Mr. Adetunji Oyebanji
The issue of deregulation of Nigeria’s downstream sector with regards to subsidy has been a long debate in the country and the outgoing administration has announced that it would not remove subsidy passing the bulk to the incoming government.
However, a major stakeholder in Nigeria downstream sector has been emphasising on issues around the oil trading industry. At the 6th edition of Nigeria International Energy Summit (NIES) held in Abuja, the Major Marketers Association of Nigeria (MOMAN), spoke through its immediate past Chairman, Adetunji Oyebanji, at the sideline of the conference to energy correspondents that removal of subsidy is about planning and being proactive. There has to be a roadmap and availability of foreign exchange (Forex) for marketers among other issues. Forex policy of the government needs to be adjusted with a single exchange rate.
What is MOMAN position looking at deregulation and the in-coming government, what are your expectations considering the issues in the downstream sector?
We are at a particular point where there was a Petroleum Industry Bill (PIB), that was passed into law and it is now Petroleum Industry Act (PIA) which we had all believed will be the change to a clear direction for the future of the downstream in Nigeria. At some points, certain aspects of the PIA were put on hold for expediency, political or other reasons.
By way of expectation, all aspects that have been put on hold will be fully implemented so that the benefits that we all expected from the implementation of the PIA will begin to accrue. When you are given a course of medicine by a doctor and you are told to take a particular antibiotic or some tablets for seven days and you stop after five days. No doubt, you may not be able to get the full cure and if you’re not careful, you may even get a reoccurrence of the disease.
So, we’re in limbo neither going forward or backwards. Investors, don’t like uncertainty rather a clear direction, even if it’s tough or may look unfavourable, at least know for sure they will make a decision whether to be involved or not. This will be my first expectation. Secondly, I hope that the new government through its various agencies that have been interacting and consulting with us as major stakeholders in the industry, that will continue and possibly to greater heights. We are comforted by the fact that we know the President Elect has his background in the downstream industry. He once served as treasurer of one of the major oil companies in Nigeria. We believe that he has an advantage and understanding in the workings of the industry and hopefully that level of consultation will continue for us. These are two of our key expectations.
Nigerians saw what happened in the change of money, the banks were not ready. What are the key things that must be put in place as government is removing the subsidy so it doesn’t affect average Nigerians negatively?
Not even the average Nigerian, doesn’t it leave the whole country in confusion that we found ourselves during the currency swap? How do we achieve that? It’s all about planning and being proactive. If you are going to remove the subsidy on a particular day before that date, there are certain things that needed to be put in place. If you do not put all those things in place, for instance, I gave an example at the conference, which I said, if after removal of subsidy everybody is going to be involved in importation. It means there has to be availability of foreign exchange (Forex) to import.
You can’t remove subsidy on 20th of April and expect petroleum traders to have the products the same day. You would have asked them to order for the products six to eight weeks before removal. These are steps that ought to be taken which I call a roadmap that needs to be in place which the government would have sat down with the stakeholders and agreed.
People have spoken a lot about palliatives and how to cushion the effect. Is it going to be before removal of subsidy or is going to be after and how is it going to be? These must be well thought out. If you don’t engage stakeholders and they don’t have Forex and if nothing is done about palliatives, announcement is made that no more subsidy, it is a recipe for confusion. Things must be put in place and we cannot emphasise it strongly enough that there needs to be proper planning so that we do not end up with confusion. The worst thing in the world is for subsidy to be removed with a prolonged and terrible state of scarcity in the country. Realizing that there is no subsidy again, you can be sure that price will even go beyond normal level because it will give room for people to do whatever they like. So, to avoid issues, put things right. This is the time to be doing the work, but unfortunately, we’re all in the dark, especially the operators and when the problem arises everyone runs helter skelter responding to meetings in Abuja frequently.
Which aspects of the PIA that has been withheld?
It is common knowledge. PIA recommends that the prices are determined by the market, which has been put on hold. Essentially, that’s the key item that has been put on hold because it drives other things that determines prices. If the market determines the price, your efficiency will determine how much profit you can make whether you want to invest in the business.
This is a fundamental concept. If you put a hold on that particular aspects and you implement others they don’t have far reaching impact. Another thing that is a potential source of confusion is Petroleum Equalization Fund (PEF). According to PIA, PEF has been abolished, but we are still operating in a system that suggests PEF is in existence and that involves cash movements. The money we should be collecting or paying.
Technically, anything we are doing today, as far as PEF is concerned is illegal. It could end up coming back to bite us because a new administration can change it. What the PIA has abolished and payment paid or received can’t be approved and we will find ourselves in big trouble. There are issues to be clearly defined. Adhering to the law strictly, PEF has been abolished.
All these years, the marketers have been clamouring for deregulation, there is concern that even if the country should deregulate, there will still be problem especially on the issue of Forex. How can this be reconciled because the aim of every consumer is that once the downstream is deregulated, prices will be reduced?
Recent happenings did not confirm this, where does the country stands?
I don’t think anybody said when there is deregulation, prices would necessarily be reduced but rather it will be determined by market forces with price fluctuations. That’s how a free market operates but because there is existence of subsidy the likelihood is that if it is removed, price will increase in the short run because that will be the first natural reaction of subsidy removal.
This is the first issue that should be cleared. But in terms of Forex, we also have to be careful in Nigeria that what we gain is not lost at the end. What do I mean by that? You can subsidise pricing products in different ways. One is by paying the difference between international price and the price you set locally. On the other side of it, if you give somebody Forex at N450 officially, you’ll be able to sell fuel at a certain price. But if he has to source for Forex at autonomous market rate, you may have to buy it or sell at a completely different rates.
So, a key element in addition is that the Forex policy of the government also needs to be adjusted. The issue of dual exchange rates is part of the problems of the operators. People have advocated for a single exchange rate. If it’s N600 let it be N600. Forex should be available for marketers because there are people who will assume why they ought to bring Forex into the mainstream market when it can be sold on the street for N700 and it is preventing supply of Forex into the system.
The answer to that question is simply that before subsidy can be removed we need to deal with issues relating to Forex management holistically. And if we’re not careful, we will end up in a situation where the price may not be subsidised, but Forex will be subsidised. I know of certainty that if you give me Forex at N450, you are subsidising and it is not the true value of it in the market. The first issue that exists is always political considerations which override pure economic issues. If you allow pure economics to determine it, it is more sustainable because it’s based on a solid foundation. When the decision is political, it is not firmly on a solid foundation. It is changing because the economics underline it are always shifting and changing and therefore, it is not sustainable for a long time.
We have interacted on some of these templates and one of the major ones is having a large elephant in the room. You mentioned it in the panel session having Nigerian National Petroleum Company Limited (NNPCL). It used to be a public sector player in the market. But things have changed. NNPCL is now a private player and a competitor like you.
Nigeria has a law which has technically deregulated the market. If somebody is standing in the way blocking others or slanting the table to its favour, is there nothing that can be done or interventions of the law challenging that particular practice because it is against free market?
Secondly, evolution of multiple level midstream sector in Nigeria. Dangote refinery capacity is 650, Africa biggest refinery in an exclusive zone. BUA refinery is coming up while NNPC is struggling with its own refinery and modular refineries.
This gives room to multiple options for the market. In the short term, are there plans on ground by MOMAN as an investor group to explore and collaborate in sourcing locally as soon as some of these plans come online?
Let’s start with NNPC, I believe there are some clauses in PIA that indicates a threshold of market share and recommendation which gives a 40% market share. What this means essentially is that if anybody has beyond 40% of the markets, then the FPCC will step in and take measures about it. What is done in other advanced countries is to compel them to sell some of their assets because they cannot be so dominant.
Assuming you have 3000 petrol stations, you may be asked to divest 1000 so that you will not stifle other players and dominate the market. There are some things in place that are statutorily true to help operators. But the truth of the matter is that it will take some time to change the mindset. Don’t forget that NNPC at some point was a regulator, supplier, competitor, refiner and played different roles in the industry. It will be unrealistic for everybody to think overnight that everyone in NNPC will forget those days. I’m sure if you call NNPC employee, he will say who is MOMAN? We are so big, don’t mind them. They are not serious players.
With time all these various agencies like FCCPC and others taking up their true position and beginning to pull their weights. Hopefully, it will change, but certain generation may have to have gone away from NNPC before we can get to that point.
On the issue of refineries, you’re right. We have different levels. We have NNPC struggling and they told us in March, Port Harcourt refinery will be back on stream. They’re also working on other refineries including small modular refineries. For the modular refineries, I think it is still on paper. I don’t see it materializing in five years because of where it is today. Also, there is Dangote refinery.
No doubt that MOMAN being a major player in the downstream as an association and a group forms a fundamental and formidable block. I believe that any institution that is a major local producer of petroleum products must and will need to interact with MOMAN in order to identify and ensure market for its products.
It’s like there’s an association of rice distributors with a farmer that is the biggest producer of rice. He will obviously want to interact with that association because they are the biggest people who will consume the products he produces.
I think it is in our joint interest to work together so we can easily evacuate most of our products and have a big local market. There is still a big cloud over how the market is going to work. For an operator, he will buy crude at what price and from where? When he’s selling, is he going to sell in dollars or naira because if it’s dollars, it means he’ll still be looking for it. If it’s naira, it’s more straightforward and easier for us. A lot of things must be put in order.
But directionally, I think it makes sense for those two entities to interact because their interests are common.
Are you working towards that as part of your transition plan?
We have interacted with them and it is a continuous process.
Still on the issue of subsidy, going by the measures that should be put in place before it is finally removed, if implemented. What time do you think is appropriate?
The most appropriate time to have removed subsidy was yesterday. The reason simply and I continue to tell people, Nigeria is like the case of a patient who needs heart transplant. The heart plant is like plenty of refineries. That’s what that heart means. But while they are looking for compatible hearts to do the transplanting, the heart is bleeding continuously. Won’t you look after that bleeding first because if you don’t stop it, by the time they find the heart, the man would have died of bleeding.
That is the question I always put to members of labour (NLC). When we stated this debate about 20 years ago, how much were we using to subsidise fuel? Today, it is about 6 trillion within one year. It was reported in the newspapers recently that about 92% of the country’s revenue is being used to service debt. This is a country bleeding. We are all fighting over local frivolous issues meanwhile the patient is bleeding and dying. Inconsequential things that have no value and the patient Nigeria is bleeding as we are speaking. If we don’t address the situation especially on Forex and continues like this, even the small Forex we are seeing will soon disappear.
This problem has to be dealt with headlong. I told members of labour union who emphasised that unless refineries are fully working or built, we will not relent, the patient may be dead by that time. The situation has continued to worsen. It is better is done and the country faces the challenges therein. If you start dividing it into three months or using any method to prolong the evil day, it looks like a man wasting his time when he knows the right thing to do.
The war between Russia and Ukraine shows that uncertainty revolves around the oil sector. The war has brought global changes in the industry.
We need to come together as a country and hold the government responsible not be spending huge amount of money for subsidy.