How Nigeria can avert another fuel price hike, by Kachikwu
As the nation looks to having a fully deregulated petroleum downstream sector, the Minister of State for Petroleum Resources, Dr Ibe Kachikwu, has said that the country has been positioned to be a net exporter of petroleum products by 2019, following government’s reforms targeted at cutting petroleum products’ importation by at least 60 per cent by 2018. The minister disclosed this at the 10th Oil Trading and Logistics Africa Downstream Expo with the theme: Optimising the downstream value chain.
Kachikwu who was represented by his Senior Technical Adviser on Upstream and Gas, Mr. Gbite Adeniji, stressed that a key priority area in the road map for the oil industry is increase in local refining production capacity through the implementation of modular refineries and co-location.
According to him, the target of the roadmap “is to ensure that petroleum products importation is reduced by at least 60 per cent by 2018, and thereafter position Nigeria for net export by 2019. Perhaps, the most important part of reforms in the midstream and downstream sub-sectors is creating a profitable products-to-market system for Nigeria and removing hindrances and bottlenecks through incentives and regulatory frameworks.”
He added that an efficient downstream sector will require improving our competitiveness through optimising the downstream value chain structure that ensures efficiency and profitability but without a sound fiscal and regulatory system in place, no investment decisions will be made to grow the midstream and downstream refining capacity.
“I’m convinced that Nigeria will continue to deny itself the benefits of proper supply and distribution network if we do not ensure a liberalised and open downstream sector. While crude prices were deregulated and sold at int’l oil prices, product prices and cross recovery for the maintenance of product delivery systems were not provided for”.
“Over the years, this uncompetitive and inefficient structure combined with the difficulty in funding major offering for adding new capacity resulted in the huge importation of petroleum products and obvious attendant losses. In order to ensure an effective delivery system, infrastructure itself needs to grow as domestic demand rises”.
Kachikwu also added that there’s the need to fully liberalise and deregulate the midstream and downstream sub-sectors such that the open market prices of petroleum products would be cost-reflective and market-driven.
The minister emphasised the need to build refineries and run them as profit centres that would purchase crude at international prices and deliver products at export parity prices, saying, “This is the only viable basis for financing new infrastructure”, while stressing the need for a strong independent regulator to superintend activities in the sub-sector, “whose role is not price-setting but to develop and enforce open, fair and transparent rules in the downstream oil and gas sector.”
“This ensures that pricing will be conducted on a market-derived basis. We need to establish an oil and gas infrastructure protection squad, with the responsibility for dealing with crude and products theft, vandalism and general criminality, which is currently on an upsurge in the entire industry.”
The Group General Manager, Crude Oil Marketing Division, Nigerian National Petroleum Corporation, Mr. Mele Kyari, said it is not the lack of FOREX that is hindering the importation of petroleum products into the country since the government had resolved the challenge of foreign exchange availability facing marketers.
Mr Kyari who was responding to comments and question around issues in the petroleum downstream sector noted that the problem of importation was as a result of some of the importers rejecting the dollar supply provided by the government to facilitate the importation of the products.
He added that the government has created a niche market for FOREX. According to him “We have ring-fenced all FOREX from the upstream such that those FOREX will be available at a fixed price; a price that the CBN has agreed. I am part of the people who are involved in making sure that the FOREX is available”.
As I speak to you today, we have stranded FOREX that nobody is ready to pick up. So, we have closed the chapter on FOREX, Kyari said.
“And I know today that it is impossible to announce tomorrow that petrol price is N150. This government cannot sustain it. It is unfair even to expect it to do that today. That is the truth. But all of us, including myself, are not ready to take that number. That is why Vitol, Northwest, Petrocam, and others, are not importing; it is not FOREX. We saw the challenges coming and we decided to take a very competitive and a long position in the market, meaning that we planned ahead. So, that is why our product is selling at N145 and below.
“I am part of the committee allocating those FOREX, and I know and I can see some of you here; we gave you FOREX, but you returned it. And the reason that was given was that the FOREX was not enough to import. But that is not the truth. The truth is that if you go to the market today and buy products and land here, you are required to sell it at N145 maximum. That is the main reason why people are not importing. There is no way today you can take petrol to the retail outlets and sell it at N145. So, if that is true, and I believe that is true because we all go to the market and we know what is going on, why can’t we sell above N145? He however admitted that we have a very difficult business environment which is why there’s the need for proper legislation within the industry where the current price was not realistic and any official increase by the government would be resisted by the citizenry”, he added.