… stakeholders harp on price transparency and rigorous regulatory supervision
As full deregulation is about to be achieved in Nigeria’s downstream sector of the petroleum industry, judging by the industry’s development in the last few days, industry analysts believe that real competition will emerge among the players, setting the market free from the stronghold of cartels bent on controlling the sector.
One operator said: “ I just hope that the government will allow this to happen and not make a u-turn in subsequent months through another form of intervention like it did months after the President declared an end to the subsidy.
Where will be the place of product imports in all of these? We all know that product imports are subject basically to the vagaries of exchange rates as any spike in rates will lead to an upward price movement in addition to a rise in crude oil prices.”
The analysts also believe that for the market to function properly under the forces of demand and supply, two critical things are required.
According to them, there must be price transparency and rigorous regulatory supervision. They believe that marketers and suppliers must come clean in respect of the price of Premium Motor Spirit (PMS) or petrol, they must also be very transparent on the price so that the whole business would be openly transparent.
Clement Isong, the executive secretary and Chief Operating Officer of Major Energies Marketers Association of Nigeria MEMAN said price transparency and rigorous regulatory supervision are very critical to the success of a fully deregulated downstream.
Rigorous regulatory supervision is meant to ensure the quality of the product among other things. The petrol that would be brought in from different sources across the globe must meet the required standard in terms of quality, otherwise, the whole effort of deregulation would be an exercise in futility. It also portends danger for the economy, because vehicles could be badly affected.
A robust regulatory supervisor is crucial to the downstream sector of Nigeria’s petroleum industry, especially in a fully deregulated environment, ensuring a level playing field, consumer protection, and market stability in a deregulated environment.
Key Roles:
- Ensuring Compliance: Regulatory supervision ensures adherence to safety, environmental, and quality standards.
- Level Playing Field: Robust regulation promotes fair competition among operators.
- Consumer Protection: Supervision safeguards consumer interests, preventing exploitation.
- Investment Attraction: Clear regulations and effective supervision attract investors.
- Market Stability: Regulatory oversight maintains market stability, preventing price volatility.
- Standards Enforcement: Supervision ensures adherence to international standards.
- Environmental Protection: Regulation enforces environmental best practices.
- Revenue Assurance: Effective supervision minimizes revenue leakages.
Benefits:
- Improved Efficiency
- Increased Transparency
- Enhanced Investor Confidence
- Better Consumer Protection
- Reduced Corruption
- Increased Government Revenue
- Environmental Sustainability
- Market Growth
As the situation is evolving, the government has clearly stated that price differential has taken root in the downstream sector of the oil and gas industry. This also means that the Nigerian National Petroleum Company Limited can no longer carry the subsidy because of the current volatility of the international price of crude oil.
More importantly, but a bit worrisome, is the relationship between the price of the Premium Motor Spirit (PMS ) and the current exchange rate. If the price of PMS is being determined by the foreign exchange rate, then, we should expect fluctuations in accordance with the dictates of the foreign exchange rate, meaning that the price will keep moving up and down. It is therefore incorrect to say that the price would always be going up.
However, some level of price stability is expected for a few months, since the exchange rate is fixed in Naira. Good enough, the crude oil price seems to be looking downward despite the war in the Middle East.
But, the good thing about the current arrangement is that marketers are at liberty to source the product from anywhere now, unlike when it was NNPCL that was only responsible for the supply.
It is not compulsory that they must get their supply from Dangote Refinery. They are free to approach external importers, Modular refinery operators or any refining institution at all across the globe for supply of PMS.
One of the beautiful things about the current situation is that marketers are free to negotiate with anybody and if they cannot agree on a price they could go their different ways to get supply from other places. While the refiner can also.
One marketer told Business Standards that they expect Dangote Refinery to publish its price, thereafter they will negotiate with the company, and if they compare its price with others and find out it is not good for them, they may decide to go to other people.
Tuji Oyebanj, managing director of 11plc, said: “I believe the price of PMS has finally been deregulated, and subsidy has finally been eliminated. Henceforth, the price of PMS will be determined by market dynamics.”
According to him, this is inevitable as the government could no longer bear the burden of the subsidy. “A good measure the government has taken to mitigate the development is the sale of crude oil to local refineries in Naira at a fixed exchange rate. This will protect consumers from the negative impact of the fluctuations in exchange rates.
The fact that the crude will be refined in local refineries will also save the cost of transporting crude to offshore refineries and transporting refined products back to Nigeria. Without these two factors, prices would have been higher. “
Again, the incentive to smuggle petrol from Nigeria to our neighbouring countries will be greatly reduced. Henceforth, prices can change at any time, depending on market dynamics.
Customers will make informed choices about where to buy from. Operators will need to improve on safety, customer service, and accurate measurement to retain customers.
This is also the time for consumers to consider alternative sources of powering their vehicles like CNG.
The era of full competition has come to Nigeria. With time, things will settle down, and people will make informed choices. The government should invest in mass transportation, especially with CNG buses. Greater incentives should be given in terms of duty waivers on conversion kits and other CNG equipment and vehicles.