• Thu. Mar 30th, 2023

    Fuel supply: DAPPMA insists on downstream petroleum sector full deregulation to meet growing demand


    Nov 10, 2022

    By Bassey Udo

    The Depots and Petroleum Products Marketers Association of Nigeria (DAPPMAN) has reiterated its call for the full deregulation of the downstream petroleum sector to allow for more capacity to meet the growing demand for petroleum products.

    The Chairman of DAPPMAN, Winifred Akpani, said in Lagos on Wednesday that the full deregulation of the sector, coupled with a deliberate strategy to create an enabling environment for all petroleum marketers would add value to the system, alongside the NNPC.

    With Sub-Saharan Africa’s oil products demand at about 112.3 million metric tons in 2022, and a 3.7 percent projected estimate of growth in the volume to 116.5m MT in 2023, Akpani said concrete steps must be taken to ensure all hands are on deck to guarantee adequate supply of petroleum products.

    For the Nigerian petroleum products market, the DAPPMAN Chairman lamented that the Nigerian National Petroleum Company (NNPC) Limited has continued to be the primary supplier of petroleum products, pointing out that this has translated into a limited inflow of petroleum products and the attendant episodic fuel scarcity.

    Reviewing the operational environment in terms of petroleum products supply and distribution, Akpani said many African countries were struggling with the high prices of petroleum products, including Premium Motor Spirit (PMS, popularly called petrol), automotive gas oil (AGO) or diesel and Jet fuel.

    Also, she said gas products, especially Liquefied Petroleum Gas (LPG) used for cooking, are also affected by the spiraling prices.

    One of the major problems associated with the rising prices, she noted, comes from the supply of crude oil from the upstream sector of the petroleum industry, as some African Oil Producers, like Nigeria and Angola, were unable to maintain their production capacities.

    “African countries like Angola and Nigeria, have consistently been unable to meet their OPEC production quota. The dwindling production rates are due to under-maintenance of the production facilities, under-investment, spate of vandalism and sabotage.

    “The continued high price environment, coupled with forex and inflationary challenges, impact oil products demand in Nigeria as the nation is a net
    importer of petroleum products. In the case of liberalized products such as diesel, Jet A1, and LPG, petroleum marketers continue to struggle with challenges associated with credit lines and access to foreign exchange through the Central Bank of Nigeria (CBN)’s official window” she said.

    Akpani said DAPPMAN sees the current conversation around fuel subsidy removal gaining traction in Nigeria as a big relief, saying subsidy on petrol encourages illegal exportation to some neighbouring countries.

    The price differential as a result of the maintenance of official ceiling for petroleum products through subsidy, she said, has for decades served as a huge incentive for moving petrol across the borders where the product is sold at a premium.

    The subsidy regime, which was designed to serve the purpose of giving more Nigerians access to PMS, she noted, has only succeeded in benefitting a few people involved in underhand activities.

    Besides, she said analyses and research have also shown the huge impact of fuel subsidy payments on the Nigerian economy, to the detriment of critical sectors like health, defence, education and transportation – while the nation keeps recording trillions of naira in debts.

    “Albeit late, DAPPMAN considers the declaration by President Muhammadu Buhari that fuel subsidy will end in 2023 as the right decision that will reposition the sector for sustainable growth and development, while freeing up funds to shore up the capacity needed to transform our health, education, defence, and transportation sectors among others,” she said.

    Also noting that most of the presidential candidates in the 2023 election have declared their plans to jettison the fuel subsidy regime, Akpani said DAPPMAN believes this would ultimately liberalizee and transform the downstream sector of the petroleum industry, with attendant benefits for the economy and quality of life, through the supply and distribution of premium and environmentally friendly petroleum products.

    On plans for the future, particularly in the run-up to the Yuletide season and transition to the 2023election, the nation would need the full involvement of all operators to shore up capacity and ensure products availability at excellent service levels.

    Regardless of the fears about possible scarcity of petrol during the period, she said DAPPMAN assures Nigerians of its ability and willingness to work towards ramping up supply as the government addresses the challenges of FX availability in the sector.

    “DAPPMAN believes the current situation in the sector that gives the NNPC the role as the sole importer of PMS is not sustainable, considering the huge consumption of the product. Accessing USD for transactions has been an insurmountable hurdle for petroleum marketers. The difference between Central Bank of Nigeria (CBN) exchange rate and the parallel market exchange rate continues to get wider by the day. Currently, the CBN Exchange rate stands at about 450 Naira to one Dollar, while the Parallel Exchange Rate is about 880 Naira to one Dollar. The only direction from this point appears to be northwards,” she said.

    Giving an illustration of how the FX conundrum affects petroleum marketers, the DAPPMAN Chaiman said to charter a vessel to convey 20,000 MT of petrol within Nigeria for 10 days, with freight charges denominated in USD, comes to about N220 million at the official FX rate of N440, which translates to about N440 million for petroleum marketers who have to source FX from the parallel market at N880.

    The implication of this scenario, she explained, is an additional cost of N11 per litre for the transaction, due to the FX official/parallel market differential.
    For the same transaction, she said Jetty fees, again charged in USD, come to N15.4 million at official FX rates and N30.8 million for petroleum marketers who source from the parallel market, while Jetty Berth charged in USD comes to N2.2million at official FX rate and N4.4 million at parallel market rate.

    In addition, Port dues (NPA and NIMASA), which are charged in USD, come to official N71.51 million at official FX rate and N142.796 million for marketers who source FX from the parallel market.

    “This is quite burdensome and has made operational expenses and procurement increasingly difficult for DAPPMAN members. Amid this inclement situation, petroleum marketers still must compete, rather unfavourably with the NNPC, which has access to FX at the CBN exchange rate also has the added advantage of getting products through crude oil swap arrangements.

    “The NNPC which historically served as the supplier of last resort, is now the major oil downstream company in Nigeria with the acquisition of OVH and has full access to USD at CBN’s official rates. Without a level-playing field, especially one that guarantees access to USD for all marketers at official rates, marketers’ ability to import products is continually and severely hampered, as a significant portion of their operations and critical operational and capital expenses are denominated in

    “Full availability of products, particularly PMS will experience a marked boost when access is granted to FX at official rates for all operators and subsides removed completely. Petroleum marketers also must contend with sourcing funds from the parallel market to pay for fees and levies that are denominated in USD. These include costs such as vessel hiring charges in FOREX as stated above to the Nigerian Ports Authority (NPA) and Nigerian Maritime Administration and Safety Agency (NIMASA).

    “There are also several unauthorised operational levies/fees incurred in the process of distribution of imported products which the regulators need to address. Sourcing these funds from the parallel market and paying unauthorised levies have left petroleum marketers in dire straits, making it virtually impossible for fresh investments that can shore up operations and service experience.

    To ensure effective participation in the fuel supply and distribution process, DAPPMAN renewed its call on the government for a level playing field in the downstream petroleum sector, by giving petroleum marketers access to FX at the CBN exchange rate to enhance their capacity and facilitate a seamless supply of petroleum products during the Yuletide and ensure a regime of sustainability in terms of storage, distribution, and supply across the nation.

    DAPPMAN commended the government and the regulatory authorities for emerging gains in the sector, especially, following the introduction of the Petroleum Industry Act, adding that ongoing important meetings aimed at shaping a sustainable future for the sector there was hope for a brighter future in the industry.

    “These must continue as the success of the sector in the face of the intervening global energy crisis depends on collaboration and consideration of how operators can shore up capacity on the wings of market-friendly policies and a level-playing field,” Akpani said.

    She lamented the growing incidence of illegal pipelines vandalism that has resulted in huge volumes of crude oil being siphoned undetected for years, saying the sophistication of the perpetrators of these coordinated heists in Nigeria’s oil and gas sector required more proactive and intentional ways of repositioning the

    “As a nation, we will need to ensure we adopt policies and initiatives to combat oil theft effectively and collectively. It is also important for regulators and operators to collaborate much more closely in the areas of sharing intelligence and incorporating modern technologies to address these issues. Digitalization is a good first step towards profitability and sustainability of the industry,” she said.

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