DEREGULATION: MY POSITION IN A NUTSHELL
A proper deregulation of the downstream sector of oil and gas industry in Nigeria is not undesirable, however, the anticipated benefits of opening up the sector for competition will be difficult to achieve if poorly or wrongly done.
Proper deregulation can only be achieved if the right environment for competition is created and supported with appropriate anti-graft laws and a strong-will to implement and ensure compliance to rules of competition and extant laws.
Secondly, the much talked about manipulations by a seemingly invisible cartel is capable of stifling any regime, be it regulated or deregulated. Therefore, prior to the commencement of deregulation, Government needs to confront the cartel, with a view to prosecuting culprits in order to restore public confidence and deter future recurrence.The current change in price from N65 to N141 is neither deregulation nor total subsidy removal, because (1) in a deregulated market, there is no price cap like the N141. Therefore, the Department of Petroleum Resources, (DPR) will have no reason to seal petrol retail outlets that are selling above the official ceiling, as they are currently doing. (2) If private investors refused to build refineries in Nigeria because of N65 price cap, they will equally not invest if the cap is shifted upwards to N141 per litter because, it may not satisfy their huge appetite for profit maximisation, often wrongly tagged ’price recovery’ by industry regulators.
Also, subsidy includes the money paid to transporters and marketers for bridging petroleum products to different parts of the country in furtherance of the even-price policy, through the Petroleum Equalisation Funds (PEF) scheme. The N5.00 provision in the current PPPRA template in the N141 cap amounts to transferring bridging subsidy to every petrol consumer nationwide.
If as the Ministers of Petroleum and Finance want us to believe, the essence of deregulation is to open up the space for competition and encourage private refiners to invest in the industry, then we must embark on the process of creating the enabling environment devoid of manipulations, monopoly and cartels, such as Major or Independent Marketers or Importers Associations who pull resources together to jointly import same cargo of petroleum products and co-determine the quantity to send into the market and the price to offer. (This amounts to market manipulation and price distortion)
In the present circumstances, the best single instrument for creating the enabling conditions is the Petroleum Industry Bill. (PIB)
Put simply, PIB. seeks to break ‘Nigerian National Petroleum Corporation (NNPC) monopoly, then unbundle it into autonomous companies, e.g Refineries, to be fully commercialised, funded and capitalised for take-off, to then function as commercial, profit-making business entities that do not have to depend on government appropriations and therefore free from political interferences and red-tapism which hitherto encumbered operations and inhibited profitability.
An Independent Pipeline Company is to manage the existing and possibly expand the network of pipeline, which will give equal access to all operators (public and private) for which equal fees for equal services will be charged.
The upstream sector is to be policed by a transformed and independent DPR while an independent Petroleum Products Regulatory Agency (PPRA) will police the downstream sector for standards and policy compliance.
If there is strong commitment and will, this process should not take more than six months to consummate. In the absence of aforementioned conditions, removal of subsidy or price adjustment will not achieve the objective of checking the excess of the cartels; neither will it engender competition that will eventually moderate prices. Rather the inflationary effect will continue to soar and task-forces that have served as mere conduit pipes will continue to increase in number, while the drain and bleeding of national economy will remain unabated, even as full subsidy burden is shifted to the already impoverished citizens.
A major catastrophe awaits the current price discrimination practice, since the price gap between Petrol Motor Spirit (PMS) and Dual Purpose Kerosene (DPK) serves as an incentive for mindless traders to do adulteration by mixing DPK which is sold at a regulated rate of N50, and PMS, which sells for about N140 and then sell it as PMS. This practice is known to have caused explosions that resulted in huge fatalities in the past and is very likely to happen again. In the alternative, it will soon be used as excuse for hiking the price of kerosene at par with petrol.
Arising from the above, it is clear that there is need for the suspension of the unilateral price-like to enable the stakeholders examine the enabling factors. Set an agenda and a time frame for the implementation of pre and post deregulation measures that will mitigate the effect and ensure competition that guarantees the actualisation of the anticipated gains of true deregulation. Therefore, the truce suggested by the House of Representative could be exploited by both labour and the executive to restore order and make progress.
In the next episode, I will talk about measures to be adopted by civil society and other concerned Nigerians to monitor the transition to avoid manipulations and deviations that could undermine the process and erode the benefits.
Peter Ohio Akpatason, mni, mcips, is a member Federal House of Reps, Representing Akoko Edo Federal Constituency.