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Deregulation, Panacea To Fuel Crisis



Nigerian National Petroleum Corporation (NNPC) assumed the sole importer of petrol last October 2017, when it became obvious that the independent oil marketers were having challenges relating to their capacity to cope with the harsh realities of doing business in the sector.

When the government introduced a new price regime in 2016, it appeared the country had solved the lingering fuel crisis permanently.  The new price regime that necessitated the increase of pump price of petrol from N86 per litre to N145 per litre was intended to eliminate the old subsidy regime. With the N145 per litre open market price (OMP). marketers were able to recoup the landing cost of imported product and make profit, unlike during the subsidy regime when the product was sold below the market price.

It was difficult for the private marketers to bring in fuel cargoes from the international market and sell at N145 without demanding subsidy with the price of crude oil at about $48 per barrel and exchange rate of N285 per dollar as at then.

However, the volatility in the international oil market changed the equation as exchange rates soared. The high cost of refined products led to tightening supply of petrol. And when the parallel market rate hit N400 per dollar, the marketers could not access dollar to import product even though the crude oil price was still low.

Things became worse as nobody could guarantee payment of subsidy claims to the fuel importers since the federal government did not provide for subsidy payment in the 2017 budget. Thus, by October 2017, the private marketers shunned importation of petrol and concentrated on diesel and kerosene, which are deregulated products. With this development, the NNPC became the sole importer of petrol. Before this time, the corporation had accounted for 45 per cent of imported petrol, while the private marketers accounted for 55 per cent. But since the private marketers shunned importation, the NNPC has been struggling to bridge the gap and account for 100 per cent of the country’s fuel supply.

While it is obvious that it is only the NNPC that has the capacity to absorb the losses arising from the sale of petrol at N145, which is below the market price, we urge the federal government to address these challenges by either deregulating the market to allow the forces of demand and supply to dictate the price or provide incentives to marketers to import and sell at N145.

Stakeholders in the nation’s oil and gas sector have decried the current model of managing the sector which they said has done a colossal damage to the Nigerian economy. They have also called on the Federal Government to effect total deregulation of the downstream sub-sector to ensure availability of petroleum products nationwide. Industry watchers insist that only total deregulation of the sector would curb incessant fuel scarcity and attract new investors. Currently there is partial deregulation of the sub-sector such that government through the Nigeria National Petroleum Corporation (NNPC) is the sole importer of petrol.

The government, in our opinion, owes itself a duty to educate Nigerians to be ready to accept the reality of total deregulation of the downstream sector. Deregulation will also enable the private sector and small scale refineries to work effectively to attract investors and patronage within and outside the country; encourage people to build businesses along the oil value chain.

We are persuaded to argue that when the sector is fully deregulated more investors will come and invest in refineries, transportation and depots that will, expectedly, go a long way to curb the recurring embarrassment fuel scarcity  has become in a major oil producing country that Nigeria truly is. It will also boost government’s revenue earnings with the positive impact on the nation’s Gross Domestic Product (GDP).

We are also convinced that a total deregulation of the sector will serve as a catalyst that will propel investors to invest and encourage them to build more refineries, depots and other related investments which will in turn bring down prices of petroleum products all to the advantage of the common man. When the sector is fully deregulated, marketers will source for foreign exchange at market determined rates so as  to operate without  depending on government pay outs.

The beauty of deregulation, in our view, is its operability. In the environment that will emerge,

market will determine whether lazy marketers would stay or quit the system. If government refineries are not working well now, under full deregulation, they will be privatized so as to attain a beneficial structure that will guarantee that only an effective and efficient system survives in the interest of the country and the people.





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