Ahead of the federal government’s plan to embrace a fully deregulated petroleum industry, especially the phasing out of Premium Motor Spirit (petrol) subsidy support, operators, regulators and other stakeholders are bracing up for the massive change the new policy will usher in: gradually adjusting to the new price regime, anticipating domestic refining, and eyeing gas as a cleaner and cheaper alternative. JOHN OFIKHENUA reports.
With some months to the full deregulation of the petroleum sector, stakeholders in the industry are already upbeat that things will change significantly. One of the expectations, stakeholders enthused, is that the new policy direction will certainly usher in some level of independence and local content participation.
But exactly what difference would the deregulation bring to bear in the energy business? It presupposes an industry that is simply at the mercy of demand and supply. Thus, there will be the primacy of price mechanism over the perennial government regulation. It means that the Petroleum Industry Act (PIA), which was given birth to in August 2021, will now be the instrument driving both upstream and downstream operators and regulators. This comes with a lot of implications – both positive and otherwise.
From the downstream perspective, there has been a countdown to the ‘doomsday’ of removal of the Petroleum Support Scheme (otherwise known as petrol subsidy). There has been investment apathy for the refining and importation of the Premium Motor Spirit (petrol) because of its subsidy. Chiefly among the excuses is that with the subsidy in place, there cannot be a cost reflective pump price that should incentivise the investors.
A new petrol market, however, now stares the stakeholders in the face. This is so because the 18 months for which President Muhammadu Buhari suspended the implementation of the PIA shall soon elapse. It would be recalled that on 22nd of January 2022, the President halted the implementation of the law for 18 months, indicating that by mid-2023, the enforcement will take off. Besides, the Minister of Finance, Zainab Ahmed, has explicitly repeated it that the government will wind down its payment of the subsidy mid this year. It indicates the end of the respite that the populace enjoys from the government intervention. Its negative impact is what the citizenry will now learn to cope with.
For subsidy to go, the government requires the political will to say enough is enough, having postponed the doomsday for several years. A reliable source from the Ministry of Petroleum Resources, who dropped this hint, noted that no government would take the risk of removing subsidy in election year. The source, who preferred to be anonymous because he was not authorised to speak on the topic, said full deregulation is already in progress with different marketers selling petrol at their own prices across the country. He added that since the government can no longer bear the burden of subsidy, upon its removal in July, consumers must pay for the actual pump price if they must fuel their vehicles and equipment.
The source said: “From what you are seeing, deregulation is already taking place. The law is already taking its own course. You can see that the government is trying to stop the subsidy payment. The market is going to be driven by the forces of demand and supply. That is what will be the clear determinant of price.
“If you go to some (petrol) filling stations in Abuja, they are selling at different prices. If you want to sell at the official pump price, nobody will supply you petrol. The landing cost is way far than what the government was paying. The government is just managing with the dwindling oil and gas revenues. So, sustaining subsidy is not possible. So, full deregulation will be determined by the forces of demand and supply. You heard what the Minister of Finance said that by July this year, government will distance itself from subsidy payment. From what we are seeing now, deregulation is going on its own. When government does not pay subsidy and you want fuel to come, the consumers will be forced to pay for the differentials. It is going away on its own.”
Despite the pronouncements, a Senior Legislative Aide, Olabode Sowunmi, also described the situation as a very phenomenal development that needs the federal government’s political will to accomplish. According to Sowunmi, who is an aide to the Senate President, Ahmed Lawan, this is not government’s first target at full deregulation. Allaying fears that deregulation is not necessarily price hike, he explained that it means leaving the trading of petroleum products to the forces of demand and supply.
“It should be understood that this is not the first time that the government is announcing full deregulation. We need to keep in perspective that full deregulation doesn’t just mean price increase. It means the mechanics for trading in the finished products are left to the forces of demand and supply,” he said.
Sowunmi called for sensitisation of the consumers on the workability of petroleum price deregulation. He depicted it as national exercise that concerns all. His words: “On the part of the consumers, it’s our responsibility to understand how petroleum price deregulation works. People think it doesn’t concern them but what they don’t know is that these things they say don’t concern them is the difference between a more challenging economic reality and otherwise.”
He said the deregulation is a shared responsibility, noting that, “Yes government will do their job. However, the citizenry should take their responsibility as well.”
Meanwhile, the Independent Petroleum Marketers Association of Nigeria (IPMAN) revealed that upon the deregulation and operation of private refineries, the marketers will source products from the Nigerian National Petroleum Company (NNPC Retails). Its President, Alhaji Debo Ahmed, who spoke with The Nation on phone, noted that the marketers may choose to import their own products if they can establish their own depot.
Asked how the marketers will source products from Dangote Refinery? He said “We will be getting products from NNPC retails. Unless we too are able to have our depot, we can as well import the product. So we are under the apron of NNPC retail where we will be taking products. NNPC Trading too will be importing. So, when they import, any marketers who want to buy from them will buy from them. Those marketers who can import will import.”
Commenting on the current state of the petrol market, Ahmed said nothing has really changed about product availability. He stressed that there was scarcity of petrol, urging the NNPC to increase its supply. Expressing the helplessness of his association in the supply chain, Ahmed claimed that IPMAN members are merely middlemen. He added that the market is still the same old story. “There is no enough product. The government has not come out to give us product. They are not engaging marketers, although they closed down some depots that are under selling. But closing them down is not enough because there is no enough to sell. NNPC is the only importer and the only one that can give the private depots. We are just the link in the chain of distribution.”
In the wake of the New Year in which investors and other players in the industry anticipate the in-country refining, the major transporters of petroleum products are already set with their plans. For instance, the Nigerian Association of Road Transport Owners (NARTO) is quietly waiting to understudy the emerging trend in the bid to key into it. On this note, the National President, Alhaji Yusuf Lawal Othman, told The Nation at the weekend that the members will examine how both the federal government and the consumers of the petroleum products will respond to the new market regime.
At the very minimum, however, NARTO has projected to take advantage of the market liberalisation to expand its operations. Othman revealed that the members could replace their existing truck or overhaul them in order to cope with the haulage of the expected petroleum products supply glut. According to him, “In this year 2023, we expect towards June that the refineries across the country: Port Harcourt, Warri, and probably Dangote Refinery will come on stream. This means that there will be reduction in importation of petroleum products and off course, there will be activities of the trucks moving to the refineries and major depots across the country. That is also part of our projection.
“And in order to ensure hitch-free operation for the smooth supply of petroleum products, we need to sensitise some our members on these plans and projections and also to inform them that there is need to replace or repair the existing trucks in order to meet the demand. By and large, we will monitor and see the response of the populace of the country as well as what the government will do as far as the full deregulation is concerned. It means that when there is full deregulation, there may be some changes in the mode of operation of trucks across the country. So these are some of the projections for the year and we plan to be actively involved.”
Ahead of the new regime, however, is the optimism that domestic refining will drive the free petrol market regime. It is one of the factors precedent to the stoppage of the subsidy, according to the Nigeria Labour Congress and Trade Union Congress. Consequently, last month, the Nigerian Content Development Monitoring Board (NCDMB) revealed that Nigeria will harvest petroleum products from three new local modular refineries in 2023. In addition, the board noted that in partnership with Ibigwe Modular Refinery, which has been operational for two years, it is ready to increase from its 500,000 barrels per day capacity. Both the Ibigwe and other local refineries have added more capacity.
The board’s General Manager, Corporate Communications & Zonal Coordination, Dr. Ginah O. Ginah, disclosed this at a two-day Nigerian Content Capacity Building workshop in Abuja. His words: “Our modular refinery in partnership with a reputable Nigerian firm has been running for two years in Imo State. And today, they want to increase the capacity of that refinery. The same thing we have done for the modular refinery. By the way, this year, we are expecting about three of them to also start production. Some of them have added capacity.”
He said while Vice-President Yemi Osinbajo was appealing to Nigerians about the need to stop illegal refineries with the promise that the federal government would replace the refineries in all the locations to give them employment, the NCDMB was already partnering with indigenous investors to develop modular refineries. Ginah said: “I remember when VP Osinbajo was going up and down talking about the need to stop the local refining even though it started in the United States and the environment does not allow them here.
“So while he was doing that and promising that the Federal Government would come up with refineries in all those locations in the Niger Delta modular refineries so that they will now get proper employment. Before he finished all those grammar, we have started our refinery in Ibekwe in Imo State.”
Ginah noted that similarly, the board has been enforcing the federal government gas initiative. The Board, according to him, is also working with Duport Midstream to establish an Energy Park at Egbokor, Edo State. He noted that the “park would include a 40 million standard cubic feet per day gas processing plant, 2,500 barrels per day modular refinery and 20 megawatts power plants.” He revealed that the plant was already 90 per cent complete, stressing that it is supposed to be running by now.
Although the Minister of State for Petroleum Resources, Timipre Sylva, has always considered the development of the Compressed Natural Gas (CNG) as the basic supplement for the expensive petrol, not much was heard about it development since 2020. Aside the net zero campaign from which Nigeria was to later adopt gas as its transition energy, the nation was already embarking on its implementation of gas expansion and penetration unnoticed. President Muhammadu Buhari declared 2021 – 2030 as Nigeria’s Decade of Gas and announced the federal government’s determination to fully exploit the nation’s abundant gas resources to accelerate the development of the economy.
But Ginah explained that the particular facility in Egbokor, Edo State, has a unit dedicated to CNG. He added that that “CNG is the gas that is used for our autos, the ones we want to change from petroleum driven to gas to the Compressed Natural Gas is being produced in this facility that is mentioned.” The General Manager claimed it will now become cheaper fuelling vehicles with the CNG because it is a cleaner gas that comes without soot. He said the board dedicated the facility to produce CNG in the bid to implement the government’s auto has policy.
The General Manager said: “So, that means we now have facility dedicated to produce CNG to push the Federal Government auto policy. That is moving from petrol powered vehicles to gas powered vehicles. Now gas powered vehicles will be cheaper to maintain; the gas itself will be cheaper. The gas-powered vehicles will be cheaper because it will not be leaving black soot on your engine. The gas is very clean, and when it burns, it is only water vapour you will be seeing from your exhaust.”
Ginah disclosed that further some of the NCDMB gas-based projects include the partnership with Rungas to produce 1.2million LPG Composite cylinders per annum in Bayelsa and Lagos states and our collaboration with NEDO Gas Processing Company in Kwale, Delta State, for the establishment of 80 million standard cubic feet per day gas Processing Plant and a 300 million standard cubic feet per day Gas Gathering hub. The General Manager said the Board has already partnered the NNPC to invest in Brass Fertilizer and establish 10,000 tonnes per day Methanol Production plant at Odioama, Brass, Bayelsa State, “Just as we are investing with Triansel Gas Limited in Koko, Delta State, to establish a 5,000 Metric Tons per day LPG Storage and Loading Terminal Facility.”
Continuing, he noted that the gas penetration drive has been extended to the north. His words: “Up North, we supported Butane Energy Limited to establish LPG Bottling Plants and Depots in Abuja and 10 Northern States, just as we are investing with MOB Integrated Services for the construction of the 500 Million Tons Inland LPG terminal in Dikko, Niger State.”
The project, he said, will include the construction of a cylinder refurbishment plant, procurement of 80,000bottles of LPG cylinders and acquisition of distribution assets. The General Manager said another important partnership is with Southfield Petroleum to establish 200 million metric standard cubic feet of gas processing plant at Utorogu, Delta State. The project, according to him, will produce 123,000 million tons per annum of LPG, about 10 per cent of current LPG demand nationwide.
Similarly, Ginah noted that the Board is collaborating with Amal Technologies to set up a plant in Abuja to produce Smart Gas/Smoke Detector Alarm devices. Phasing out petrol subsidy will certainly come with tears. But the puzzle: How will domestic refineries and gas plants meet Nigerians’ demand at affordable rates?
