Petrol markerters, stakeholders frown on price modulation, seek deregulation

* Frequent price adjustments leading to distortions, imbalance ─Marketers

Isola Moses | ConsumerConnect
Following the authorities’ recent decisions to reduce the petrol pump price twice in less than 14 days’ interval, the Federal Government of Nigeria has come under fresh attack over the price modulation option aimed at keeping pump price of Premium Motor Spirit (PMS) popularly called petrol within a certain band range as a measure to reflect the drop in crude oil prices occasioned by COVID-19 pandemic.

Whereas consumers of petroleum products seem comfortable with the reduction in petrol price, marketers and stakeholders in the downstream sector of the nation’s petroleum industry are concerned about the government’s latest measure, The Sun reports.

Report says members of the Major Oil Marketers Association of Nigeria (MOMAN), Independent Petroleum Marketers Association of Nigeria (IPMAN) have stated that the move to introduce price modulation for petrol is not a sustainable model for the industry.

Recall that the Federal Government March 19, 2020, announced that it had reduced petrol pump price to N125 per litre from N145, indicating a N20 reduction.

President Muhammadu Buhari, who gave the approval, equally directed the Nigerian National Petroleum Corporation (NNPC) to reduce the Ex-Coastal and Ex-Depot prices of PMS to reflect current market realities.

Timipre Sylva, Minister of State for Petroleum Resources, disclosed to journalists that the Petroleum Products Pricing Regulatory Agency (PPPRA) would subsequently issue a monthly guide to NNPC and marketers on the appropriate pricing regime.

Sylva said that the reduction in prices would also affect other petroleum products like kerosene and diesel.

He said the reduction of price in diesel and kerosene would be determined by authorities and announced soon.

“The drop in crude oil prices has lowered the expected open market price of imported petrol below the official pump price of N145 per litre.

“The agency is further directed to modulate pricing in accordance with prevailing market dynamics and respond appropriately to any further oil market development,’’ Sylva stated.

Incidentally, in less than two weeks after reducing petrol price to N125 per litre, the Federal Government, again, in line with its promise to modulate pricing in accordance with prevailing market dynamics (crude oil prices) which is currently at $23 per barrel, again on Tuesday further reduced petrol price to N123.50 per litre from N125.

However, the marketers are reportedly uncomfortable with latest reduction to N123.50 per litre, as they described the authorities’ action as ‘bad business’ and not in conformity with business rules and due process.

Mr. Tunji Oyebanji, Chairman of MOMAN, in a telephone interview, was reported to have lamented that adjustments in fuel prices were becoming too frequent with the latest review coming within a month, thus leading to distortions and imbalance for market operators because they come in a sudden manner.

He lamented that the last adjustment by the PPPRA from N145 per litre to N125 cost its members about N3.8 billion in revenue loss because the timeframe given that the directive be complied with, was with immediate effect.

‘‘A lot of our members still had fuel in their underground tanks while those that don’t have already placed orders that were in transit.

“Now with these two sudden changes, who bears the shortfall?

“The PPPRA should not only be concerned with political considerations, but rather should consider economic and financial implications of some of these pronouncements,” Mr. Oyebanji inquired.

He said most members of the public do not understand the market dynamics of the downstream sector, saying whenever there is a downward review of prices, marketers bear the brunt because they are not always given a moratorium; it is always immediate.

The MOMAN boss said the association and other critical stakeholders have always advised PPPRA that whenever it plans to have a price review or adjustment, they should endeavour to give stakeholders a three-month notice ahead of implementation.

According to him, those that have placed orders would have received same and finished exhausting it, before the new price regime takes effect.

Otherwise, they may sooner than later run out of business with the frequent changes in fuel price, Oyebanji said.

MOMAN reiterated that the global reduction in crude oil prices has presented Nigeria with the opportunity to reform and restructure its petroleum downstream industry.

Oyebanji said that the drop in crude oil price would also open up petrol (PMS) Importation by bringing multiple players to participate in importation, while appealing to government to review industry margins.

He said that removing fuel subsidy at the period of drop in prices would eliminate waste, address the issue of low margin of marketers as well as set the country on the path of determining appropriate pricing for the product in the country.

He also advocated the need for the restructuring of the nation’s downstream oil industry in order to set it on the path to sustainability.

Mr. Huub Stokman, Managing Director of OVH Energy, an Oando licencee, described Nigeria’s downstream industry as the most fragmented in the petroleum industry value chain because it is competing with the Nigerian National Petroleum Corporation (NNPC), which as operator and regulator imports about 100 per cent of the country’s petroleum requirement.
Mr. Stokman, urged the Federal Government to deregulate the sector to free up funds for the development of other critical sectors of the economy.

Dr. Ayodele Oni, an energy expert and partner, Bloomfield Law Practice, also maintained that the price modulation model currently being adopted will not be sustainable.

According to Dr. Oni, the global crash in oil prices has been caused by the outbreak of the Coronavirus, resulting in excess supply over demand of oil in the global markets.

With no end in sight to the Coronavirus pandemic, he said it is unclear how long reduction in the global price of crude oil will last.

‘‘Currently, petroleum subsidy paid by the Federal Government of Nigeria is determined by the deficit between the expected open market price of petrol and the pump price of petrol, both of which are determined by the PPPRA.

“The drop in global crude oil prices has resulted in the landing cost of petroleum and a consequential reduction in the expected open market price of petroleum and as a result, a reduction in the cost of petrol subsidy.

“The Federal Government’s actions in allowing market forces to determine the cost of petroleum have served as an indication to many of its willingness to deregulate the downstream petroleum sector.

However, this outlook may be premature, as the Federal Government’s directives by all means indicate that the pump price of petroleum will still be regulated monthly albeit in line with prevailing market forces,’’ he posited.

According to Oni, as many stakeholders have recognised, the current market realities make this an appropriate time to deregulate the oil sector and allow market forces to determine the pump price of petrol and create increased competition in the downstream petroleum industry.

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