Industry stakeholders have recommended the disbandment of the Petroleum Products Pricing Regulation Agency (PPPRA) as a way of stemming corruption and entrenching transparency and accountability in the downstream sector of the petroleum industry.
This is part of a 19-points proposal by the stakeholders, made up of representatives of some industry players, civil society groups, trade unions and the media, which they plan to submit for inclusion in the new draft Petroleum Industry Bill (PIB).
The recommendations covered four broad areas, including promoting transparency and accountability, institutional reforms, licensing and contracting as well as gas development and utilization.
The group believes full deregulation of the downstream sector is the best way to redress the current dysfunction in the system, pointing out that the sector’s problems would persist as long as government continues to regulate supply and distribution of petroleum products.
Discussants underlined the need for a rigorous technical licensing process based on quality and capabilities of applicants and housed within an Inspectorate that would be responsible for managing a clear, transparent, and competitive sector-wide technical licensing process as well as overseeing the quality of products imports.
“The issuance of two separate licenses (technical and commercial) by two separate agencies (National Petroleum Inspectorate and PPPRA) could lead to regulatory conflicts, potential for bureaucracy, corruption/toll gates and the risk that one of the licenses not issued,” they said. “If market forces are allowed to determine products quantities imported and the prices sold, there would be no justifiable role left for the PPPRA.”
A consensus reached during a two-day dialogue on the PIB in Lagos called for the abolition of dual licensing for midstream and downstream activities, pointing out that where operators are required to obtain technical and commercial licenses is not only inefficient, but also inconsistent with the deregulation agenda, as it is likely to be politicized.
On the role of the Minister of Petroleum in issuing licenses, the group said discretionary powers to award and revoke licenses should be removed, while restricting him to policy making and setting directives for the industry.
To promote transparency and accountability, improve sector management, engender industry confidence and send the right signals to investors, the group emphasized the establishment of competitive, non?discretionary licensing and tender processes in the industry, saying all licenses, tenders and contracts must be published online.
Similarly, they demanded that all confidentiality clauses for oil revenue and payment information must be expunged, while the Nigerian National Petroleum Corporation (NNPC) must not only be compelled to regularly publish online the comprehensive production, export and import figures, but also its annual reports and audits.
“Less secrecy and discretion in the licensing and contract tender processes will encourage fewer controversies, better asset management, and higher returns on investment,” the group noted. “There are sound commercial reasons for confidentiality clauses, but keeping financial flows secret, in respect of upstream taxes, royalties, fees and bonuses, is not among them. Better information about Nigeria’s hydrocarbon flows could help ease waste and improve regulation.”
On institutional reform, stakeholders called for the empowerment of a single, independent regulator for upstream, midstream and downstream sectors of the industry, pointing out creating multiple agencies to regulate each subsector would amount to creating overlapping mandates for operators in the downstream sector.
Citing the experience in the aviation, telecommunications and power sectors, the group believes this would be costly, stretch limited human resources and may weaken regulatory oversight. Recent experience from regulatory reform initiatives
“The key to the success of a regulatory agency is the insulation of the regulatory process from short?term political goals through independence of the regulator and its funding, legislative confirmation of appointments and dismissals, as well as the limitation of ministerial powers to give only “general policy directions”, the group said.
Participants called for the scrapping of the National Transport Logistics Company (NTLC) structure in the downstream; privatization of NNPC’s downstream assets; enforcement of the public enterprises (privatisation and commercialisation) Act of 1999, while the NNPC must be wholly subject to the Companies and Allied Matters Act without any special privileges.
“For instance, NNPC must be required to compete for acreages. The basic structure of future equity sales should be sold on the Nigerian Stock Exchange. Where NNPC equity is to be transferred through private sales, the transaction must be governed by the provisions of the Public Enterprises Act. The Petroleum Equalisation Fund must be eliminated.”
On divestitures, the group said the final draft should specify additional criteria for the sales of NNPC equity, and the agency responsible for ensuring that the criteria are met, while also specifying which agencies would receive and spend sale proceeds.
On gas development, the group wants government dominance reduced to the barest level; phasing out of gas aggregator and replaced with a gas regulatory unit and establishment of a clear distinction between associated and non?associated gas