Nigeria – PPPRA makes a fresh case for the deregulation of the downstream sector
The Executive Secretary Petroleum Products Pricing Regulatory Agency (PPPRA), Mr. Reginald Stanley, Thursday made a fresh case for the deregulation of the downstream sector of the oil industry to attract the needed investments that would boost the nation’s economy.
Mr. Stanley, who spoke at the oil trading and logistics conference in Lagos, also put total investments in the downstream sector at about N500 billion.
He said the low performance of the nation’s four refineries had resulted in the massive importation of refined petroleum products with its attendant unsustainable subsidy burden.
The PPPRA boss expressed regret that fuel subsidy does not benefit the lower income section of the economy for which it was intended, but instead encourages cross border smuggling of petroleum products.
“Over N2 trillion was expended on products subsidy in 2011 alone, which is 55 per cent more than the 2011 capital budget expenditure. However, fuel subsidies are not reaching intended beneficiaries because higher income households consume more quantities of petroleum products than lower income household.
“Fuel subsidies also encourage waste of limited government revenue available for social services e.g. infrastructure, education, health services and others,” he said.
He expressed optimism that the liberalisation of the downstream sector would ultimately bring the much needed sanity and healthy competition into the Nigeria’s downstream sector.
He said: “Deregulation will guarantee steady inflow of investments and better management of national foreign reserves resulting in more stable forex market. It will mitigate the initial spiralling inflationary effects by monitoring the micro and macroeconomic indices. This will enable interventions by the government to put in place mechanisms to monitor and control food prices, transportation costs and others. It will rapidly improve power situation and aggressively promote gas, biofuel as alternative energy for the country.”
According to him, there is a huge gap in demand-supply balance and therefore there is the need for additional investment to bridge the space.
“Three additional Greenfield refineries and a petrochemical plant with a total capacity of 300,000 bpd for $23 billion have been proposed. Nigeria is therefore being positioned as the future hub of petroleum products supply in the West African and Sub Saharan regions,” he added.
He also noted that the country has limited import reception facilities, such as jetties, adding, “It is expected that adequate import reception facilities will reduce the demurrage exposure experienced in products handling.”
The Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mr. Andrew Yakubu, has previously stated that the current subsidy levels were unaffordable for the government and also represented poor use of public funds, which could be better deployed to investment in infrastructure or social safety net.
“Low prices lead to over-consumption of fuel relative to other countries at similar developmental level. Non-regulated diesel and regulated kerosene leads to distortions in consumptions; for instance, the use of petrol-powered mini buses rather than more efficient diesel-powered buses.
Regulation encourages substantial black market and high degree of smuggling to neighbouring countries with higher fuel prices. “Uncertain and poor regulation discourages potential investors along the value chain; such as refineries, infrastructure and retail,” he further stated.