Need For Reforms In The Downstream Sector Of The Petroleum Industry

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By: Charles Ikedikwa Soeze, fhnr, fcida, fcai, cpae, son, emba

 


            It is a truism to say that the petroleum industry world over is a fast changing one including the downstream sector and as a result, needs to be reformed for accountability and service delivery to the people, which in the final analysis will bring progress and development to our nation, the giant of Africa.   Every opportunity occasioned by delays, should be used to re-evaluate and re-examine plans and programmes and their contents.  There should be no embarrassment for making meaningful changes or modifications, especially if they are influenced by new economic or technological realities which will  also lead to economic transformation of the economy for the betterment of all Nigerians whether from oil producing states, communities or not.

 

The responsibility for propelling economic development is clearly that of government.  However, the necessary capital inputs cannot be government alone.  In this regard therefore, only the right economic climate will encourage foreign and indigenous private capital to offer to participate.  On the issue of propelling economic development, the government must clearly articulate and disseminate new directives it is mapping out.  In the petroleum industry sector, people have lived for so long with certain situations that they assume it can not be altered.  There is therefore the need for changes in policies and strategies in the sector which must be widely disseminated using relevant media, print and broadcast inclusive as well as making use of community leaders, opinion leaders and moulders. In order to make meaningful impact, emphasis must change from merely satisfying domestic consumption to using part of such efforts in pursuing export.  One can boldly and proudly say that the government is already doing a lot.  It must do more if the economy is to truly turn around and begin to really grow in the right direction.  It is abundantly clear that the downstream sector of the petroleum industry has the potential to make meaningful impact on that effort.  Furthermore, any meaningful development of any kind usually takes place within an environment which is conducive to it.  This is so in the case of economic development and particularly in high risk sectors requiring intensive capital inputs.  It is for this reason that any talk of meaningful development in the downstream sector of the petroleum industry inNigeriamust first address the issue of the climate in which it has attempted to thrive so that appropriate measures may be taken to enhance or correct it.

 

For the benefits of the mass audience including talakawas, deregulation simply put is the liberalization of logistics and pricing of goods and services.  It has to do with the removal of the monopolistic control which should lead to the creation of a regime of level playing ground giving rise to competition which ultimately should lead to better, efficient and effective services to customers at most beneficial rates.  It is crystal clear that any mention of deregulation in the petroleum industry often attracts so much apprehension and emotions.  This is so, as it becomes the tradition to associate deregulation with upward movements of the prices of petroleum products without corresponding improvement in the services to the consumers.  Deregulation will lead to massive investment and expansion of product reception and storage facilities.

A cursory look at the refineries will reveal at a glance that the first oil refinery built in the country is located outsidePort   Harcourtin the southern part of the country known today as the south-south region, and it started operations in 1965 with a capacity of 38,000 barrels per day (bpd).  In addition, three other refineries were built to take care of the expanding domestic needs for the last thirty years.  In the 1990’s based on population explosion, there were more demand for gas outweighing supply.  In view of massive corruption, smuggling, mismanagement, wrong appointments and postings, the refineries operated at less than optimal levels.  Turn Around Maintenance (TAM) was executed on the refineries by non technocrats or professionals, based on the unjust lay-off of professionals within the refineries in an attempt to talk of the federal character principle that is, equal representation of states without taking into consideration ones level of training and professionalism.  As a result, we have what should be termed ‘killed the refineries and go into shady deal in the importation of petroleum products’.  What a dangerous dichotomy indeed!  This has made the desired result not to be achieved.  Consequently, the NNPC had to import heavily from abroad in this connection cutting actual revenue derived from oil exports.

 

Whatever the case may be, the deregulation of the downstream sector will encourage the following among others, maintaining self-sufficiency in refining, ensuring regular and uninterrupted domestic supply of petroleum products at reasonable prices, establishing facilities and infrastructure for the production of refined product at the export market and support the domestic petrochemicals, creating value added from these activities and finally gainful employment and enabling Nigerians to acquire technical know-how in refining and distribution business.

 

It is flabbergasting that despite all the TAM on the refineries, it yielded no meaningful result.  In the Warri Refinery and Petrochemical Company (WRPC), the full rehabilitation of the Fluid Catalytic Cracking (FCC) unit as well as the overhaul of Gas Turbine Generator and procurement of TAM materials never made it to perform optimally.  In the Kaduna Refinery and Petrochemical Company (KRPC), the projects include rehabilitation works on demin plant raw water intake, electric bubstation, air compressors, fuels plant and instrumentation.

 

Price liberalization is central to the various reforms to be carried out in the nation’s downstream sector.  Generally speaking, price liberalization would afford the system sectoral efficiency and effectiveness and institute a regime of sustainable development.  In other words, price liberalization will among other things include, induce competition and efficiency that will drive prices downwards; permit entry of new participants thus providing access to state of the art technique in business practice, management, technical know-how and modernization.  It is appropriate to state that separation of functions based on Business Units will ensure that economic cost of service is established and there is transparency regarding profit/loss.

 

A liberalized downstream has the merits of price liberalization.  If this is fully implemented inNigeria(the giant ofAfrica) a number of benefits will accrue toNigerialike guaranteeing products availability as fuel could also be brought in through importation, just as it is capable of ensuring rapid disruption in supply chain.  A liberalized downstream would makeNigeriathe hub in the west coast ofAfrica. Nigeriahas export capability with a refining capacity of 445, 000 bpd and a lesser apparent demand.  That is to say with a liberalized downstream,Nigeriawould also ensure relevant pricing of natural gas, thus buoying the buddingNigerianatural gas sector.

 

For sometime now, the NNPC has been importing fuel.  The importation, I think and believe, is because of the sub-optimal performance of refineries.  The truth of the matter is that with the importation, the corporation is unable to recover cost of imported products.  For example in 2001 and 2002, the shortfall in cost to NNPC and the nation was N91,583 million and N68.81 million respectively.  What about the years ahead?  This, therefore, shows at a glance that the scenario leaves us to the fact that price is absolutely necessary to create competition in the sector.

 

Furthermore, it will lead Nigerians to the fact that price liberalization is necessary to lift barriers and create competition in the sector.  It is appropriate to acquaint Nigerians with some of the important features of an efficient and effective price mechanism under a liberalized downstream environment.  It will result in fair petroleum product prices to end users consistent with economic and social policies.  It responds promptly to changing circumstances without political intervention.  It includes fair margins to all participants as a basis for on-going investments and operating to international safety and environment standards.  It is transparent and easy to administer.  It is also accompanied by a related regulatory framework to replicate, to the extent possible, the workings of a free market.  In the words of Engineer Funsho Kupolokun, one-time Special Assistant to President Olusegun Obasanjo on petroleum matters, “Liberalization, after all is capable of generating additional fiscal revenue, which will be properly allocated and can be more effective in addressing special needs than price subsidy”.  Refer to the Sunday Times ofJune 22, 2003 p.7.

 

Writing on the downstream reforms, Anayo Korie made it categorically clear that with a total of 6,000 items that could be got from crude oil coupled with establishment of private refineries in Nigeria; the deregulation of the oil sector would enhance creation of 60 million jobs in the next ten years.  He specifically made reference to the data from the Energy Information Administration (EIA), the official energy information statistics of the United   States.  He went further to say that deregulation will lead to industrial revolution and economic boom of countries in areas of power, steel, and petrochemicals.  Refer to The Moment newspaper ofJanuary 18, 2012 p.25.  Finally, defective regulation of the sector has made it impossible for the nation to maximally tap from the benefits inherent in its joint venture operations with multinational oil companies.

 

 

Charles Ikedikwa Soeze, fhnr, fcida, fcai, cpae, son, emba is a

Communications Researcher/Public Affairs Analyst and Head,

Academic and Physical Planning (A&PP) of the Petroleum

Training Institute (PTI), Effurun, Delta State (08036724193)

charlessoeze@yahoo.ca

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