News & Insights

Major Oil Marketers Seek Law to Back Deregulation

Major Oil Marketers Seek Law to Back Deregulation

  • Advocates floating of fuel price

Peter Uzoho

 

Marketers of petroleum products under the aegis of Major Oil Marketers Association of Nigeria (MOMAN) have called on the federal government to enact a legislation to fully liberalise the pricing of petrol, rather than using a price modulation method to determine prices.

MOMAN Chairman, Mr. Tunji Oyebanji, in a statement yesterday in Lagos, said full-price deregulation would bring about long term stability in the downstream sector.

Oyebanji said it has become necessary for the association to state its position, adding that recently, the Minister of State for Petroleum Resources, Chief Timipre Sylva, had announced in a statement that the government would implement a policy of “price modulation,” which means it would give effect to existing legislation enabling it to set prices in line with market realities through the Petroleum Products Pricing Regulatory Agency (PPPRA) as provided in its Act.

According to him, the clear and obvious risk is that the country has never been able to increase pump prices under this law, leading to high and unsustainable subsidies and depriving other key sectors of the economy of necessary funds.

Oyebanji said: “Our current situation, laid bare by the challenges of Coronavirus to the health of our citizens in particular and economy of our country in general, demands that we are honest with ourselves at this time. A fundamental and radical change in legislation is necessary.

“When crude oil prices go up, the government has always been unable to increase pump prices for socio-political reasons leading to these high subsidies and we believe the only solution is to remove the power of the government to determine fuel pump prices altogether by law.

“Purchase costs and open market sales prices should not be fixed but monitored against anti-competitive and trust abuses by the already established competition commission and subject to its clearly stated rules and regulations.

“There is no country or economy where governments do not have the power to influence prices. Nigeria is no different with respect to any other commodity or product. Governments use economic tools such as taxes or interventions on the demand side or the supply side of the market and other administrative interventions to influence prices where it needs to.

“The problem here is that the government has retained for itself by law the power and the responsibility to fix pump prices of petrol, which is what puts it under so much pressure, and costs the country so much in terms of under-recoveries or subsidies when it cannot increase prices when necessary to do so.”

He, however, urged the federal government to stop fixing petrol prices during this period that crude oil prices are low and resort to influencing prices of petrol using the same parameters as applied to any other commodity or item in the market.

“We want the market to determine the price. There should be a level playing field. Everybody should have access to foreign exchange to be able to import and sell petrol at a pump price taking its landing and distribution costs into consideration.

“Government should no longer fix petroleum prices. Health and educational sector should be given a higher priority than paying for subsidy on petroleum. We support the pronouncement of the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Malam Mele Kyari, which said subsidy or under-recovery must be things of the past,” MOMAN chairman siad.

Oyebanji added that operators in the petroleum downstream sector were advocating a market-based philosophy based on the sustainability of the petroleum industry, which encompasses free-market competition where equal access to foreign exchange at competitive rates to all market players must be guaranteed.

He explained that this would mean the discontinuation of the Direct-Sales-Direct-Purchase (DSDP) programme, noting that all foreign exchange proceeds from all sales of crude are paid into the same pool from which all importers could access foreign exchange at the same rate.

He stated that fuel import would, however, enjoy priority access in the allocation of foreign exchange and also through a transparent auditable and audited process of open bidding.

Oyebanji explained that conditions for accessing foreign exchange should be streamlined, adding that specific delays before access imposed unilaterally on the downstream oil industry should be discontinued as being inequitable.

He noted that MOMAN recommended a legal and operational framework comprising of a downstream industry operations regulator, the Federal Competition and Consumer Protection Commission (FCCPC) or Competition Commission (for pricing issues) and the interplay between demand and supply, which would ensure a level playing field, protect the Nigerian consumer and curb any market abuse or attempts to deliberately cause inequities in the system by any stakeholder.

He said the pricing system should allow internal equalisation by marketers which would be both competitive and equitable.

Oyebanji added: “MOMAN recommends that the Price Equalisation Fund mechanism should be discontinued and its law repealed as the cost of administration of equalisation has become too high and the unequal application of payments by marketers distorts the market and creates market inequities and unfair competition.

“Internal equalisation has been the practice with diesel distribution and sales since 2010 when diesel was fully deregulated. In line with change management principles, consultation, and engagement with market players should clearly spell out the path and final destination which is full price deregulation.”

source:- https://www.thisdaylive.com/index.php/2020/04/17/major-oil-marketers-seek-law-to-back-deregulation/