Full deregulation of the downstream sector of the economy may make consumers in the far north and riverine areas pay more for petroleum products.
The reworked Petroleum Industry Bill (PIB), which is on its way to the National Assembly, will likely approve the scrapping of the Petroleum Equalisation Fund and replace it with Petroleum Infrastructure Fund (PIF), which provides for raising resources to build pipelines for transportation of petroleum products in place of trucks.
Part IV of the bill titled ‘Establishment of Petroleum Infrastructure Fund’, Section (A) provide thus: “By way of a five per cent on the bulk sale and distribution within the Federation of the petroleum products listed in the Fourth Schedule; provided, however, that a levy on the bulk of premium motor spirit shall only be imposed after the full deregulation of the market for petroleum products has been declared by the minister. “
This provision is expected to become effective with full deregulation as soon as the National Assembly passes the bill and the President assents to it.
In the meantime, the higher price of petrol has led to gradual reduction of daily national consumption of the product as the figure has moved down to about 44.633 million litres a day, according to statistics released the Presidency.
The Guardian gathered that in the PIB that would soon be sent to the National Assembly, the Presidency proposed replacement of PEF with PIF, which will take payments away from marketers and invest them in development of downstream infrastructure such as pipelines and storage facilities.
A source in the Presidency said: “When the President rejected the PIB passed by the 8th Assembly, he raised a fundamental issue which was that PEF could not operate the way it did under a deregulated environment. It was then a group of experts came up with setting up of Petroleum Infrastructure Fund to replace the present PEF.
“But that may now present a new dilemma, petrol becoming more expensive in far North and some riverine areas, which equalisation has helped to mitigate.’’
A financial management consultant, Bode Longe, said the continuation of equalisation fund after the PIB has been assented to by the President might distort implementation and encourage sharp practices in the downstream sector.
He said that, in a deregulated regime, the relevance of PEF(M)B becomes a major issue for consideration. The reason is that if PEF is still to ensure uniform price of petrol across the country, it will imply that the inefficient marketers with higher prices of petrol will also get higher percentage compensation from the PEF, thus creating a perverse incentive not to be efficient.”
He urged government to review the PEF(M)B’s mandate and its operations to determine if there is a case for its continued existence in a fully deregulated market and possibly repeal of the Petroleum Equalisation Fund (Management Board, Etc.) Act.”
The Senior Partner, Primera Africa Legal and Director, Aspen-Energy, Israel Aye, said equalisation negates the spirit of deregulation.
He described equalisation as an implicit subsidy, saying: “Bridging comes easy because it is building an element into the pricing framework for taking petroleum products to the farthest parts of this country.”
Rather than pay marketers bridging cost, he said the money would be channelled into infrastructure and maintenance of internal distribution network.
Aye cautioned against rushing to scrapping bridging cost. He said government should firstly provide distribution network infrastructure as no private concern could mobilise the resources that would be needed to build infrastructure from the scratch.
He advised against rejecting deregulation as a policy and urged labour and civil society groups to push for framework for economic development and growth.
“Conversation Nigerians should be having with their government should be a good governance conversation and not about a return to subsidy. I think the Nigerian people ought to demand some form of accountability of how the subsidy money would be expended for the benefit of the people.
“Labour and its civil society groups should lead conversation demand social contract that promotes development of the country and not focusing on petroleum sector,” he said.
He added that government should plan how to switch the economy to infrastructure economy from petroleum-based economy.
BUT marketers oppose scrapping of equalisation scheme.
The National Public Relations Officer of the Independent Petroleum Marketers Association of Nigeria (IPMAN), Yakubu Usman, insisted said it would inflict economic pains on Nigerians.
He suggested convocation of stakeholders to come up with a transition plan to full deregulation of the petroleum sector and to harness the expected gains from the revised Petroleum Industry Bill.
He described the equalisation scheme as most relevant to the downstream sector.
Usman said, “For us, the Petroleum Equalisation Fund is most important and relevant to the current realities in the industry.”
Nigeria currently bridges about 40 per cent of petroleum products from Lagos to far North, South East and South-South areas of the country to address products unavailability from the refineries in Port Harcourt and Warri.
PEF pays bridging claims, inter-district and National Transport Allowance (NTA) to marketers.