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NIGERIAN CRUDE OIL AND GAS.
Petrol to cost N94 per liter, as FG fully deregulates
LAGOS — THERE were feelers from the Presidency, weekend, that the government
may fully deregulate the oil sector from August, bringing the price of PMS
petrol) to N94 per liter.
Sources say that the President had instructed the Economic Management Team
headed by the Minister of Finance, Mansur Mukhtar, to work out the details
of the deregulation after investigations showed that the Presidential
Committee earlier set up by the Presidential Task Force of Global Financial
Meltdown, may have been compromised by group interest.
fuel-station1
The proposal on oil sector deregulation before the government is that, based
on the current indicative price of the Petroleum Products Price Regulation
Agency, PPPRA, the price of PMS should be around N98.2 per liter.
The government, it was learnt, is considering that the price of PMS should
be allowed to increase within the range of N89.78 to N93.73 per liter,
depending on the location, coastal or hinterland, reflecting cost-saving
measures recently approved by the government and additional measures derived
from the reports of two consultancy outfit on the review of PPPRA template.
It was also learnt that the proposal states strongly that additional savings
of N3.80 could be made in a price range of N85.98 -N89.93 per liter for PMS
which they say is feasible within the next 6 months.
The proposal, government officials insist, will be a once-and-for-all
liberalization of price based on the fact that phased subsidy removal will
be complicated by political constraints, cost of negotiations when time for
review is due, which will not give the right signals to potential investors
in downstream refinery sector arguing that the cost components of fuel
products are quite dynamic, creating a “moving-target” situation.
It was further learnt that the government is thinking of phased approach to
the determination of price due to the current oligopolistic market structure
of the downstream petroleum sector to prevent price collusion. During the
first six months, following price liberalization, fuel retail stations must
comply with the prices emanating from the PPPRA template.
According to the thinking of government, “as competition measures take root,
to be effectively managed by the PPPRA, resulting in more participants in
the downstream petroleum market, the forces of demand and supply should be
allowed to determine the price of PMS. The PPPRA will continue to provide
indicative prices.
The concepts of Petroleum Equalization Fund and Maritime Transportation
Average are not applicable in a deregulated downstream petroleum sector
regime.
While the operation of Petroleum Stabilization Fund is used to manage the
volatility of crude oil prices, the rent-seeking activities emanating from
inaccurate data on effective demand for fuel products could easily lead to
recurrence of “purported’ subsidy. In this connection, Strategic Fuel
Reserves and Taxation are being proposed as instruments for managing
volatility.
The government thinking is that “when the market matures, there should be
prospects for introducing fuel taxation. The PPPRA could introduce a N9 per
liter excise tax on PMS and N5 per liter excise tax on AGO. Fuel taxes are
used extensively in many countries to raise revenue for infrastructure
development: Share of taxes in PMS prices is 21%, 28% and 23% in Ghana,
South Africa and India. Angola also has taxes on its fuel pricing template.
Taxation rate is, however, to be lowered during periods of sustained higher
crude oil prices.
According to the plan, the government will import large quantities of PMS in
advance of price deregulation. Using M.V. Westaf (150,000 mt); M.V. Greataf
(350,000 mt); and M.V. Tuma (130,000 mt) plus available onshore depot space
for this purpose.
This is necessary as government realizes that crude oil price is very
volatile. “Hence to prevent excessive transmission of short-term volatility
to the economy, there should be expansion of strategic reserves capacity
that can be released to dampen short term price pressures.
“This temporary measure will be required to stabilize prices during initial
price hike. This, it says, is also necessary to cushion possible initial
supply disruptions resulting from public or importer-resistance to subsidy
removal. To this effect, the Strategic Reserve, as a scheme, may not be
restricted to the use of only PPMC depots, but also private depots that are
considered strategic
According to the plan, government will have reserves for 30 days sufficiency
and the take-off capital required based on the current market price is
estimated at about N140.587 billion. This, they believe, should come into
effect by September 2009.
To achieve the deregulation plan, government think-tank advocates that
monitoring the implementation of “cost-reducing measures recently approved
by the government would be extremely important.
For emphasis purposes, monitoring the implementation of the following
measures were advocated: resuming routine maintenance of Jetties; commencing
dredging of Apapa Jetty; allowing construction of another jetty;
facilitating the process of bringing Apapa Jetty under the Open Access
Common Carrier, facilitating the repair of loading arms at the Jetty; fast
tracking the granting of SBM license to marketers; sustaining the tempo of
gas utilization initiative and regularly provide monthly progress report;
improving local refining capacity to match consumption through refining of
crude petroleum by companies engaged in exploration/production;
privatization of the existing four refineries and construction of additional
refineries and development of functional National Strategic.
In the plan, government will harmonize all product monitoring,
importer-licensing, and downstream regulatory activities within PPPRA (in
line with OGIC). In the plan of action, PPPRA would be strengthened to
perform the whole functions of licensing, monitoring, technical analysis of
product supply and ensuring fair pricing in the market. These
responsibilities are currently shared between PPPRA, DPR and PPMC.
Duplication of responsibility for import bidding/licensing processes between
PPPRA and PPMC is unnecessary” the think tank argued.
PPPRA is to take full control of the regulation of the downstream petroleum
sector in Nigeria in line with the Petroleum Industry Bill this is billed to
take effect from August 2009 and the PPPRA is to coordinate the vessels’
reception scheduling at Apapa jetty to ensure level playing field and
reduction of demurrage in the new plan. It will be further empowered to
monitor the operations of the jetty by setting standards and code of conduct
And it will be required to allow independent importers access to PPMC’s
distribution facilities starting from August 2009.
In the deregulation plan, the government is to explore the option of
refining the 445,000 b/d crude oil currently allocated to NNPC by contract
arrangement with offshore refineries. This will significantly reduce
importation. This measure is being recommended as a first step and an
interim measure towards the eventual resuscitation of domestic refining. If
things go according to plan, this will come into effect in October 2009.
In the deregulation proposal before government, the PPMC is to concession
out the entire 5,100 km 23-depot distribution system in a
public-private-partnership (PPP) arrangement. Suitable concessionaire must
be capable of investing to resuscitate and upgrade the system, must also
apply modern surveillance technology to secure system against theft and
vandalism.
The deregulation proposal urges government to explore the option of refining
the 445,000 b/d crude oil currently allocated to NNPC by contract
arrangement with offshore refineries. This, according to them, will
significantly reduce importation.
This measure has been recommended as a first step and an interim measure
towards the eventual resuscitation of domestic refining which is planned to
come into effect in October 2009. In the proposal, government is to
resuscitate local refining, attract reputable and experienced refiners as
core investors and privatize the refineries. The future of petroleum products
supply must lie with local refining. Importation should be seen only as
short-to-medium-term strategy, the proposal stated.
