Marketers Oil Association of Nigeria (MOMAN). In this interview, he speaks on crude oil price crash, what OPEC should do and what the Nigerian government should do to attract investors to the oil sector this trying time to improve its contributions to the nation’s GDP and by implication, the country’s sustainable development.
Do you think Nigeria can sustain its recent growth trajectory in this fiscally trying time for the country as the volatility in the international oil market lingers?
We have been here before, several times. Each time it happened, the government in power had to put in place structural adjustment measures, painful but necessary. Those with this experience are still very much with us, many of them politicians in government today. Other extremely wise and intelligent players in the economy head key institutions or are very visible economic and political commentators.
As a country, we have a large young and vibrant population, many educated and smart, who circumstances have taught the very painful lesson not to depend on anybody for their meals, their progress or survival. As a people, we are wiser and more educated and more exposed in 2020 than we were in 1986 or 1998 and hopefully we have also learned from the economic and oil crisis in 2008 and 2014. We are more resilient, tougher and more innovative. It will be tough but survive, we will. With God’s guidance we will reset and make the tough decisions which we must make for our own good. Nigeria must sustainably optimize the value each barrel of oil brings to her.
In the downstream space, for instance, we need to deregulate prices. I am not talking about price modulation. I am talking about price deregulation in order to eliminate waste and control local consumption. Encouraging the use of CNG (Compressed Natural Gas) as an automobile fuel will speak to the full optimization of our natural resources. In the upstream, we need to reduce our cost of production to become more efficient and competitive.
What do you think OPEC should do to stabilize the crude oil prices?
The Coronavirus pandemic has impacted world petroleum consumption negatively, reducing demand significantly. OPEC must directly engage major oil producing countries to reduce supply. Petroleum is a finite, non-renewable resource and oil producing counties must sustainably optimize the value it brings them per each barrel while it serves them. OPEC as an organization has existed for decades and has some of the foremost experts in petroleum economics working for it.
Member countries also have top brains such as engineers, researchers, diplomats, politicians, economists and negotiators on their staff dedicated to optimizing petroleum as a resource for their countries. Together, they all know what is best for their countries and what is best for the optimization of this resource. Sometimes, as in all human endeavors, logic seems to be lost in the discussions and other influences seem to take over.
Unfortunately, the Coronavirus has contributed to this perfect storm by reducing world consumption especially in Asia and the Organisation for Economic Cooperation and Development (OECD) countries. Reason will return. No country can afford the current loss of revenue especially the big producers who have country social obligations.
Petroleum as a strategic resource is central to the world economy. We have been here before. This has happened before. Producing countries will come to their senses and negotiate supply cuts that will engender prices that will be beneficial to their countries.
How have your members been coping with oil prices crash and fluctuations in recent months?
The downstream oil industry has had a very bad couple of years. Its reputation has suffered as a result of sharp practices. Results have been bad for several years and stock market investors and equity holders in the downstream sector have taken a beating.
Infrastructure has degraded and is in need of investment but poor margins and reluctant financing by banks has made this impossible. This latest drop in pump price in Nigeria has caused stock losses to the industry amounting to billions of Naira, with the worse hit being station dealers. Still, the crude oil price crash represents an opportunity to fully deregulate and eliminate this price regulation problem once and for all.
Many of your members have continued to sell fuel at the pump price of N125/litre, is it that you have yet to agree to the new pump price?
We marketers received a second communication in writing from PPPRA where a price band was set for the sale of PMS. The price band has a lower limit of N123.5/liter and an upper limit of N125/liter. As PPPRA has permitted Marketers to sell petrol within this band, filling stations are therefore at liberty to sell at N125/litre.
What is your advice now for the Federal Government on the new pump price?
Successive governments have tried to deregulate fuel prices and have struggled to do so for socio-political reasons. This government has been presented with a historic opportunity to do so without the socio-political backlash as prices will go down and not up. Price modulation, meaning government continuing to set prices through the PPPRA will mean not taking advantage of the situation and eventually returning to a very wasteful subsidy in the near future where petroleum resources are not optimized in full for the benefit of the country. By advising the move to price deregulation we advocate setting up the conditions for and encouraging price competition under the watchful oversight of a competition czar.
Access to foreign exchange at the same transparent rate for all market stakeholders is as key to free competition as is eliminating market dominance. Price competition may take a little longer to bring prices down to its optimum levels but it does so sustainably by forcing stakeholders to continuously innovate to stay competitive, rather than setting prices by fiat which is fraught with lack of transparency and is subject to the limited view of a few, rather than the collective sanction of the entire buying public.
Price deregulation sustainably eliminates arbitrage or smuggling across the border and over time, sanitizes the entire downstream petroleum industry, saving the country billions of naira which could then be spent on social services such as education and health as well as infrastructure investments. We must have the will do what will serve our country best. We need to deregulate prices now.
The PPPRA has said it will be reviewing the price from time to time, will this approach not scare away potential investors from the sub sector?
You are absolutely correct. This sector has taken a beating in terms of investor returns. Financing from the banks or other sources is extremely expensive due to the history of this concept of price review from time to time. It has never worked well in Nigeria and there is no reason for financiers and investors to believe it will work now.
Many investors have lost their investments in the sector and their depots, retail stations etc. are now the property of AMCON. Many others have sold their investments to new investors to try and they too in turn have lost their investments. We need to deregulate prices to avoid sharp practices and cutting corners. We need a strong regulator to focus on operations and standards. Industry players also need to be consulted constantly on policies affecting the industry. COVID-19 is currently shaking the world economy, affecting the oil industry the most.
What advice do you have for local players in the industry?
COVID-19 has shown the world that everyone is connected, whatever we do in our own corner of the world affects all aspects of the economy. As local industry players, we need to do our part by reclaiming our reputations first. We need to put our houses in order through self-regulation. Our industry is built on a good and sustainable health, safety, environmental and quality focus. We need to stop the truck accidents and fuel pipeline explosions. Then we need to stop the sharp practices and cutting corners.
The margin challenges we face are not enough to justify the cheating of customers either in terms of quality or quantity of products we sell to them. We must stop product theft. We must neither patronize those who engage in selling stolen products nor those who sell adulterated products or products from illegal refineries. We must gain back our respect from the Nigerian people. We must be professional in the way we carry out our business. We must optimize our costs, keep them low and share the benefit of cost reduction with our customers.
We must embrace digital innovation which helps to reduce costs and waste through, for instance reduction in travel costs and minimizing product operational losses in depots, during transportation and at stations. We must find a way to safely operationalize the use of pipelines to transport products more cheaply. We must continuously innovate and put the customer first. Finally, we must advocate for price deregulation and take our fate in our hands. Only those who are trustworthy and treat their customers with respect will survive price deregulation… but at least our fate will be in our own hands.
by Zakariyya Adaramola
Source: Daily Trust