8 July 2012

Nigeria: New Petroleum Industry Bill - North to Pay More for Fuel

. New bill scraps equalisation, bridging funds

. Merges NNPC, PPPRA, DPR functions

Prices of petroleum products in the northern part of Nigeria will be higher, compared with what will be paid by users of fuel in the south, if the current version of the proposed Petroleum Industry Bill (PIB) is passed into law.

President Goodluck Jonathan received a copy of the draft bill last month. It is expected that the PIB will be forwarded to the National Assembly for debate in the next few days for possible passage into law.

The bill is entitled "An Act to Provide for the Establishment of the Legal and Regulatory Framework, Institutions, Regulatory Authorities, for the Nigerian Petroleum Industry; Establish Guidelines for the Operation of the Upstream and Downstream Sectors." When passed, it will be the bible of the Nigerian oil and gas industry.

The proposed bill has excluded the Petroleum Equalization Management Fund. Instead there is the Petroleum Host Communities Fund, which will now provide 10 per cent stake in the profits of oil and gas companies to host communities.

The PEF, which is currently a parastatal under the Ministry of Petroleum Resources, has two main objectives: to apply the laws of the Federal Republic of Nigeria as they affect the uniform pricing system, in ensuring that each marketing company complies with the laws regarding the management of the transportation equalisation process, and to equalise the transportation differentials in product marketing in the country.

The fund has been an avenue to equalise the differential gap that marketers incur as a result of the transportation of petroleum products from the coastal part of the country to the hinterlands.

Industry sources told Sunday Trust that the absence of the equalisation fund in the bill will create serious differences between the prices paid in the south and what will be paid in the north, in terms of prices petrol, diesel and kerosene.

In the initial PIB, submitted in 2008 by the late President Umar Musa Yarádua to the National Assembly, there was a provision for the Petroleum Equalisation Fund. However, the Inter-Agency Team set up to draft a memorandum on the bill recommended the scrapping of the fund.

The Inter-Agency team called for a total deregulation of the downstream sector in order to create a strong competition, resulting in the lowest possible petroleum product prices for consumers and to create an attractive environment for investment in new refining capacity and distribution systems.

Currently, about 90 percent of the fuel use in the north is accessed by road transportation, using diesel-powered tankers by marketers. The transportation cost of a 44,000 liters tanker from Lagos or Port Harcourt to either Maiduguri, Kano or Sokoto is in the range between is between N380,000 to N500,000, depending on the destination.

As a consequence, the PEF reimburses the marketers the fees that cover the cost of transporting petroleum products from depots to filling stations.

"If really there is no provision for the bridging and equalisation fund in the new bill, then we should get ready to pay more prices for petroleum products in this part of the country," said Danladi Pasali, a national official of independent marketers.

"We pay for transportation a sum between N380,000 to N500,000, depending on where your filling station is in the north. We move these products from Lagos or Port Harcourt. We also pay between N100,000 to N150,000, for instance, from Suleja depot to some parts of Kogi or Nasarawa States, if we get fuel at the depots."

"We can't pay this amount, apart from the prices of the fuel and not charge the cost into the petroleum prices. We sell. It is not possible, definitely we have to recover our cost," Pasali added.

But some critics said the equalisation fund creates opportunities for rent-seeking, which is a source of corruption. billion for naira is missing in the funds, as many marketers are suspected to have been presenting fake claims to the agency for reimbursements.

The drafted bill made provision for Open Access System, where marketers will pay tariff for accessing petroleum infrastructure, such as jetties, depots and pipelines.

The bill said in Section 198 that "Open Access: Licensed petroleum marketing companies shall have equal access to all jetties facilities and storage depots owned by the refining companies, which are designated as regulated open access facilities by the Inspectorate."

The existing capacity in the said jetties and storage depots shall be shared amongst licensed oil marketing and refining companies in proportion to their needs."

Pasali said "the fear is that if government allows us to use the pipelines to transport our products to the north, who will guarantee us the safety of the pipelines, because, we cannot endure the excessive pipelines vandalism, as marketers."

The new bill also merges the functions of the Department of Petroleum Resources with those of the Petroleum Pricing Regulatory Agency (PPPRA) to form the Nigeria Petroleum Inspectorate (NPI). The NPI will be the only regulator in the industry with former bodies as departments under it.

The draft bill does not contain the Nigerian Petroleum Research Centre. At present, this agency has the following functions: to (a) carry out research in all areas pertaining to the petroleum industry, but primarily in the areas of exploration and production and process technology, with the primary focus on the need to develop: i) new technologies; and ii) design capabilities suitable for the needs of Nigeria; (b) carry out research and advise the Minister and the Directorate on matters relating to exploration and production outside Nigeria; (c) advise the Minister, the Directorate and the Inspectorate, as the case may be, on i) the technical evaluation of any acreages whatsoever; ii) the value of any licences or leases, particularly during the bidding round process among others.

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