The downstream sector of the Nigerian oil and gas industry is in desperate need of reform as unresolved challenges continue to dampen private sector players’ appetite to invest further.
The recent announcement by the Chairman of Forte Oil Plc, Mr Femi Otedola, of his decision to sell all his shares in the firm’s downstream business is the latest in a series of divestments from the downstream oil sector in recent years.
The firm said Otedola would “divest of his full 75 per cent direct and indirect shareholding in the company’s downstream business.”
In October 2016, United States-based ExxonMobil divested its 60 per cent stake in Mobil Oil Nigeria Plc to Nipco Plc, leaving the French energy major Total as the only international oil company operating in the nation’s downstream sector.
Oando Plc, an indigenous energy group, announced in July 2016 that it had completed the partial divestment of its interest in its downstream business to Helios Investment Partners and the Vitol Group. It sold 60 per cent stake in Oando Marketing Limited, a petroleum product retailing and distribution firm, which was renamed OVH Energy after the acquisition.
In October 2015, Forte Oil disclosed that a Swiss oil trading firm, Mercuria Energy Group Holdings SA has acquired 17 per cent of its equity, valued at $200m.
The new Chairman of the Major Oil Marketers Association of Nigeria, Mr Adetunji Oyebanji, believes the tough operating environment in the downstream sector is partly responsible for the divestments by foreign and local players.
“I think the challenge we have particularly with the downstream sector has been the operating environment, which is very harsh,” Oyebanji, who is the managing director, 11 Plc (formerly Mobil Oil Nigeria Plc), told PUNCH in an interview last Friday.
He said many operators in the fuel retail market had been able to survive because they “are being helped by other aspects of the business like lubricants, liquefied petroleum gas, and marine business.”
“As long as the operating environment doesn’t improve, then the more you may have people divesting,” Oyebanji added.
Many stakeholders have said the lack of full deregulation in the downstream sector was hampering investment and encouraging inefficiencies.
The Nigerian National Petroleum Corporation has been the sole importer of petrol into the country for more than a year as private oil marketers stopped importation due to shortage of foreign exchange and increase in crude oil prices, which made the landing cost of the product higher than the official pump price of N145 per litre.
The Federal Government had on May 11, 2016 announced a new petrol price band of N135 to N145 per litre, a move that was described as a partial deregulation as it signalled the end of fuel subsidy.
The PUNCH reported in January 15, 2017 that the Federal Government had resorted to subsidy regime following an increase in the landing cost of petrol, with the NNPC bearing the latest subsidy cost on behalf of the government.
The Chairman, Independent Petroleum Marketers Association of Nigeria, Ore Depot, Mr Shina Amoo, told our correspondent in December 2018 that many of their members had been sent out of business as they could not get products to sell.
Since 2017, most private marketers have continued to stay on the sidelines in terms of petroleum products importation, depending on the NNPC for products, especially petrol.
“Perhaps, the most troubled sector of the Nigerian economy today is the petroleum downstream sector. The policy and regulatory environment are stifling, making it difficult to unlock value and the huge investment potential in the sector,” the Director-General, Lagos Chamber of Commerce and Industry, Mr Muda Yusuf, told our correspondent in an emailed response to questions.
According to him, the challenges facing the sector include policy uncertainty (as the Petroleum Industry Bill has been stalled), funding and indebtedness to marketers with regards to subsidy payment, absence of a level -playing field, failure of refineries and dilapidated pipelines.
“The outcomes of these are the spate of divestments and the inability to attract new private investment into the sector. Currently, the private sector players have been practically crowded out by the state-owned NNPC, which currently supplies over 90 per cent of petroleum products in the country,” he said.
Yusuf noted that the policy environment had perpetuated dependence on importation of petroleum products, costing the economy billions of dollars annually.
According to him, the dominance of the government in the sector typically creates inefficiency and transparency issues.
“The reform of the oil and gas sector would definitely be a game changer for the Nigerian economy. We need to put an end to the regime of petroleum subsidy, which is evidently not sustainable. An innovative framework is imperative to make this happen because of the extremely contentious nature and citizens’ perception of subsidy withdrawal,” he added.
Many marketers are still owed significant subsidy debts, which they said had taken a toll on their businesses by creating serious working capital constraints and limiting their ability to access credit from banks.
After several pleas as well as a threat by the Depot and Petroleum Products Marketers Association of Nigeria to embark on strike, the Federal Government began the issuance of promissory notes to them in December for the payment of the first tranche of N236bn.
“As from the time of General Ibrahim Babangida, we have been clamouring for deregulation, and it is sad that Ghana that came here to study how the Petroleum Product Pricing Regulatory Agency works has gone back to set up its own agency for product pricing and has deregulated; so what’s our excuse?” the immediate past Executive Secretary, MOMAN, Mr Obafemi Olawore, had asked at his send-forth last year.
He said the deregulation of the downstream sector with strong regulators would allow for participation of real investors.
The Director, Department of Petroleum Resources, in the agency’s latest annual report, noted that the downstream sector often received scant mention in narrations on the Nigerian oil and gas industry.
He said, “Although it is a veritable subset of the industry and an important link in the domestic energy value chain, it often appears only as a punctuation mark, an adjunct in the bigger story of the nation’s oil and gas industry.”
He said the conventional narrations on the sector “feature aging infrastructure and the abysmal local refining capacity,” adding, “The outmoded product transportation system is also often mentioned to adduce reasons for the relative stagnation of the Nigerian downstream sector.”
“Deregulation is good; it will free the market and bring in more investors. But because of the situation in the country now, deregulating petrol is going to be very tough,” the National Operations Controller, Independent Petroleum Marketers Association of Nigeria, Mr Mike Osatuyi, told our correspondent
He said many operators in the fuel retail market had been able to survive because they “are being helped by other aspects of the business like lubricants, liquefied petroleum gas, and marine business.”
SOURCE: operanews.com