The Department of Petroleum Resources (DPR), has outlined 4 major areas of focus for downstream operations, as part of its bid to continue to enable businesses and create opportunities in the oil and gas sector.

While making the disclosure in a signed statement, the Head of Public Affairs, DPR, Paul Osu, quoted Sarki Auwalu, the Director of DPR, as stating this, during a visit of members of Depot and Petroleum Products Marketers Association of Nigeria (DAPPMAN), to the regulatory agency on Wednesday, September 23, 2020, in Lagos.

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According to a report from News Agency of Nigeria (NAN), Auwalu, in his statement, listed the 4 major areas of focus as; quality for product assurance and customer satisfaction; the quantity for transparency, value for money and consumer protection; safety for personnel, assets, and public safety; as well as integrity for investment protection and business continuity.

He disclosed that DPR would continue to collaborate with DAPPMAN, to achieve national aspirations for the downstream sector of the oil and gas industry; which includes, price freedom, optimum petroleum products distribution network, petroleum products supply sufficiency, and curbing of petroleum products cross border leakages.

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He noted that as part of the Federal Government’s measure to reduce the burden of the increase in the pump price of petrol, due to subsidy removal and deregulation of the downstream sector; it has introduced gas as an alternative source of petrol. With the Ministerial declaration of 2020 as the Year of Gas, a new world of alternative fuels and investment opportunities had been created.

The DPR boss encouraged DAPPMAN executives to avail themselves of these opportunities, and partner with DPR to enable value creation for investors and government, as it has developed opportunities to drive gas expansion and penetration.

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“DPR has developed a Gas Business Incentives and Support Programme (GBISP), to drive gas expansion and penetration. This includes key strategic initiatives, such as the implementation of the gas network code program to encourage gas base industries (GBI’s), and support for duty waivers consideration for equipment, tools, and materials for downstream gas facilities.’’

“It also includes streamlining registration for Liquefied Petroleum Gas resellers, and the ongoing gas commercialization program being put in place to achieve the GBISP.’’

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In her remarks, the Chairman of DAPPMAN, Mrs. Winifred Akpani, expressed delight at DPR’s robust regulatory initiatives and engagements with stakeholders in the oil and gas sector, which had created the enabling environment for their businesses. She also promised DAPPMAN’s support for the government’s policies, especially in its drive for price freedom in the downstream sector.

President Muhammadu Buhari is expected to present the long-awaited Petroleum Industry Bill (PIB) to the Senate as early as next week.

According to Reuters, who were quoting 4 sources familiar with the development, the presentation of the bill to the National Assembly, follows its official approval by the president late last week. This is as the National Assembly has already formed teams of members that will work most closely on the individual portions of the bill.

Both chambers of the National Assembly must have to pass the bill after deliberating on it before it can then be passed on to the president for his final signature.

The PIB which is an oil reform bill has been in the works for about 20 years, is key to the repositioning of Nigeria’s Oil and Gas Industry under its post-COVID-19 agenda as the main laws governing oil and gas exploration have not been fully updated since the 1960s due to some contentious issues like taxes, payments to local communities, terms and revenue sharing within Nigeria.

The Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), had disclosed that the delay and non-passage of the bill has made international investors to start losing confidence in the country’s oil and gas industry.

While revealing last month that the PIB will be presented to the National Assembly in the next few weeks, the Minister of State for Petroleum Resources, Timipre Sylva, also said that the executive arm will be requesting the lawmakers to specially reconvene to receive and start deliberations on the bill.

These oil reforms and regulatory certainty became more pressing this year as low oil prices and a shift towards renewable energy made competition for investment from oil majors tougher.

The draft copy of the bill which was prepared by the Petroleum Ministry is a product of series of consultation between the federal government, oil and gas companies and other industry stakeholders.

Excerpts from the bill reported by Reuters include provisions that would streamline and reduce some oil and gas royalties, increase the amount of money companies pay to local communities and for environmental clean-ups alter the dispute resolution process between companies and the government.

It also included measures to push companies to develop gas discoveries and a framework for gas tariffs and delivery. Commercializing gas, particularly for use in local power generation, is a core government priority.

The recent sharp increase in the pump price of petrol has been greeted with shock and condemnations from  Nigerians, as it is coming at a time the global price of crude oil dropped or been static at best. 

This is also happening at a time, where Nigerians are grappling with the devastating impact of the coronavirus pandemic on the economy, leading to a significant drop in the income of Nigerians. 

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This price increment is the resultant effect of subsidy removal, and full deregulation of the downstream oil sector by the Federal Government, which has been on the policy agenda of past governments, starting with Olusegun Obasanjo’s administration to the present administration of Muhammadu Buhari. This is further exacerbated by the fact that, the country imports over 90% of its refined petroleum product, as the refineries have not been working optimally. 

While announcing the implementation of the full deregulation of the downstream oil sector, with the removal of the existing cap on fuel prices, the Petroleum Products Pricing Regulatory Agency (PPPRA), noted that henceforth the pump price would be fully determined by market forces. 

In response to some comments and innuendos, the Minister of State for Petroleum, Timipre Sylva, said the deregulation policy, was to ensure economic growth and development of the country. He insisted that it was unrealistic for government to continue to subsidize petrol, as it had no economic value.

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Sylva explained that subsidy was benefitting mostly the rich, rather than the poor and ordinary Nigerians. He said the policy is in line with the global best practice, as the government will continue to play its traditional role of regulation, to ensure that this strategic commodity is not priced arbitrarily by private oil marketing firms. 

The importance and critical nature of petrol seems to be what is driving the condemnation and protests amongst many Nigerians. This is because the demand for petrol is not price elastic; which means, an increase in the price of petrol, does not necessarily produce a decrease in demand, due to the importance of the product in driving different sectors of the economy. 

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One of the most critical issues that is generating intense debate on the deregulation policy of the downstream oil sector, vis–a–vis the sharp increase in the pump price of petrol is, why the increase?  

Especially, when you consider that there has not been any major increase in the global price of crude oil, which is the main component in determining the pump price of petrol. In fact, the price of crude oil has been on a decline recently.   

Recall that, Pipelines and Product Marketing Company (PPMC), a subsidiary of NNPC, in an internal memo, to oil marketers and stakeholders, increased the ex-depot price of fuel from N138. 62 per litre to N151.56 per litre. Some analysts have suggested that the increase could be attributed to the high exchange rate, following the devaluation of the naira against the dollar, and rising costs in the value chain. But the very critical question is, is the devaluation of the naira enough to drive such increase? 

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The Managing Director of 11 Plc (formerly Mobil Oil Plc), Adetunji Oyebanji, who also doubles as the Chairman of the Major Oil Marketers Association of Nigeria (MOMAN, had about a fortnight ago, said the retail pump price of petrol should be around N155 per litre.  

In his analysis of the development, Professor Adeola Adenikinju, Director, Centre for Petroleum Energy Economics and Law, University of Ibadan said, “The major drivers of PMS price in a deregulated environment are the price of crude oil and the exchange rate. However, in many countries, governments also levy indirect taxes on petroleum products, to fund government road and other developmental projects, because of their inelastic demand.

“In Nigeria, NNPC gets the exchange rate at the official rate of about N386/$1. At that exchange rate, and given the current crude oil price of about $42.60 per barrel for Bonny Light, the current pump price of PMS of around N151.56 per litre is not justified by this analyst’s calculations, even if other cost components like distribution and marketing margins are included, except if BDC exchange rate or other charges are included.” 

READ: NNPC reduces fuel price to N108 per litre

He expressed his support for the liberalization of the petroleum downstream sector, that will encompass opening up the sector to all players, not just NNPC. He said we need real competition in the market place, as that is the only way to bring effective competition and allow retail price to reflect marginal opportunity costs of PMS. 

Going further he said, “We found ourselves in an embarrassing position as a major oil exporting country, that is also a major importer of refined products. A substantial part of what constitutes the costs of refined products now, including taxes in importing countries, shipping, finance costs, ports charges, lightering charges etc., are all avoidable costs, if we have a thriving and efficient domestic refinery sector. 

“There is currently some opaqueness in the activities of the NNPC in the current subsidy system. The government is losing out on how much the NNPC transfers to the federation accounts for handling the government share of crude oil. NNPC is charging the government and Nigerians, not just the under-recovery amount, but also nebulous charges like costs of pipeline repairs, and estimates of crude oil losses.’’ 

On his own part, an Oil and Gas Expert, Olumide Ibikunle, disclosed that the global crude oil prices are majorly linked to the price of the final product, which are refined products like petrol, diesel, kerosene, and then foreign exchange. However, he admitted that there are other elements in the pricing template.  

He said, “You need to realize that, there are other elements of the pricing template. I just mentioned 2 of the most important ones, which are the exchange rate and the crude oil prices. There are other items like international shipping cost, which is also a key part of it; lithering costs; freight costs, also depending on the availability of tankers for instance, if tankers are not available in the international market to ship refined products; the cost of moving refined products also increases.” 

He said that at best, what we have is partial deregulation, as government is trying to guard against the volatility of the global crude oil prices, which changes on a daily basis. He pointed out that, it is not good to have prices of petrol fluctuate every day at the retail stations. Hence, the introduction of price modulation mechanism by government, to manage those volatilities. 

Olumide also said, “These products are ordered in advance. I don’t need PMS today and place the order today. I place the order 2 or 3 months in advance. You must realize the dynamics at that time versus what it is now, might be different. so that consideration is also something that fits into the price consideration, and we must also factor that in.”

“So, if prices are N160 today, perhaps it is reflective of the $46 or $45 per barrel, that we saw 2 months ago. Hence, what you see in October or November, will be reflective of what you see in September,” he concluded. 

It does seem the recent increase is driven mostly by the exchange rate, but inability to get our refineries working at optimal capacity, government taxes, and the inefficiencies in the system, which is superintended by the Federal Government.