Nigeria: 'Some Factors May Trigger Deregulation in Petroleum Sector'

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10 December 2019

The downstream sector of the Nigerian petroleum industry may witness deregulation in the nearest future due to forces such as the coming on stream of Dangote Refinery and Petrochemical Plant and the emancipation of the gas sector through the reduction of Value-Added Tax (VAT).

The Managing Director of TSL Limited and expert in downstream sector logistics, Mr. Deji Wright, stated this in Lagos while presenting his organisation's outlook for the sector at the ENYO Breakfast Session with energy correspondents, in Lagos, recently.

Wright who noted that formal deregulation of the sector might not happen in the short-to-medium term as seen by the body language of the current president, however, opined that deregulation of the downstream sector might occur through the "back door".

For long, there have been repeated calls by the operators, industry watchers and commentators for the federal government to free the sector from its stranglehold in order to open up the space, attract more investments into the sector and increase dividends for Nigerians.

To this end, Wright said: "We reckon that in the short to medium term, there will be no deregulation; I'm almost sure about that. Because if you look at what has happened in the last five years and the body language of the current president, there will be no deregulation.

"And someone might ask me: is this doom going to continue in the industry? Because our margins are tight, too tight. A lot of people in the industry right now are in the game knowing fully well that there is light at the end of the tunnel. But the question is when and how?

"Rather, we believe that there might be a deregulation through the back door, and we strongly believe that this is probably one of the things they are working through in Abuja.

"And what do I mean by deregulation through the back door? It is the emancipation of the gas sector. We know that the federal government is currently driving a lot of support for the gas industry through drastic reduction on duties or VAT for anything gas.

"So they are probably thinking about making all public transport sector going gas, which means they are thinking of converting the buses, coaches, Hiaces, into LPG and CNG and they believe strongly they can achieve that within six to 12 months.

"Once that is achieved, the gasoline sector is effectively deregulated. Because today your ATK is deregulated somewhat, the gasoline will still be deregulated somewhat. However, gasoline is a problem.

"So we see them working assiduously doing that, whilst still holding the gasoline regulated. So we believe that could happen, definitely they are thinking about that now.

"And if and when they can drive this through, which is possible, which is cheaper; because once public transportation is running 75 per cent on gas, and then PMS goes to N300, people don't care."

He added: "Think of how much we are spending on subsidy. So, we think they might deregulate PMS through the back door.

"The other thing that we think will force a change in the landscape is the Dangote Refinery. From what we have seen in the papers, I think the fuel catalytic converter is in Nigeria and it means it is a matter of when that will happen. Again, when that happens, it will force deregulation."

On her part, the Managing Partner, Energyinc Advisors, Mrs. Rolake Akinkugbe-Filani, said the issue of deregulation would not affect Dangote Refinery in terms of pricing, pointing out that by virtue of its location in a Free Trade Zone, it would be selling its products at the international price.

She, however, advised operators in the downstream sector to start discussing with Dangote Refinery for the supply of finished products in the mode of Direct-Sale-Direct-Purchase structure as being done between the Nigerian National Petroleum Corporation (NNPC) and the operators.

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