The new modulation mechanism introduced by government to monitor fuel price movements under deregulation is a novel idea. But, the chairman of the Petroleum Products Pricing Regulatory Agency (PPPRA) Chapter of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), Victor Ononokpono, tells PREMIUM TIMES’ Business/Economy Editor, BASSEY UDO, that the policy may not work without a price band.
PT: The Nigeria Labour Congress, NLC, is strongly opposed to government’s move to deregulate the petroleum industry. As workers with the agency responsible for regulating prices of petroleum product, where do you stand?
PPPRA: As members of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), an affiliate of the NLC, we should not be expected to have a different stand on the issue.
Deregulation of the petroleum industry means different things to different people – government, investors, marketers, etc.
For us at PPPRA, it’s important to understand the primary role the agency was established to play – to superintend over processes leading to deregulation.
Simply put, PPPRA is a post-deregulation agency charged with the responsibility of managing the pricing template of petroleum products. Since 2006, PPPRA has had the ad-hoc function of administering the subsidy under the Petroleum Support Fund, PSF.
PT: But, recent government body language appears to support fuel subsidy removal and take off of deregulation in the petroleum industry. What would be PPPRA’s role under deregulation?
PPPRA: Well, we cannot comment on government’s body language. We will rather wait for government to make a formal pronouncement on what it intends to do.
But, to answer you directly, deregulation is not all about price as some persons often misconstrue. Deregulation thrives in a free market environment where price is moderated only by competition and market forces. It is about promoting free enterprise; opening up the petroleum sector for participation by other players, particularly from the private sector.
Since its creation in 2003, PPPRA has led the effort to prepare mechanisms that support free market. Interestingly, deregulation will enhance PPPRA’s regulatory function. There is no doubt that PPPRA will thrive better under a deregulated regime.
The primary focus of the agency will shift to value-added services to both operators and consumers, checks and balances, investment drive, customer relations, consumer protection, development of alternative energy sources, research mechanisms, planning, advocacy, gas pricing, licensing and a whole lot of operational functions.
PPPRA’s mandate under deregulation will be to enthrone the consumer as king, while creating the enabling environment for investments in the downstream sector.
The task will then be to engender healthy competition, prevent traders’ collusion, predatory tendencies, ensure reasonable returns to operators and value creation.
The present subsidy regime is restrictive, with regards to PPPRA’s job functions. At the moment, less than one-third of PPPRA’s core mandate is currently operational owing to the subsidy regime.
PT: Some people say deregulation is the answer to the perennial fuel scarcity. It appears PPPRA workers share this view?
PPPRA: Not in absolute terms. Embracing deregulation does not mean that some adjustments are not necessary to make it work better. Scarcity of petroleum products is as a result of reasons other than the presence of a price band. These reasons include lack of investment or expansion of receptive facilities; delay in the payment of subsidy claims; smuggling, and a whole lot of operational challenges. They contribute to the incessant fuel scarcity the country has been facing.
But, deregulation will definitely ease the problem of perennial fuel scarcity.
No marketer will spend so much resource to import petroleum products and decide to hoard them. With deregulation, many of the petroleum products marketers will introduce attractive packages to entice consumers.
We believe deregulation will engender competition. But, PPPRA must be empowered to supervise effectively in a truly independent regulatory model.
PT: With fuel price now at N86.50 per litre, how would deregulation work?
PPPRA: In 2000, the Special Committee on the Review of Supply and Distribution of Petroleum Products recommended phased or partial deregulation of the petroleum downstream sector.
A partial implementation is responsible for the deregulation of the automotive gas oil (AGO), also called diesel.
Deregulation is not the opposite of subsidy, but an approach at addressing the many challenges arising from the regulated pricing regime.
With landing cost of petroleum products at N70.80 per litre as at December 31, 2015, and expected open market price, inclusive of distribution margin at N85.10 per litre, the subsidy element is now changing to an under-recovery of N1.40 per litre.
At the moment, other variables, like domestic fuel production from the country’s refineries are beginning to change. Latest statistics by the Nigerian National Petroleum Corporation, NNPC, show that the country’s four refineries now produce about 6.7 million litres daily.
By the time other variables, like open-access-common-carrier regime, private refineries operations, etc. are adequately addressed, the crisis in the supply of petroleum products would have been fully solved.
Our concern is that government should mandate the PPPRA to implement its earlier proposed work-plan on phased deregulation policy in the industry.
PT: For deregulation to thrive, all regulatory issues and laws capable of frustrating its effectiveness must be removed. Don’t you think the absence of the Petroleum Industry Bill, PIB, could pose a major problem? What do you think the government should do?
PPPRA: The government is already taking steps to resolve that problem. The Ministry of Petroleum Resources is currently re-drafting the Petroleum Industry Bill for re-presentation to the legislature for approval. The draft Bill has been pending before the National Assembly for almost three years.
The importance of the Bill cannot be over-emphasized. The impediments are all too familiar.
PIB in itself heralds deregulation in the downstream sector of the petroleum industry. The industry relies on an obsolete and completely irrelevant Petroleum Act of 1968 to administer an ever dynamic and critical oil and gas industry.
PIB will instantly remove both legal and regulatory bottlenecks that hitherto restricted effective administration.
For instance, with PIB in place, petroleum pipelines will be at a user-fee basis. This will ensure the seamless supply and distribution of petroleum products from the receptive facilities to the hinterland. The absence of PIB poses great problem for effective administration of regulatory functions.
The regulatory agencies, for instance, under the current dispensation cannot be said to be truly independent.
In just 10 years, the Department of Petroleum Resources, DPR, has had five Directors. PPPRA, within the same period, had six Executive Secretaries. Petroleum Equalisation Fund, PEF, within the same period had three Executive Secretaries, while the NNPC had seven Group Managing Directors, GMD.
So, one can see there isn’t stability and proper planning owing to incessant government interference in the operations of the agencies. PIB will streamline and define roles for the various agencies and ensure their independence.
However, there are areas of concern in the redraft PIB, which requires a review by government before it is finally passed. These include situation where neither the roles nor status of PPPRA and DPR, two agencies charged with the roles and responsibilities of “administering and enforcing policies, laws and regulations relating to all aspects of petroleum operations” were specified.
Equally, the draft PIB was silent on the fate of PEF, vested with the responsibility of ensuring uniform pricing of petroleum products in the country.
PT: How would deregulation affect PPPRA workers?
PPPRA: PPPRA Staff are anxiously waiting for the take-off of the policy. The personnel are currently restricted with the subsidy regime.
If one looks at the downstream sector of the petroleum industry today, one will discover that PPPRA operatives are the strongest link in the chain.
Data and figures from the agency are the most reliable. In fact, the expansion and massive investments in the downstream was stimulated by the innovation of the agency.
Till today, the industry relies on the census figures of the retail outlets conducted by the agency in 2006. That was the first genuine and exhaustive attempt at arriving at accurate consumption rate through petroleum products outlets.
The agency’s introduction of triple layer inspectorate system at the depots is another plus to the industry. So, in effect, deregulation will be a blessing to the agency.
Between 2003 and 2007 when PPPRA introduced partial deregulation of the downstream sector, its personnel were visible and very prominent in the effective running of the industry.
Like I said earlier, PPPRA is a post-deregulation agency. One cannot deregulate and leave the industry in the hands of operators. The consumer needs protection from predatory and other oligopolistic tendencies. That is where PPPRA comes in.
PT: There are strong arguments for and against deregulation of the downstream petroleum industry. What’s the way forward?
PPPRA: Proponents on both divides are right in their postulations. Those arguing for deregulation speak from an investment and fiscal points of view. Those against see it from the stand point of welfarism.
But, both divides will not disagree for too long. Organised labour, of which PENGASSAN is part, insists on government doing certain things before the policy, namely fixing the local refineries and paying attention to inflationary tendencies that may be generated by the policy. Labour also wants government to guarantee job security for its members.
The way forward is the composition of governing boards in the short run; introduction of partial deregulation in the mid-term, and passage of the PIB in the long run.