November 28, 2020

AfricaTopForum

AfricaTopForum – News Around Africa

‘Full deregulation solution to petroleum sector woes’

3 min read

 Simeon Ebulu

 

OIL and gas sector operators have heightened their agitation for the full deregulation of the downstream segment of the petroleum value chain, saying doing so will accelerate investments and ensure product sustainability

The stakeholders’ agitation is a fallout of the recent increase in petroleum pump price of about five per cent from N160/litre to N168/litre in the retail prices of premium motor spirit (PMS), insisting that deregulation remained the “most appropriate and sustainable” direction available to the nation as global price of crude oil continues to reel under the pressure of the global coronavirus pandemic.

Analysis of the sector shows that with the current pump price of PMS at N168/liter, the Cost of Sales (COS) which represents the direct cost attributable to bringing PMS to the point of sales is estimated at about N161.81/liter. This represents 96.32% of the total cost to marketing and distribution companies, which implies that such companies based on the pricing template only have a thin margin of about 3.68% to cover running costs and make additional investments in infrastructure development.

Further analysis showed that access to forex which leans in favour of the Nigerian National Petroleum Corporation (NNPC) creates what experts described as a “monopolistic wholesale market” that thrives on “lopsided pricing mechanism within the market.”

Energy expert Dr. Babajide Agunbiade (Director National Oilwell Varco based in Houston, United States) said Nigeria may never harness the full development potentials of its oil and gas sector with the continued inefficiencies within the value chain.

Read Also: Still on the deregulation

“Deregulation would reposition the sector and free the government to focus on its traditional role of creating an enabling environment for the growth of the sector.”

Industry watchers say there is an urgent need for marketers to participate in the supply of PMS  in order to promote efficiency, sufficiency and greater value for consumers.

They opined that a full and transparent deregulation of the downstream sector would lead to competitive pricing mechanisms which would facilitate the more partnerships and investments in the sector.

“Market forces should be allowed to determine price mechanisms and regimes as this will ultimately balance out challenges relating to availability, thereby attracting needed investment into the sector and optimising supply chain efficiencies,” they added.

Speaking on deregulation of the sector, Mrs Winifred Akpani, Chairman, DAPPMAN said the organisation welcomes recent development around the subject but believes “now is the time for the sector to embrace full deregulation.”

“As deregulation opens up the market for new opportunities, we will begin to witness unprecedented push in the sector towards promoting global standards in the Supply Chain Management thereby creating a system that gives the buying public added value for money. We have an opportunity to transform this sector to ensure more transparency, professionalism and long-term sustainability,” she said, adding, that “DAPPMAN is committed to our objectives of creating, maintaining and managing a Supply Chain System that would bring about Value Added service provision to the buying public as well as increase job creation atmosphere (directly and Indirectly) through the needed stakeholder investments in infrastructure development, new technology and human capital.”

Akpani added: “However, for collaboration to be effective, we need to have a system where economic principles of demand and supply play a lead role in the deregulation process thereby increasing the levels of competition that would stabilize the market disequilibrium and ultimately deliver a system of market driven pricing mechanism for all stakeholders, she said.

PMS pricing remains a contentious issue in Nigeria amid calls for full deregulation which are expected to continue.