Recurring Fuel Scarcity And Imperative Of Urgent Reform | Independent Newspapers Limited
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Recurring Fuel Scarcity And Imperative Of Urgent Reform

Posted: Mar 28, 2016 at 3:00 am   /   by   /   comments (0)

The fuel crisis of the past few weeks has once again underscores the need to urgently review the current policy framework for the petroleum downstream segment of the oil and gas industry.


The Director General of Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf, in an exclusive interview with Independent called on the Federal Government to urgently review the policy framework for the downstream sector.


According to Yusuf: “The consequences of the current policy regime has resulted to recurring and protracted fuel scarcity; considerable loss of man-hours as a result of long fuel queues and associated traffic issues on the highways; transparency issues in the petroleum products supply chain, financial commitment to subsidy payment, even at a time of dwindling government revenue.”


“The proliferation of black market for PMS where the product sells at very exorbitant prices, disincentive to private investment in the downstream sector, as well as the enormous pressure on the foreign exchange market resulting from massive importation of petroleum products are other consequences,” he added.


Commenting further, he said: “We have concerns over lack of clarity on the deregulation and liberalization of the sector. This policy lacuna has put many investments in the sector at risk; while many other investment decisions have been put on hold.  The concentration of petroleum products supply in the NNPC remains a major cause for concern. The arrangement is an inherent entrenchment of the dominance of the NNPC to the detriment of private investors in the sector.”


The LCCI’s Director General, who argued that the industrial sector is adversely affected by the protracted fuel scarcity in the country said: “The Downstream petroleum sector currently suffers from overregulation which has profound negative consequences for growth, investment and job creation in the sector.”


“Evidently, the current model of managing the downstream petroleum sector is not sustainable.   It is at variance with the present administration’s vision to diversify the economy and create jobs.  It perpetuates the phenomenal of rent economy and detrimental to economic competition.  It is important to stress that the citizens are the ultimate beneficiaries of a competitive market environment.”


He noted that the weak compliance with the regulated price of PMS in parts of the country is largely a symptom of much deeper problems and distortions in the petroleum products supply chain.


“The Department of Petroleum Resources (DPR) has been spending valuable time and energy fighting the symptoms of a problem, rather than addressing the fundamentals. We need to situate the issues in a causative context,” he said.


Way Forward


Yusuf said: “The government needs to urgently liberalize the downstream petroleum sector for unfettered private sector participation and investment, subject of course to an appropriate regulatory framework.


“There should be a level playing field for all operators, including the NNPC. This would put an end to the perennial problem of fuel scarcity in the country and the hardships suffered by citizens to fuel scarcity.  This would also attract more investment, generate more jobs and reduce the pressure on the country’s foreign reserves.”


Commenting further, he said: “The role of the NNPC needs to be clearly defined.  It should not be an operator and still have regulatory powers.  A model that would allow for a level playing field for all operators including the NNPC should be adopted.


“The roles of the DPR and the PPPRA need to be better defined.  There are currently several instances of overlapping and duplication of activities and responsibilities. This poses a problem for investors in the sector.


“The refineries should be operated as commercial business entities.  The NLNG model, which allows for private sector management, should be adopted for the refineries.  This would improve efficiency and reduce the burden of the refineries on the nations’ treasury.”


“The pipelines should the concessioned for a more efficient management and reduction of road haulage for fuel,” he added.


He, however, said:  “The CBN needs to ensure a more transparent process in the allocation of foreign exchange to petroleum products marketers.  It should also ensure the payment of matured LCs to their offshore fuel suppliers.”


Meanwhile, oil industry experts also believe that these indeed are trying period for Nigeria, noting that the country is set to ramp up the amount of crude oil it swaps for vital fuel imports by more than a third as it battles with the worst economic crisis in years.


A more than 60 per cent drop in global oil prices since 2014 has hammered Nigeria’s economy and triggered a currency crisis, leaving the country short of funds to pay for imports of oil products.


Nigeria, being Africa’s biggest oil producer, is almost entirely relying on imports for oil products, especially petrol, after successive governments allowed the refineries to fall into disrepair.


Meanwhile, to address the perennial fuel scarcity that is biting hard in the country, Independent gathered that in recent weeks, the NNPC had agreed to a deal with seven refining companies – ENI, Essar, Litasco, Total, Cepsa, Societe Ivorienne de Raffinage (SIR) and Vitol refining arm, Varo, with local partners – to take oil in exchange for petrol imports.


The deals, according to traders and other sources close to the negotiations, are crucial to staving off fuel shortages that have already created queues across the country.


Minister of state for petroleum resources, Emmanuel Ibe Kachikwu, said on Twitter recently that “Nobody wants to see people spend two hours on fuel queues. We are working on long-term solutions.”


Independent learnt that while the broad terms were agreed, sources said that the deals were not yet watertight, noting that at least some of the one-year contracts have not been signed – leaving them at risk of change.


Sources said constant changes in management and staffing at NNPC meant they were at times dealing with one person one day, and a different the next, making it difficult to conclude the contracts and raising concerns over NNPC changing the terms.


Independent gathered that under the preliminary agreements, each refiner will ship roughly 90,000 tonnes of fuel in exchange for each 950,000-barrel cargo of oil, regardless of the grade, along with other products.


That amounts to NNPC swapping 330,000 barrels per day (bpd) of crude in total, well above the 210,000 bpd agreed initially last year with four refineries.


The new agreements, independent learnt, were intended to start with the April crude loading programmes.


Independent gathered that as the currency crisis has hampered importers’ ability to get credit, NNPC has also asked trading houses to bring in oil products, particularly petrol and has in exchange promised cargoes of crude oil later on.


A trader said of the exchange proposal: “That is the only way they can resolve the immediate drought. It’s the only thing they can do.”


Independent also gathered that shipping fixtures showed a rise in the number of vessel bookings into Nigeria over the past two weeks, but traders said NNPC’s promise to supply crude only after delivery of the product, would make it difficult for some traders to meet their orders.


Independent also gathered that the Federal Government has also recently given license to some private companies to establish private refineries so as to make more petroleum products available in the country.