Nigeria Downstream Crisis: A case for Deregulation

The Nigeria’s downstream sector over the years has witnessed huge challenges. These range from mal-administration, inefficiency and corruption across the value chain. From the refineries to transportation/distribution and marketing of petroleum products are marred with huge obstacle. The four refineries in Nigeria are working below capacity.  Policy inconsistency, lack of planning, perennial fuel scarcity and inefficacy in getting the petroleum product to the end users have been some of the apparent challenges.

Obviously, Nigerian state has not done well in maximizing the huge potential in her oil and gas sector. And, the downstream sector is the most hit. The citizenry has not benefitted much from the oil and gas, and this is because, we have consistently failed to get the economics and the value chain linkage of the sector appropriate.

Rather than address the confronting challenges in the sector, we politicize them. However, one of the apparent effort state has done to reposition the sector is deregulation. The market fundamentalists argue that deregulation is the only way out. To them, it will allow for the removal of government control on petroleum products prices and remove restrictions on the establishment and operations including refining jetties and depots. It will also allowprivate sector to engage in the importation and exportation of petroleum products.  And when this happens, it will allow market forces to prevail and open up the sector for effective competition.

Refining petroleum products locally continues to pose a challenge, in spite of the state four refineries, we have below 30% production capacity while we import over 80% of refined crude for local use. The refineries turnaround maintenance targeted at fixing the refineries has always been shadydeal characterized with corruption. And, private sector who wishes to invest in the refinery cannot do that arising from state policies and infrastructural deficit that do not encourage investment in the sector. However, we hope that Dangote refinery currently under construction will spur private investment in the oil and gas and change the narrative.

As refineries turn around maintenance continues to pose a challenge, subsidy payment has been a mega fraud where corruption has been internalized. For instance, in the Farouk Lawan Committee Probe (2012), Over N232 Billion on subsidy paid to Marketers for PMS in 2011 not supplied, 31Million Liters per day as opposed to marketers claims of 60 Million Liters.

The Nigeria Extractive Industries Transparency Initiative(NEITI) Audit 1999 2009-2015 reports show how corruption is embedded in the Nigeria’s oil and gas.  NNPC is found to have the sum N 1.40 Trillion. Also, Presidential Verification Committee on Subsidy Administration (2012)in 2011 shows 197 subsidy transactions worth N229bn were illegitimate.

Also, the NNPC recently have been subsidizing fuel at a heavy loose to the economy and the industry. The most glaring aspect is that it is shrouded in secrecy therefore not meeting the necessary transparency and accountability required for the development of the sector.

There are benefits to a deregulated downstream sector. These include to; ensure that petroleum products are made available to the consumers in an uninterrupted manner, eradicate waste and corruption which are consequences of tightly regulated economy, ensure that the supply and distribution of petroleum products are orderly and consumer-friendly, Channel money realized from the exercise to development projects that will be beneficial to the majority of the people. Others include job creation, cost efficiency, non-hoarding of fuel; investment in new facilities- storage tanks, retail outlets trucks, competition among marketers, expansion of facilities, jobs creation and importation of products than sole dependence on the government.

However, deregulation of the sector without getting some parameters right is what the opponents of deregulation and removal of fuel subsidy are against. Some of their argument include living a critical sector to the market forces and individual and the protection of the poor from the high cost of fuel prices.

From the foregoing, deregulation would serve as a catalyst towards normalizing the crunch in the downstream sector and maximizing the benefit from the downstream sector to the citizenry.

Ogwu Paul Okwuchukwu