The deregulation of the downstream of the petroleum industry presupposes the end of fuel subsidy and return to the era where retail prices of petroleum products are determined through the interplay of market forces.
But, the Minister of State for Petroleum Resources, Timipreye Sylva, told Business/Economy Editor, Bassey Udo, that the government cannot abdicate the responsibility to protect consumers and allow marketers fix fuel prices.
Mr Sylva also spoke on his one year in office and what to do going forward.
PT: Shortly, you will reach a milestone. What do have to tell Nigerians about your one year in office?
SYLVA: We have a lot to tell Nigerians in one year. I can tell Nigerians we have been able to take the FID (final investment decision) on the construction of Train 7 of the Nigeria LNG project. That is an additional investment of over $10 billion. By any standard, that is a major achievement.
Also, we have just launched the marginal oil field development programme. By the time I am actually one year in office in August, I believe we would have rounded off the programme.
We are moving on get the PIB (Petroleum Industry Bill) passed. Within the next few weeks, we are going to roll out the National Gas Expansion Programme, to expand the usage of gas in the country to include using gas to drive our cars, and to improve the LPG (liquefied petroleum gas) usage in homes.
PT: Let’s unpack them one after the other. The FID on the NLNG Train 7 project is a massive milestone in Nigeria, particularly at a time Nigerians almost gave up hope it might not materialize again after several postponements and COVID-19. How did you swing it?
SYLVA: Let me confess to you, it was a very tough journey. There were all kinds of issues, part of which you have just mentioned, majorly COVID-19. If one looks at it from the backdrop of the fact that it is the only project of that magnitude in the whole world that took FID during this period, then one would know that a lot of hurdles had to be surmounted to get there.
It took a lot engagements with all our partners to get to some consensus on some of the gray areas. Knowing that the country needed this investment, we had no option than to put in extra effort to engage our partners and all the financial institutions – the FIRS (Federal Inland Revenue Service), Federal Ministry of Finance and everybody – to be able to get their concurrence. At the end, we were able to take that FID, which I believe is one major milestone this administration is so proud of.
PT: You said the PIB is moving closer to its final passage. This has been long in coming. Where exactly are we on this?
SYLVA: The PIB is today 20 years in the making. To say it’s long in coming is an understatement. But, at this point, I think we have got to the end. We have a working draft that is good enough. We have escalated it to some of our partners. Once we have some concurrence, the process will proceed.
In the end, we are not expecting 100% agreement on all the points. There is no way industry and government can have 100% agreement on all the issues. What we are looking at is to narrow the gap. Once we have enough narrowing of the gap, we will escalate it to the President, hopefully in the next one or two weeks, and from there to the Executive Council of the Federation.
As soon as we finish at the FEC, we would take it to the National Assembly, and it will become a public document for everybody to discuss. Because of the consensus built around the passage of the PIB, we hope that in the next two months, we should be able to get it passed.
PT: What about the recent decision to deregulate the downstream sector of the petroleum industry?
SYLVA: That’s another major achievement I was coming to. This is something the government has always looked for a window for. And COVID-19 pandemic provided the most appropriate window we took advantage of.
Crude oil prices went down so low; demand was eroded, and retail price of petrol was at the bottom. Products, fuel prices follow crude oil price. The government felt that was a good entry point to take advantage of. Clearly, Nigerians are today enjoying the benefits of that decision.
Deregulation of the downstream sector means that the government is going out of the business and allowing the private sector to take over. This will allow the government to face its traditional role as regulator of the industry, as governments everywhere is doing.
The government is not saying it is going to completely abandon the deregulation policy to the marketers to determine prices. As a regulator, the government has the responsibility to protect the consumers.
In U.S. and U.K., they recommended retail price for every commodity. So, for a very strategic commodity as petroleum products, we must have a recommended retail price for the marketers, so that they will be selling within that price band, and not over-profiteer off the people. If the government makes the mistake of allowing the marketers to fix prices and sell petrol at any price they want, they will be profiteering at the expense of the people.
What one will find from that will be a situation where prices will go out of control. So, the government has no option than to continue to play that role as a regulator, to protect the masses; to ensure the landing price of petrol and other products is not very different from the selling price.
With that, the marketers will be allowed some reasonable margins and avoid the exploitation of the people through a unilateral fixing of inordinate prices.
We know the marketers are quite responsible people. But, we also know the way an average marketer thinks as a businessman is different from the way government thinks about the masses.
So, as a government, we must be there to moderate things and ensure consumers are protected at all times.
PT: Let’s break it down further. You spoke about the PIB earlier. But, people still say the deregulation policy is coming in a way that suggests, as you said, government was taking advantage of a window of opportunity offered by COVID-19 without being prepared really for it. For instance, there is no legal framework that will say what will happen if price of petrol increases again tomorrow. Without an enabling law to guide and regulate the process, how do you think this deregulation will work?
SYLVA: No, no, no. You do not need a law for everything. Sometimes, all you need is regulation. So, as a government, we have a traditional role recognised by everyone – to regulate the process. They say the government is not good for business. Everybody agrees. But, nobody says government is not good as a regulator.
The government is traditionally a regulator. It’s like the Central Bank regulating the interest rate in the banking sector. Banks cannot charge interest arbitrarily on loans outside a certain band recommended by the CBN’s monetary policy. FAAN regulates the airline industry. These are all deregulated sectors of the economy. Yet, we still have regulators for these sectors.
So, the government is the regulator for the petroleum products sector through the PPPRA (Petroleum Products Pricing Regulatory Agency) to ensure the marketers and consumers are both protected. That is the role the government will continue to play.
PT: But, if there is no law defining the roles for the different agencies involved in the process, how would we resolve the usual conflict between the NNPC and PPPRA on which of the two is in charge of managing the fuel pricing mechanism?
SYLVA: No, no, no. NNPC, in this case, is a player. They are part of the industry.
PT: But, sometimes they are tempted to extend their area of influence to play the role of a regulator?
SYLVA: No, no, no. What the NNPC does sometimes, which is also good for the petroleum market, is that when the market is going out of control, it intervenes.
For example, if the AGO (automotive gas oil) prices are going too high, and the marketers are beginning to take the prices to unimaginable high levels, NNPC will just import some cargoes of products and sell at a lower price, and of course, everybody would follow the NNPC price.
So, that is the way the NNPC regulates the market. In a way, the NNPC is also part of the government. But, they are not a regulatory agency. The regulatory authority in this case is PPPRA. NNPC is a player in the market.
PT: Since the commencement of the deregulation policy, we have seen three price reviews – from N145 per litre to N125; N125 to N123, and N123 to N121.50. How regular should Nigerians expect these reviews – monthly, weekly, daily or as need be?
SYLVA: There is a committee in PPPRA that monitors the market. In considering the price, the committee looks at the changes or fundamentals, including cost of foreign exchange, bank interest rate by importers of petroleum products, and things like that. If they find that there are some differences, they will know what to do before they come out with the advice on the new fuel price.
Right now, the changes are maybe within one month before they come out with an advice on what the price should be. It is not as if they come up with a particular price.
What they do is to come up with a price advice. Then, PPPRA will send the advice to the market to say considering all these fundamentals I mentioned earlier, this is the advice or recommendation to the market on a retail price for that period.
That recommendation is arrived at with the collaboration of MOMAN (Major Oil Marketers Association of Nigeria), DAPPMAN (Depot and Petroleum Products Marketers Association of Nigeria), IPMAN (Independent Petroleum Marketers Association of Nigeria) and all the players in the market with the government. It is always a joint decision, from which the PPPRA brings out the advice.
With that advice, if the marketers begin to sell outside the price band, then there are sanctions by the appropriate government agencies, like DPR (Department of Petroleum Resources). The DPR will ensure the marketers abide by the advice by the PPPRA. Those that refuse to comply with the price band will be shut down.
PT: Suppose tomorrow the fuel price rises, do you foresee the return of fuel subsidy?
SYLVA: Well, if prices go up, then people will also see changes in the pump price. But, the government is going further to give an alternative to the masses, which is gas.
The government is introducing the use of CNG (Compressed Natural Gas) in cars and LPG. When we are able to roll out the programme within the next few weeks, then cars can convert to dual fuel to use both natural gas and petrol.
So, if a vehicle owner goes to a filling station and sees that petrol price is too high, he can easily switch over to natural gas. And natural gas prices are generally lower all over the world. Gas is around N90 per litre equivalent.
So, if that is introduced, then people will have choices. That is what the government is going further to do. This is like a revolution to bring an option for the people between LPG and CNG. If, despite these options, people insist on using petrol in their cars, that is their decision. The government has played its part.
We expect transporters and car owners to do is to convert their vehicles to dual fuel, which is why the government will soon roll out so that everybody will have the opportunity to convert their cars.
PT: You make it sound so easy and simple. Have you considered the infrastructure required to make this happen? If it’s taking forever to tap LPG to our homes for domestic use, how easy will it be to take CNG to filling stations?
SYLVA: We have taken all that into consideration. But, we are not going to start with building the infrastructure. That will come later. When we roll out, we will have skid mounted devices, so that gas skid will be mounted at the filling stations and the car owners can go there and put it in their tanks. We will go to the infrastructure later.
The PIB is providing a lot of incentives for the development of the midstream sector of the petroleum industry. We are actually going to democratise the process of building gas pipelines, so that people can decide to invest in only pipelines, without any need to have filling stations.
All one will need will be to invest in building gas pipelines in a certain areas to transport gas to the filling stations and charge thru put for it. The opportunity to invest in that sector will expand as the infrastructure will not be built by the government. The government will provide the enabling environment for the private sector to come in and build the infrastructure.
PT: So, at the end of the day, any idea how affordable will it be for an average Nigerian to convert his vehicle to dual fuel?
SYLVA: We are looking at various scenarios that will make the conversion affordable. The conversion cost is not so high. We are looking at about N100,000 once and for all. What is required is for an additional tank for gas installed in your car.
We are also thinking about making the conversion free and we charge a little bit for the gas, so that people can pay maybe N96, instead of N90 for gas, and the difference will go for the conversion cost. These are just discussions on the table. No decisions have been taken yet.
PT: The deregulation is a very important policy that has been on the mind of this administration since inception. Apart from the NNPC GMD that first spoke about it, you also said something recently about it. But, people still say if something happens tomorrow, the government can say the president did not authorize any of you to make the pronouncement on an issue as sensitive as this. Why has the president not spoken to assure Nigerians he approves the policy, particularly the removal of fuel subsidy?
SYLVA: Why does the president have to say anything if we, his appointees, have spoken?
PT: At least to show that he believes in it.
SYLVA: As an appointee of the president, can I say anything if he is against it?
PT: Remember in 2015, he said he wanted fuel subsidy ended. But, later we know what happened.
SYLVA: I don’t know why Nigerians always say the president must say something. But, I can tell you the president is fully for deregulation and removal of fuel subsidy.
Let’s face it. Deregulation was really hurting the economy. One buys a product for so much and sell it a loss at a pump price, because of subsidy.
Again, before you even buy the product, there is another loss, because the foreign exchange used in paying for it is subsidised.
In the end, the government was losing trillions of Naira. If one policy saves about N1 trillion for the country, then we should all be happy. That is what deregulation will do for Nigerians. When the prices was reviewed downwards, there was not significant shift in the market. Instead, it was moving in the opposite direction.
So, if prices increase tomorrow and the market is moving up, then it will show it is contrived by some people. Why didn’t the price move down when the prices were reduced? The latest deregulation policy has brought a lot to the fore. We are waiting for people who will say anything when the price of fuel begin to go up tomorrow.
PT: Does the government foresee the price of petrol going up to pre-COVID-19 level? If that happens, will fuel subsidy return?
SYLVA: No no, no. I have told you the gains of deregulation already, to the economy and what government is trying to do. So, why would the government want to go back on a policy that is good for all Nigerians? It is only Nigerians that don’t mean well for Nigeria that will come out to say something against deregulation. The options the government is giving to the people will ensure that even if prices go up, the pain will be mitigated.
PT: The guidelines for the marginal oil field licensing round has just been released. But, the requirement for Beneficial Ownership information from the bidder is missing. Why was that removed?
SYLVA: The Beneficial Owners are not the actual owners of the companies bidding. We are going to do a lot of due diligence at the backend of the bid process. There will be a lot of analysis, and in the process discovered.
For instance, the guidelines say the ownership of the bidding companies must be pan-Nigerian. If the guidelines say this, it presupposes that at the backend somebody is going to check for the beneficial ownership at some point.
Maybe, it was not included on what is published, but I can assure you it is part of the process of the approved guidelines. Nigerians will know the beneficial owners of the bidding companies.
PT: What’s the situation with the refineries?
SYLVA: Refineries remain a sore point. But, a lot of efforts is going in that direction. We would have started with Port Harcourt Refinery, because the funding has been secured, and everything was put in place to start the rehabilitation process in the first quarter of 2020. But, with COVD-19, nothing could go on. So, the project has been delayed. But, it is one of the projects at the front burners of this administration.
The plan also includes the rehabilitation of Warri Refinery. Clearly, we understand the need to rehabilitate refineries, and working with the private sector to improve our domestic refining capacity.
So, we are working with Dangote Refinery and other modular refineries to ensure the refining capacity in-country is really improved upon.
PT: The OPEC+ intervention appears to have impacted the market positively, with prices growing. But, how does that impact the Nigerian oil production capacity?
SYLVA: Yes, we expected the impact we are getting in the market. We always say that OPEC exists to stabilise the market, to guarantee some margins for investors. We got to a point on April 20 when oil prices went to the negative zone, producers were selling at a loss, because they didn’t have any storage capacity and cannot shut down. If they shut down, the cost of restarting those wells would completely wipe the bottom line out. That is a situation nobody expect was going to happen.
So. OPEC had to intervene to ensure that at least prices were stabilised, by cutting down on production of its members. Now that the stability is gradually firming up, we feel that activities in the country’s petroleum industry will gradually beef up. What we are expecting is the opening up of the world economy again.
PT: As you moved into the second year, what should Nigerians expect?
SYLVA: As we move on, my hope is that we will leave an industry that is completely made up and brand new. With the PIB and all these new projects that would come on stream, I believe the face of the Nigerian oil and gas industry will completely change by the time I will leave.
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