By Bassey Udo
Despite the enactment of various legal and regulatory frameworks in the petroleum industry, the downstream sector is still largely constrained with anti-competition practices by both the regulating authorities and operators, a legal expert, has said.
The expert, Olaubomi Chuku, spoke in Abuja on Wednesday on “Competitiveness in the Nigerian Petroleum Downstream Sector” at a media roundtable organised by Extractive360, an Abuja-based online platform on the extractive industry.
Reviewing operations in the downstream sector of the petroleum sector in the country, Chuku observed that although the Petroleum Industry Act (PIA) 2021 and the the Federal Competitions and Consumer Protection Act (FCCPA) 2018 were enacted to provide the legal and regulatory frameworks to regulate the operations and promote competitiveness among operators, the sector remains fairly closed and uncompetitive.
Legal Regulatory Frameworks
Under the PIA, the Nigerian Midstream and Downstream Petroleum Regulatory Agency (NMDPRA) was created and empowered to regulate the sector to ensure fair pricing of petroleum products as well as competition among the players in the midstream and downstream petroleum sectors of the petroleum industry.
Also, the law stipulated that operational licences issued to the operators for retailing, bulk storage, pipelines and petroleum facilities as well as transportation of petroleum products were compliance with fair practice guidelines, while the pricing of the commodity was to be based on the interaction of unrestricted market forces.
Under the regulatory framework, the payment of the Petroleum Equalisation Fund on bridging of petroleum products to any part of the country was to be abolished to allow uniform pricing mechanisms to apply, while players in the market were expected to publish regularly prices in a clear and consistent manner.
Specifically, the PIA stipulated that: “No person shall fix prices or restrict the supply of petroleum products, except as provided under the Act”, while the Minister of Petroleum Resources was mandated intervene only in situations of emergency scarcity.
Similarly, the relevant provisions of the FCCPC Act not only prohibited contractual terms setting mandatory minimum resale prices in the sector, it also abolished all agreements among undertakings that directly or indirectly fixed purchase or selling prices.
While discouraging abuse of dominant positions in the market through excessive pricing, limited production or the establishment of unequal market participation conditions, the Act said mergers that substantially constrained competition may not be allowed in the sector.
NMDPRA’s role
Under the PIA, he said the NMDPRA was created to ensure, among others, that the petroleum products market was competitive, non-monopolistic, open and accessible to all qualified players, with licenses issued transparently to operate without any hindrance.
He said that apart from the information and data on the licensing processes not being open to the public through the Freedom of Information requests by the media, similar requests by independent players are routinely either rejected or approvals delayed, while petroleum products processing remains largely run by the government.
In terms of competition in the market and price, the expert noted the existence of near or emerging monopoly in refining and weak price competition due to limited number of active players.
Consequently, he said collusion among dominant market players for price fixing, hoarding and other vices against the consumers have thrived, while artificial scarcity ahead of every regulatory transitions continue to disrupt the supply chain.
The prevalence of regulatory inertia due to superlative influences, concessions and taxes for dominant players, he pointed out, have encumbered effective regulation of the sector.
Reality contradicts global best practices
Contrary to what was obtainable in several advanced economies like the United States, United Kingdom and European Union where their legal frameworks set the global best practices for competitiveness, the expert noted that the Nigerian experience was a clear departure from the norm.
For instance, he cited the experience in the US where the relevant agencies carry out anti-trust enforcements by blocking mergers and prevent single-firm practices, while collusion among players is always tackled with stiff penalties.
Besides, he said the U.S. strongly promotes market transparency as EIA reports on inventory and pricing are published regularly to reduce product hoarding and manipulation, while third-party operators of pipelines and storage facilities are granted open access to ensure uninterrupted distribution and supply of petroleum products.
Similarly, in the UK, he noted the practice of vertical separation of infrastructure from operations prevents reciprocal agreements between competitors, while there is a total ban on online sales, prohibition of monopoly of online advertising channels and restriction of the buyer’s ability to determine its onward sale retail prices.
In EU, he said that apart from the unbundling of the sector through vertical separation of infrastructure from operations, anti-competitive consolidations and the emergence of horizontal cartels are strictly not allowed, while real-time pricing disclosure is required and daily pump price audits enforced.
Promoting market access, price competition
To enable the sector function in line with established global standards, in terms of market accessibility, market and price competition, consistent supply of products and active regulation, the expert recommended, among others, the development of open access regulatory platforms with the American Petroleum Institute (API) integration.
Other recommendations included setting the limit for dominant players from controlling the market; taking steps to dismantle infrastructure for hoarding and diversion of petroleum products, and deliberately promoting non-discriminatory concession to players in terms of application of taxes across the entire spectrum of the sector.
Earlier, in her introductory remarks, the executive director of Extractive360, Juliet Ukanwosu, urged the regulatory authorities in the Nigerian petroleum downstream sector to ensure open access regulatory platforms to enhance market accessibility.
Ukanwosu said the current state of the sector was characterized by several limitations and challenges, including fluctuating product prices, high operating costs, irregular foreign exchange rates, import dependency for refined products, and infrastructural bottlenecks.
Other key challenges in the sector, she noted, includes price volatility, infrastructural bottlenecks, aging infrastructure and lack of investments and import dependency, among others.
Although she identified some positive developments like the liberalization policy, which she said has opened up the sector to more private sector participation, investment in storage and distribution infrastructure, and conversations around refining capacity expansion, Ukanwosu urged the government to take seriously the recommendations from the Roundtable on how to make the sector function optimally mm.
