By Omoh Gabriel
Indication emerged from the Presidency weekend that the government may deregulate the oil sector starting from August.
Source say that the President had instructed the Economic Management Team headed by the Minister of Finance, Monsur Muktar, to work out the details of the deregulation after findings show that the Presidential Committee in which some serving Governors are members, earlier set up by the Presidential Task Force of Global Financial Melt Down is said to have been compromised by group interest.
The Proposal of oil sector deregulation before the government is that based on the current indicative price of the Petroleum Price Regulation Agency, PPRA the price of PMS should be around N 98.2 per litre. The government it was learnt is considering that the price of PMS should be allowed to increase within the range of N 89.78 per litre to N 93.73 per litre, depending on the location ,coastal or inter land, reflecting cost-saving measures recently approved by the government and additional measures derived from the reports of two consultancy outfit on the review of PPPRA template.
It was also learnt that the proposal states strongly that additional savings of N3.80 culminating could be made in a price range of N85.98 -N89.93 per litre for PMS which they say is feasible within the next 6 months.
The Proposal from government officials is insisting on a once and for all liberalisation of price based on the fact that phased-subsidy removal will be complicated by political constraints, costs of negotiations when time for review is due, which will not give right signals to potential investors in downstream refinery sector arguing that the cost components of fuel products are quite dynamic, creating a “moving-target” situation.
It was further learnt that the government is thinking of phased approach for the determination of price due to the current oligopolistic market structure of the downstream petroleum sector. To prevent price collusion. During the first six months, following price liberalization, fuel-retail stations must comply with the prices emanating from the PPPRA template.
According to the thinking of government ‚ÄúAs competition measures take root, to be effectively managed by the PPPRA, resulting in more participants in the downstream petroleum market, the forces of demand and supply should be allowed to determine the price of PMS. The PPPRA will continue to provide indicative prices. The concepts of Petroleum Equalization Fund and Maritime Transportation Average are not applicable in a deregulated downstream petroleum sector regime. While the operation of Petroleum Stabilisation Fund is used to manage the volatility of crude oil prices, the rent-seeking activities, emanating from inaccurate data on effective demand for fuel products, could easily lead to reoccurrence of “purported’ subsidy. In this connection, Strategic Fuel Reserves and Taxation are being proposed as instruments for managing volatility.
According to government thinking ‚ÄúWhen the market matures, there should be prospects for introducing fuel taxation. The PPPRA could introduce a N9 per litre excise tax on PMS and N5 per litre excise tax on AGO. Fuel taxes are used extensively in many countries to raise revenue for infrastructure development: Share of taxes in PMS prices is 21%, 28% and 23% in Ghana, South Africa and India. Angola also has taxes on its fuel pricing template. Taxation rate to be lowered during periods of sustained higher crude oil prices.
According to the plan the government will import large quantities of PMS in advance of price deregulation. Using M.V. Westaf (150,000 mt); M.V. Greataf (350,000 mt); and M.V. Tuma (130,000 mt) plus available onshore depot space for this purpose. This is necessary as government realises that crude oil price is very volatile. ‚ÄúHence to prevent excessive transmission of short term volatility to the economy, there should be expansion of strategic reserves capacity that can be released to dampen short term price pressures.
‚ÄúThis temporary measure will be required to stabilize prices during initial price hike. This it says is also necessary to cushion possible initial supply disruptions resulting from public or importer resistance to subsidy removal. To this effect The Strategic Reserve as a scheme may not be restricted to the use of only PPMC depots, but also private depots that are considered strategic
According to the plan government will have reserves for 30 days sufficiency and the take- off capital required based on the current market price is estimated at about N140.587 billion. This they believe should come into effect by September 2009.
To achieve the deregulation plan government think tank advocates that monitoring the implementation of ‚Äúcost-reducing measures recently approved by the government would be extremely important. For emphasis purposes monitoring the implementation of the following measures; resuming routine maintenance of Jetties; commencing dredging of Apapa Jetty; allowing construction of another jetty; facilitating the process of bringing Apapa Jetty under the Open Access Common Carrier, facilitating the repair of loading arms at the Jetty; fast tracking the granting of SBM license to marketers; sustaining the tempo of gas utilization initiative and regularly provide monthly progress report; improving local refining capacity to match consumption through refining of crude petroleum by companies engaged in exploration/production; privatization of the existing four refineries and construction of additional refineries and development of functional National Strategic Strategic.
In the plan deregulation government will harmonize all product monitoring, importer-licensing, and downstream regulatory activities within PPPRA in line with OGIC). In the plan of action PPPRA would be strengthened to perform the whole functions of licensing, monitoring, technical analysis of product supply and ensuring fair pricing in the market These responsibilities are currently shared between PPPRA, DPR and PPMC. Duplication of responsibility for import bidding/licensing processes between PPPRA and PPMC is unnecessary‚Äù the think tank argued.
PPPRA is to take full control of the regulation of the downstream petroleum sector in Nigeria in line with the Petroleum Industry Bill this is billed to take effect from August 2009 and the PPPRA is to coordinate the vessels reception scheduling at Apapa jetty to ensure level playing field and reduction of demurrage in the new plan. It will be further empowered to monitor the operations of the jetty by setting standards and code of conduct and it will be required to allow independent importers access to PPMC’s distribution facilities starting from August 2009
In the deregulation plan the government is to explore the option of refining the 445,000 b/d crude oil currently allocated to NNPC by contract arrangement with offshore refineries. This will significantly reduce importation. This measure is being recommended as a first step, and an interim measure towards the eventual resuscitation of domestic refining. If things go according to the plan this will come into effect in October 2009.
In the deregulation proposal before government the PPMC is to concession out the entire 5,100 km., 23-depot distribution system in a public-private-partnership PPP arrangement. Suitable concessionaire must be capable of investing to resuscitate and upgrade the system, must also apply modern surveillance technology to secure system against theft and vandalism.
The deregulation proposal urges government to explore the option of refining the 445,000 b/d crude oil currently allocated to NNPC by contract arrangement with offshore refineries. This according to them will significantly reduce importation. This measure has been recommended as a first step and an interim measure towards the eventual resuscitation of domestic refining which is planned to come into effect in October 2009. In the proposal government is to resuscitate local refining, attract reputable and experienced refiners as core investors and privatise the refineries. The future of petroleum products supply must lie with local refining. Importation should be seen only as short-to-medium-term strategy the proposal stated