AS Nigerians groan over the persisting fuel scarcity, the Managing Director/Chief Executive Officer of Mobil Oil Nigeria Plc, Mr Tunji Oyebanji, says the solution was for the Federal Government to deregulate the downstream petroleum industry.
Oyebanji explained that the ongoing crisis was being aggravated by panic buying, even as he noted that tackling and eliminating fuel scarcity means having constant supply of the product all-year- round to match consumers’ demand.
“People usually ask me what is the immediate solution to the fuel scarcity we have in Nigeria and the only way you can reverse the situation is for you to be able to put into the market products that are more than the demand of the consumers,” said Oyebanji.
The Mobil boss explained that the current crisis has proved that the Nigerian National Petroleum Corporation (NNPC) alone cannot meet the increasing demand for petroleum products in the country.
“It then becomes imperative to deregulate so that banks can grant credits to private sector firms to invest in all facets of the downstream sector, especially in ownership and management of refineries as going concern”, he says.
In this interview, Oyebanji also speaks on the challenges posed to the operators in the downstream sector by the scarcity of forex.
In recent months, Nigerians have had to battle the challenges associated with fuel scarcity. And I tell people that there is only one immediate solution to the problem, and that is putting more fuel at the filling stations for them to sell to motorists and other users. That is the immediate solution. The problem is basically a supply deficiency and the only way you solve a supply problem is making the product available in the market for consumers. And that appears to be the challenge that we are currently facing. And you know that whatever comes into the market is quickly taken up because there is panic buying. People don’t know when next the fuel will be available at a filling station that they see selling fuel. So they quickly have to buy as soon as they see fuel. Those who would ordinarily buy like 10 or 20 litres and drive off will now want to fill up their tanks and also fill up the jerry cans in their houses.
So maybe a filling station that was selling 20,000 litres a day is now selling 30,000 litres a day because of this type of panic buying. And the only way you can reverse the situation is for you to be able to put products that are more than the demand into the market. Supply must surpass demand for a period if normalcy is to be achieved in the system. And when people begin to get the confidence that there is product in the system, then they will no longer have to want to fill up their tanks and all the storage items or drums in their homes. That is the only solution. Pour more products into the system and boost the confidence of the people and the whole queues will disappear. But honestly, that will take a bit of time.
There are lots of challenges in the system, from importation to discharging at the depots. You have logistics problems because it can take up to four days moving products from say Lagos to Abuja. And further north, it can even take longer days than that. As a country, the best thing we can always do is to ensure that the situation where supply is not matching demand is not created at all. Because once you create that situation, it is usually a bit challenging for the situation to be eliminated completely. But I am hopeful that with the plans that have been put on ground where marketers are working with the NNPC and the petroleum ministry, this will be realized and the occurrences of it will reduce in the future if not completely eliminated.
I am afraid that getting over the challenges of forex by business owners, including oil marketers and importers of fuel, will almost be impossible for now because the major source of foreign exchange is the sale of crude oil and that is channeled through the CBN. So there is limited area for maneuver. There are few institutions that, may be through their affiliate companies abroad, that are able to get some support in terms of forex, but that is not the case for all the players in the industry. So people who do not have that ability, it is really going to be tough for them because we all have to depend on what the government or CBN considers as priorities. And priorities will continue to be given to fuel imports because if you don’t do that, then there will be queues at filling stations. But hopefully with time, the queues will begin to ease up. But to a large extent, we have to continue to depend on forex based on what we can get from the CBN.
Look at all other industries that have been deregulated and see how they are being managed. Deregulation allows you to plan and also to stay competitive. Look at the aviation industry. You can even look at your own newspaper industry. It is a simple thing. In other industries, someone is responsible for the imports of their raw materials and he plans ahead on what is the requirement of the market and how he can achieve his profit. It is the same thing in our industry. We also know what is required to make the downstream industry more efficient. But we are in a situation today where we cannot do that because it is the government that is in charge of everything. It is the government that regulates. It is the government that has the power to say, look Mr. A, you have 100 litres and may be what I actually need is 50 litres, and the government tells another person you have 200litres, and may be what that person needs is 250 litres.
The problem is that everyone is nervous because of what happened in 2011 with the subsidy scheme. The government too is nervous because they don’t want people to come and claim subsidies for what they didn’t do. And for me, the only way is to put up a structure that eliminates all this state of nervousness. And that can only be achieved in a system that frees up the market and that allows the private sector just as it does in all other industries to compete. Whenever I say this, people will tell me petrol is different. For me, it is not. Petrol remains a product. It is manufactured like many other things we import and sell. I feel that if the private sector is given the freedom, and I am not talking about the freedom to do what they like, but the freedom to take the business decisions that allows them to compete under a deregulated environment, then things will change automatically for the better. Deregulation will allow marketers to import and sell wherever they want. If , for instance, I want to import for the next quarter of the year, I can go ahead to take the business decision to do it. And if I want to move my products from one place to another place, I can also do that as a business decision. But today you find a situation where a marketer can decide to send 20 trucks to Abuja and if he wants to take another truck to his station in Kano, someone will not allow him to do so because of some other interests like even the need to clear queues in a particular area. For me, I am looking at my own micro level. So when you free up the market people can take better business decisions, those who want to import will do so, and those who even want to build private refineries will be able to do so as well.
It will be very difficult under the present regulated environment for private firms to invest in refineries in Nigeria. People invest to make money. Let’s use the example of those who invested in tank farms. Assuming that that was the refineries, a lot of people would have lost money. Today, the template has been changed and what people use to make on tank farms has been slashed. There is government summersault on policies in the industry. And this creates uncertainty, which is not good for investors.
Assuming I had gone to the bank to borrow a loan to build a tank farm and they came up and cut down the profit margins, tell me how will I pay back the loan. Who will help me out? These things are economic things and not emotional. If we don’t face it, we will keep postponing it, and the problems will continue. And because we are not able to adjust, we cannot invest. People have often cited the case of Alhaji Dangote who is building a refinery in Nigeria. I stand to be corrected; Dangote may have put some of his money into that investment. It may not all be about the money gotten as loans from banks. I stand to be corrected on this. Because I said earlier, banks will not give you money if they are not sure of how they will get their money back. Bank money is shareholders’ money. But unlike Mobil Oil, which is owned by shareholders, Dangote is a Nigerian businessman. And he has been here in Nigeria for a long time and may be more bullish and may also be more aggressive. And everyone has a chance of making a decision about what he wants to do when he owns a private company.
Sometimes, such person may be more risk averse. But for me as the managing director of Mobil Oil, it is about the shareholders’ money. If, therefore, I am going to invest in a private refinery, it is not about my money, but, like I said, it will be the shareholders’ money. And I must be sure of adequate returns on any investment I make with such money. And, therefore, the risk that I take with my own money will certainly not be the same with what I will want to take with shareholders’ money. So that is just the difference. So when people say or ask why the oil companies that have been in existence in Nigeria for many years, and yet have not invested in a refinery, it is because there is need to be very conservative as it would not make business sense to do so under a regulated regime. It is like being asked to manage a pension fund, you cannot use it to speculate and invest in businesses that you are not very sure of, but you can put it in fixed deposits or treasury bills. So you are less aggressive and more conservative in your investment of such funds. It is not an emotional decision but a purely business decision.
I think it is important also to get the Petroleum Industry Bill (PIB) out and it will help because it will clarify the plans for the future in the industry. People will be able to make investment decisions. If you want to stop flaring gas, for instance, you know you will need to process it and you will also need to build big gas gathering plants. And it takes a lot of money to build this. And it is a business decision that is better taken given the laws in the country or the enabling environment. We need to know the laws that back up some investments and the penalties as well. And only the PIB will do that. If the industry is deregulated and there are laws backing it up, you will begin to see companies setting up refineries. Even now, we will argue that there is a wider acceptance of the concept of deregulation in Nigeria.
The Nigerian businessman has demonstrated the capacity to invest in any business as long as he is able to get adequate returns. Capital usually goes to where there is an assurance of good returns. But the banks wont give you credit where there is no returns.And that is why some companies are not investing in refineries under a regulated environment. The margins that marketers have to sell fuel and make profit is so low at present and thus making it hard for investments. Already, there is a lot of competition in the industry and under deregulation, there will be increased competition and what will happen is that it is only those who are able to stay on the top that will survive. Those who are able to be efficient and to run their business well will be able to survive the competition. Therefore the bigger your refinery is under a deregulated industry, the more efficient you will be profitable. So for those who want to build these small refineries, it is not a bad idea. But by the time the big tigers come on stream, there is a tendency that you will have to pack up and go.