Opinion: Crisis Over Passage of PIB and the Nigerian Downstream Sector

An opinion piece themed “The PIB and Nigerian Downstream: Crisis looms.” expressed by Jerry Lazarus, an Oil Industry Analyst and Public Affairs Commentator highlights some unagreeable points in the senate and house committee reports on the Petroleum Industry Bill.

The bill’s main thrust, according to him, is to open up the Nigeria oil and gas industry to investment, strengthen industry governance and regulation to expand, grow, and maximize value capture for Nigeria and its citizens. But Lazarus thinks the provisions of the PIB is long overdue, however, and he added that we must commend the Executive and the National assembly for prioritizing it.

His concerns about specific provisions of the Act circle around areas affecting the downstream sector, adding that the Act removed price controls on petroleum products in section 205.

Lazarus explained that the Senate’s version of the bill has a clause that constrains market competition by restricting the importation of products to only players with local refining capacity. This counters the provision of 205(1).

“Subject to the provisions of this Section, from the effective date, wholesale and retail prices of petroleum products shall be based on unrestricted free-market pricing conditions.” He said.

Here’s Inserted Section 317(8) in PIB Re-produced

It stipulates that:

  1. The Authority shall apply the Backward Integration Policy in the downstream petroleum sector to encourage investment in local refining.
  2. To support this, a licence to import any product shortfalls shall be assigned only to companies with active local refining licences. 
  3. Import volume to be allocated between participants based on their respective products in the preceding quarter. 
  4. Such import to be done under NNPC Limited Direct Sale/Direct Purchase (DSDP) scheme.
  5. To safeguard the health of Nigerians, imported petroleum products shall conform to the Afri-5 specification (50ppm sulphur) as per the Economic Community of West African StatesECOWAS, declaration of February 2020 on the adoption of the Afri-Fuels Roadmap.
Opinion: Crisis Over Passage Of Pib And The Nigerian Downstream Sector

He stated that the provisions above would create a duopoly in a deregulated price environment, thereby destroying the Nigerian downstream industry as it’s known today.

Lazarus stressed that such provision limits importation of all petroleum products, including PMS, diesel, aviation fuel, lubricants, base oil – products already deregulated, to only players with local refining capacity.

In the near term, he said only NNPC and Dangote would have domestic refining capacity for PMS, for instance, to be the only importers. This takes the industry back and could not have been the intention of the bill.

Moving from a state-owned monopoly in a price regulated market to a duopoly in a price deregulated market is taking the industry backwards and exposing Nigerians to exploitation and further hardship. ‘This is my humble view is not reformatory,’ he said.

Rather than protect refiners, Lazarus suggested we should instead seek to protect the consumers by liberalizing and expanding supply sources. That is the only way prices will be “market-determined”, and consumers pay fair value for the products they buy. 

The expert said the viability of local refining is not determined or enhanced by locking out the competition; it is instead achieved by price deregulation, done in section 205.

“This clause gives an unfair statutory advantage to private players rather than through market competition. Indeed, the law and the authorities should protect the market (other players, including Nigerian entrepreneurs) and the consumers rather than encourage monopoly/duopoly by locking out competition.” The Industry Analyst said.

He opined that this clause does not create a level playing field for all players in the sector. It can destroy existing Nigerian businesses that import petroleum products like diesel and aviation fuel, with attendant jobs and more economic misery for Nigeria and Nigerians.

According to him, Governments worldwide do not create and encourage monopolies or duopolies, so anti-trust laws are enacted and enforced to protect industries and consumers.

He said Nigeria should not be doing the reverse. They can always make a case about protectionist policies for nascent or pioneer sectors, but this is not the case with a long-established, once-thriving Nigerian downstream. 

The Public Affairs Commentator further explained that the clause needs to be expunged from the PIB, adding that the Nigerian Authority should be left to develop fair, inclusive and transparent regulations for petroleum product importation that ensures open and diverse market supply and hence competition; only then would the bill’s objectives be achieved.

In his words, “It is worth repeating that as price control is being removed, delivery must be competitive, inclusive, transparent and seen to encourage efficiency. Then, and only then, will Nigeria and Nigerians win?”

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