Women in Energy Network, WIEN, has called on federal legislators to ensure greater transparency, efficiency and level playing field in oil and gas industry.
This was contained in a letter sent to the Senate and the Joint Committee on Petroleum Resources of the National Assembly. It read:
Dear Sir,
RE: EXITING PETROLEUM SUBSIDY: ENSURING SELF-SUFFICIENCY IN THE DOMESTIC REFINING OF PETROLEUM PRODUCTS
Your letter dated 20th March 2020, with the above subject-matter refers.
The leadership and members of the Women in Energy Network (WIEN) are particularly delighted at your invitation requesting us to submit a position paper on your enquiry on ‘Exiting Petroleum subsidy: Ensuring Self-sufficiency in the Domestic Refining of Petroleum Products.’ While we appreciate the fact that your committee may be specifically interested in addressing the issue of petroleum subsidy removal and the appropriate domestic refining capacity to deal with it, we use this opportunity to present our thoughts on how the overall downstream sector and the entire oil and gas sector could be improved to ensure optimal benefits to all stakeholders. We are of the opinion that the issues need to be addressed in a broader, fundamental, and urgent manner, for the following reasons:
Prior to this period, Nigeria’s economic indicators were already showing signs of distress, with falling external reserves, falling balance of trade, falling foreign investment inflows, falling revenues, rising debt to income ratios, rising inflation rate, amongst others. Hence, the Nigerian economy was already on a fragile, unsustainable path but the COVID-19 pandemic and its attendant consequences on both the global and local oil and gas industry accentuated the necessity of urgent decisions and changes in the management of the sector which we, as a country, must make. The pandemic clearly brought to light a reality that has been quite often ignored – that developments in the oil and gas sector impact on all aspects of the Nigerian economy and all groups in the society: the farmer in the rural community, students, civil servants, government contractors, traders in rural and urban markets, the typical household, big businesses, small and medium scale enterprises, and Nigeria’s middle class;
Despite over 60 years of oil exploration and production and massive inflow of rents occasioned by multiple periods of oil boom, Nigeria remains largely underdeveloped. Recent performance rankings place her among countries with low human development with HDI score that is lower than the averages for oil-exporting countries and Sub-Saharan Africa. Despite a boom in all prices between 2010 and 2014 and significant increases in oil production following a peace deal in the Niger Delta, the proportion of people living below the national poverty line in the country rose from 34.1% of the population between 2000 and 2006 to 46.39% by 2019. We strongly believe that far-reaching reforms should be a first step in a broader renewed social contract, where public funds are used to deliver improved social services and infrastructure, with evaluation and adaptation.
We make our submissions based on the following considerations:
The Nigerian oil and gas sector continues to be the Nation’s source for foreign exchange earnings, even though its contribution to gross domestic product (GDP) was 7.32% at the end of the fourth quarter of 2019. While the global oil and gas industry remains dynamic and complex, some crucial factors that have influenced policymaking and planning include unstable oil prices and increased discovery of oil fields in several jurisdictions all over the world and Africa particularly. On the other hand, it is the need for increased revenue to fund the budget, that is driving Nigeria’s fiscal and policy framework;
Since the discovery of crude oil in Nigeria, several issues have plagued the industry from dwindling oil and foreign exchange reserves, lack of clear or consistent fiscal strategy, lack of critical investment into the sector, exacting rules on tax jurisdiction, among others. Any nation intending to attract investment must have the right tax policies, particularly within the context of globalization. Also, Nigeria is not insulated from the effects of the oil crisis and various trade wars. With over three-quarters of its revenues from oil, it is acknowledged that the country needs to reduce its dependency on oil, yet, it also needs to create the right fiscal environment to attract and sustain investment in its oil and gas sector;
Nigeria is facing major economic challenges. Growth is low and unemployment is high and rising, inflation is in double digits and there is a large, growing fiscal deficit. It is also struggling to deliver development to its people, becoming in 2018 the ‘poverty capital of the world’, overtaking India as the country with the largest absolute number of people living in extreme poverty. Fuel subsidies are contributing to the crisis, costing around NGN 1 trillion (USD 2.8 billion) each year—well over 10 per cent of the budget—and crowding out resources that could be invested in people.
The price modulation regime in the Nigerian downstream sector discourages fair competition, denying the country of much needed new investments and technology in the sector. Huge capital investors are interested in the upstream sector, due to its more transparent regimes leading to the stagnation of the downstream sector.
We therefore submit as follows:
That WIEN recognizes that the Federal Government and its relevant Ministries, Departments, and Agencies (MDAs) have recently taken some laudable steps towards repositioning the downstream sector for greater efficiency. These developments include:
The recent announcement made by the Minister of State for Petroleum Resources (in a press statement) that the government would implement a policy of ‘price modulation’ with respect to Petroleum Motor Spirit (PMS), commonly known as ‘petrol’, which means that it will give effect to existing legislation enabling it to set prices in line with market realities through the provisions in the Petroleum Products Pricing Agency (PPPRA);
Shortly thereafter, the Group Managing Director (GMD) of Nigerian National Petroleum Company (NNPC) publicly announced its new pump price for PMS to be N125/litre and published its coastal prices and depot prices its customers would buy PMS from them. The PPPRA then announced the same price the same day as the new pump prices for PMS;
In April 2020, the Group Managing Director (GMD) of Nigerian National Petroleum Company (NNPC) publicly announced the immediate cessation of subsidy payments by government putting an end to several years of huge cost to government. Fuel subsidies cost approximately N1 trillion yearly. This is about 10% of the annual budget of the Federal Government, crowding out resources that could have been invested in human capacity development in Nigeria. The cessation of subsidization of fuel would end an era of massive drainage of government revenue, both from the subsidy payments and from smuggling of products into other countries where prices are higher. Just before the COVID pandemic, the N145 per litre pump price regime in Nigeria ran against N350 per litre that operated in most other West African countries. Given the huge arbitrage also, the smugglers amass enough funds to bribe security officials who overlook or sometimes cover their crime.
A subsequent announcement by the Honorable Minister of State for Petroleum Resources, at a ministerial briefing on May 14, 2020 introduced the utilization of a modulation template provided by PPPRA to determine the monthly pump price of PMS. PPPRA followed up with this announcement by issuing a set of regulations on a new ‘market-based pricing regime for PMS using the pricing template of the PPPRA but does not allow for a fully deregulated market for PMS.
That WIEN views these actions as laudable and in the direction of establishing a vibrant and efficient downstream capable of contributing more to the Nigerian economy; however, insofar as we consider that there is presently a greater opportunity to urgently and holistically address the fundamental problems hindering the overall growth of the oil and gas sector, we wish to contribute to the national discussion on the subject by expressing our views and suggestions on what would constitute a conducive policy and operating environment for the growth and sustainability of both the downstream, and the entire oil and gas sector in Nigeria. WIEN therefore urges the National Assembly to work with the Executive towards looking into the following areas:
Full deregulation of the Downstream Sector: WIEN joins other industry stakeholders to advocate for an open, transparent, and free market environment with clear rules and regulations guiding competition, consumer protection, health, safety, quality, and the protection of the environment. All market players should be subject to the same rules and regulations, backed by appropriate legislation. WIEN maintains that the current system, as announced by PPPRA, where a government body imposes prices cannot guarantee efficiency and sustainability of the industry. The Federal Government should establishe a clear guide or timeline indicating its plans for the complete deregulation of the industry. “Price Modulation’ could be subject to political interference and relies heavily on the capacity and political strength of the agency or agencies involved for success. Government should leverage on the current AGO deregulated regime, where the market and not PPPRA fully drives the pump prices.
The urgent Need for Necessary Changes to Existing Laws and Legislation: The Federal Government, working with the National Assembly, should review the laws existing in the downstream in order to properly incorporate and consolidate the recent government pronouncements, and ensure their sustainability beyond the current administration. Some of the existing laws include:
Section 6(1) of the Petroleum Act 1969 which provides that “The Minister of Petroleum Resources may make an order published in the Federal Gazette to fix the prices at which petroleum products or any particular class or classes thereof may be sold in Nigeria or any particular part or parts thereof”. This implies that the Minister can fix the price of petroleum resources at any time;
Section 7(a) and (d) of the Petroleum Products Pricing Regulatory Agency (PPPRA) Act 2003 provides that the PPPRA shall determine the pricing policy of petroleum products and moderate volatility in petroleum products prices. This implies that the PPPRA has a responsibility to determine the prices of petroleum products. These provisions do not derogate from the power of the Minister to fix the price of petroleum products as above. We recommend that the PPPRA Act should to be abolished. This Act was a result of the Committee which was set up to deliberate and come up with the structure of the Petroleum Support Fund (PSF). In a deregulated market where there is no subsidy and the PSF no longer exists, then there would be no role or need for the PPPRA just as presently, they have no role in determining prices for Automotive Gas Oil (AGO), and Premium Motor Spirit (PMS) also needs to tow the same structure.
In the meantime, there needs to be clarity, between the PPPRA Act and the Petroleum Act. While the PPPRA act empowers its board to fix prices, the Petroleum Act empowers the Minister (Mr. President currently) to determine prices. However, if the PPPRA Act is abolished, then this will no longer be an issue.
The Petroleum Equalization Fund (PEF): PEF was established to ensure that prices of petroleum products are the same across the country. It does this by redistributing bridging allowances incorporated into the pricing template for PMS to marketers based on distance from depot to point of sale of products. However, this consideration is not compatible with a deregulated market. It represents a variety of subsidy and leaves room for corruption and abuse and should be discontinued. Therefore, we recommend that PEF should be abolished, as they play no role in the diesel market presently.
Access to Foreign Exchange: Equal Access to foreign exchange at competitive rates to all market players must be guaranteed. This can be achieved through a transparent and auditable process of open bidding. This essentially would ensure fairness and the competitiveness of the downstream market.
Greater Transparency and Stakeholder Consultation: Greater openness and government clarity would be essential to achieving the desired level of cooperation and buy-in of all critical stakeholders. Improved governance and transparency would strengthen public and investor confidence in the sector. For instance, a few days before the new pump price was announced, PPPRA took off the PMS pricing template from its website. Presently, the indices used for computing the guiding prices are not known to anyone outside the agency. Furthermore, lack of consistency creates confusion and public distrust. PPPRA, according to the minister, is expected to publish a guiding pump price monthly. However, the PPPRA did not publish or announce a guiding price for the month of May, 2020. It only recently announced the prices for June 2020. Government should ensure that the public and all stakeholders are well engaged and carried along in the reform process;
Improved Local Refining Capacity: Despite the country’s significant oil wealth and production capacity, Nigeria imports around 90% of the refined Premium Motor Spirit (PMS) that is sold to consumers at petrol stations around the country, as it does not have refineries capable of meeting anything but a minute portion of Nigeria’s domestic demand. It is extremely rare for major oil producers to import PMS in such quantities. Nigeria is one of the only members of OPEC (besides the Republic of Congo and Equatorial Guinea) that imports any such products at all. Nigeria’s four refineries have been poorly maintained for decades and operate at a fraction of their actual capacity. The refineries have originally installed capacity to refine 445,000 barrels per day but are currently running at about 2% of that. Three of the four refineries are currently shut down and the fourth is running at 8.7% of its capacity. It is believed that it would be more efficient to build new refineries than to fix the existing ones. Taking 2007 as the year the privatization of the refineries was reversed, the losses borne by NNPC refineries alone between then and now exceed the $9 billion estimated cost of the Dangote refinery in the Lekki Free Trade Zone. We ask that the Federal Government should not spend any additional funds on repairing or maintaining the refineries but should undertake road shows, investment drives, and other necessary actions to facilitate the outsourced management, privatization or outright sale of the existing refineries while seeking to attract or promote investments in new refineries (such as the upcoming Dangote Refinery). The privatization of Eleme Petrochemical and the attendant turnaround shows that the refineries are better managed by the private sector. In addition, government should explore the encouragement of modular refineries as a means of boosting local refining capacity. Particularly, government should pursue a deliberate policy of encouraging women participation in local refining by mandating 20-30% women participation in the shareholding structure of modular refineries;
Improve Stabilization: Oil price fall affects the economy negatively; all sectors of the domestic economy and all groups in society are affected. While some oil-exporting countries, such as Norway and Gabon, were able to minimize the impacts of the fall in oil price on their domestic economies, Nigeria and its citizens pay a heavy price. As shown in this Report, civil servants were not paid salaries for long periods, traders lamented over unsold stocks, households groaned under the heavy burden of high food prices and diminished real income, many businesses shut down and workers were laid off, unemployment increased, growth tumbled and the economy reeled. Insecurity, crime and suicide rates increased across the land. Industrial actions by workers paralyzed activities, especially in the medical and educational sectors, fragility increased and many of Nigeria’s middle class migrated out of the country in droves.
Inclusiveness and Poverty Reduction: While we advocate for the full deregulation of the downstream sector, we are equally concerned about the impact that deregulation will have on transportation and prices of goods and services when crude price goes up, and thus on women considering that they remain at the bottom of the pyramid and mostly small-time traders and farmers. WIEN advocates for an arrangement to be put in place to alleviate the impact of deregulation on Nigerian women. We urge government to redirect fuel subsidy savings to investments in short-term to medium-term measures that would help vulnerable groups to cope with increases in price, as well as developing competing alternative fuels for transportation and power generation particularly Compressed Natural Gas (CNG), Liquefied Natural Gas (LPG), and renewable energy – which are cheaper and cleaner. Much as we understand that every country is unique, examples abound of how governments can use fuel subsidy savings to build the foundations of new long-term welfare systems (‘fuel subsidy alternatives’). Nigeria must now develop effective plans to reshape her economy and exploit the linkages between the oil and gas sector and other sectors of the economy to achieve agricultural and industrial transformations. There is nothing to suggest that Nigeria cannot be like any other successful oil-exporting country and her citizens enjoy the higher quality of life that citizens in these other countries have. But policies and methods of doing things will have to change. WIEN is committed to work with relevant stakeholders for the development of initiatives that need to be put in place to improve the lives of Nigerian women in general and the energy industry in particular;
The Petroleum Industry Bill (PIB): The long delay in the passage of the PIB into law has created lingering uncertainty in the oil and gas sector, costing the country huge sums in revenue due to lost investments. The existing oil and gas sector regulatory framework is amorphous and ineffective because of too many overlaps in responsibilities and accountability. The expedient passage of and purposeful implementation of the PIB is critical to addressing most of the loopholes in the management and governance of the sector. The PIB when passed into law will improve governance of the sector by strengthening institutions in the areas of clarity of structures, roles, accountability, transparency, and overall efficiency and effectiveness. The PIB will ensure that the focus of legislating the sector shifts from the present to the future.
According to the National Bureau of Statistics, more than 82 million Nigerians live on less than one dollar a day. Apparently, the situation would have been made worse by the impact of the COVID-19 pandemic. Amongst the poor, women are uniquely vulnerable to the pandemic. Typically, they live day-to-day, earning barely enough money to buy food for their families. They lack a safe place to save, or the means to protect themselves from financial ruin brought by a sudden illness or emergency. The pandemic has spurred real hardship and growing unease about the future. We therefore recommend that the National Assembly should endeavour to engender by both law-making and oversight of the relevant agencies, deliberate policies aimed at ameliorating the possible impact of the new developments, such as deregulation of the downstream sector on women in particular. The National Assembly should review all ongoing social investment programmes with a view to ensuring that they have sufficient focus on supporting and empowering poor women. WIEN will be willing to support the NASS in this review and also in proffering practical strategies and programmes that can improve these programmes and others that can improve the lives and livelihoods of poor women.
Finally, WIEN calls for greater transparency, better efficiency, and a level playing field in the oil and gas industry. We demand for more female involvement in the governance of the MDA’s in the energy industry by having greater participation at board levels. We would be happy to work with relevant stakeholders for the development of innovative strategies and approaches that would be required to particularly improve the wellbeing of women in Nigeria, and that of the entire nation.
Thank you.
Yours sincerely,
For: WOMEN IN ENERGY NETWORK.
Funmi Ogbue (Mrs.)
President