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Why Nigerian govt cannot allow marketers fix petrol prices – Sylva

The deregulation of the downstream of the petroleum industry presupposes the end of fuel subsidy and return to the era where retail prices of petroleum products are determined through the interplay of market forces.

 

But, the Minister of State for Petroleum Resources, Timipreye Sylva, told Business/Economy Editor, Bassey Udo, that the government cannot abdicate the responsibility to protect consumers and allow marketers fix fuel prices.

 

Mr Sylva also spoke on his one year in office and what to do going forward.

 

Excerpts:

 

PT: Shortly, you will reach a milestone. What do have to tell Nigerians about your one year in office?

 

SYLVA: We have a lot to tell Nigerians in one year. I can tell Nigerians we have been able to take the FID (final investment decision) on the construction of Train 7 of the Nigeria LNG project. That is an additional investment of over $10 billion. By any standard, that is a major achievement.

 

Also, we have just launched the marginal oil field development programme. By the time I am actually one year in office in August, I believe we would have rounded off the programme.

 

We are moving on get the PIB (Petroleum Industry Bill) passed. Within the next few weeks, we are going to roll out the National Gas Expansion Programme, to expand the usage of gas in the country to include using gas to drive our cars, and to improve the LPG (liquefied petroleum gas) usage in homes.

PT: Let’s unpack them one after the other. The FID on the NLNG Train 7 project is a massive milestone in Nigeria, particularly at a time Nigerians almost gave up hope it might not materialize again after several postponements and COVID-19. How did you swing it?

 

SYLVA: Let me confess to you, it was a very tough journey. There were all kinds of issues, part of which you have just mentioned, majorly COVID-19. If one looks at it from the backdrop of the fact that it is the only project of that magnitude in the whole world that took FID during this period, then one would know that a lot of hurdles had to be surmounted to get there.

 

It took a lot engagements with all our partners to get to some consensus on some of the gray areas. Knowing that the country needed this investment, we had no option than to put in extra effort to engage our partners and all the financial institutions – the FIRS (Federal Inland Revenue Service), Federal Ministry of Finance and everybody – to be able to get their concurrence. At the end, we were able to take that FID, which I believe is one major milestone this administration is so proud of.

 

PT: You said the PIB is moving closer to its final passage. This has been long in coming. Where exactly are we on this?

 

SYLVA: The PIB is today 20 years in the making. To say it’s long in coming is an understatement. But, at this point, I think we have got to the end. We have a working draft that is good enough. We have escalated it to some of our partners. Once we have some concurrence, the process will proceed.

 

In the end, we are not expecting 100% agreement on all the points. There is no way industry and government can have 100% agreement on all the issues. What we are looking at is to narrow the gap. Once we have enough narrowing of the gap, we will escalate it to the President, hopefully in the next one or two weeks, and from there to the Executive Council of the Federation.

 

As soon as we finish at the FEC, we would take it to the National Assembly, and it will become a public document for everybody to discuss. Because of the consensus built around the passage of the PIB, we hope that in the next two months, we should be able to get it passed.

PT: What about the recent decision to deregulate the downstream sector of the petroleum industry?

 

SYLVA: That’s another major achievement I was coming to. This is something the government has always looked for a window for. And COVID-19 pandemic provided the most appropriate window we took advantage of.

 

Crude oil prices went down so low; demand was eroded, and retail price of petrol was at the bottom. Products, fuel prices follow crude oil price. The government felt that was a good entry point to take advantage of. Clearly, Nigerians are today enjoying the benefits of that decision.

Deregulation of the downstream sector means that the government is going out of the business and allowing the private sector to take over. This will allow the government to face its traditional role as regulator of the industry, as governments everywhere is doing.

 

The government is not saying it is going to completely abandon the deregulation policy to the marketers to determine prices. As a regulator, the government has the responsibility to protect the consumers.

 

In U.S. and U.K., they recommended retail price for every commodity. So, for a very strategic commodity as petroleum products, we must have a recommended retail price for the marketers, so that they will be selling within that price band, and not over-profiteer off the people. If the government makes the mistake of allowing the marketers to fix prices and sell petrol at any price they want, they will be profiteering at the expense of the people.

 

What one will find from that will be a situation where prices will go out of control. So, the government has no option than to continue to play that role as a regulator, to protect the masses; to ensure the landing price of petrol and other products is not very different from the selling price.

 

With that, the marketers will be allowed some reasonable margins and avoid the exploitation of the people through a unilateral fixing of inordinate prices.

 

We know the marketers are quite responsible people. But, we also know the way an average marketer thinks as a businessman is different from the way government thinks about the masses.

So, as a government, we must be there to moderate things and ensure consumers are protected at all times.

 

PT: Let’s break it down further. You spoke about the PIB earlier. But, people still say the deregulation policy is coming in a way that suggests, as you said, government was taking advantage of a window of opportunity offered by COVID-19 without being prepared really for it. For instance, there is no legal framework that will say what will happen if price of petrol increases again tomorrow. Without an enabling law to guide and regulate the process, how do you think this deregulation will work?

 

SYLVA: No, no, no. You do not need a law for everything. Sometimes, all you need is regulation. So, as a government, we have a traditional role recognised by everyone – to regulate the process. They say the government is not good for business. Everybody agrees. But, nobody says government is not good as a regulator.

The government is traditionally a regulator. It’s like the Central Bank regulating the interest rate in the banking sector. Banks cannot charge interest arbitrarily on loans outside a certain band recommended by the CBN’s monetary policy. FAAN regulates the airline industry. These are all deregulated sectors of the economy. Yet, we still have regulators for these sectors.

So, the government is the regulator for the petroleum products sector through the PPPRA (Petroleum Products Pricing Regulatory Agency) to ensure the marketers and consumers are both protected. That is the role the government will continue to play.

 

PT: But, if there is no law defining the roles for the different agencies involved in the process, how would we resolve the usual conflict between the NNPC and PPPRA on which of the two is in charge of managing the fuel pricing mechanism?

 

SYLVA: No, no, no. NNPC, in this case, is a player. They are part of the industry.

 

PT: But, sometimes they are tempted to extend their area of influence to play the role of a regulator?

 

SYLVA: No, no, no. What the NNPC does sometimes, which is also good for the petroleum market, is that when the market is going out of control, it intervenes.

 

For example, if the AGO (automotive gas oil) prices are going too high, and the marketers are beginning to take the prices to unimaginable high levels, NNPC will just import some cargoes of products and sell at a lower price, and of course, everybody would follow the NNPC price.


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