concern tabled at the meeting, we the undersigned participants therefore wish to make the following recommendations to administration of President Muhammadu Buhari:
CIVIL SOCIETY LEGISLATIVE ADVOCACY CENTRE (CISLAC)
SPACES FOR CHANGE (S4C)
YOUTH FORUM OF EXTRACTIVE INDUSTRY TRANSPARENCY INITIATIVE (EITI)
CENTRE FOR THE STUDY OF THE ECONOMIES OF AFRICA (CSEA)
NIGERIA NATURAL RESOURCE CHARTER (NNRC)
MEDIA INITIATIVE FOR TRANSPARENCY IN EXTRACTIVE INDUSTRIES (MITEI)
ORDERPAPER ADVOCACY INITIATIVE
WOMEN IN EXTRACTIVES (WIE)
CONNECTED DEVELOPMENT (CODE)
AFRICA NETWORK FOR ENVIRONMENT AND ECONOMIC JUSTICE (ANEEJ)
CENTRE FOR TRANSPARENCY ADVOCACY (CTA)
KOYENUM IMMALAH FOUNDATION (KIF)
AFRICAN CENTRE FOR LEADERSHIP STRATEGY AND DEVELOPMENT (CENTRELSD)