By LOUIS IBA and BIMBOLA OYESOLA

LOCAL manufacturers and other large scale business owners in Ni­geria say the decision by the Fed­eral Government to deregulate the downstream petroleum industry last Wednesday would go a long way in assisting their investments.

But some analysts have ex­pressed the fear that the policy which has seen pump price of petrol jump from N86 a litre to N145 a litre (about 80 per cent rise) might harm small-scale busi­nesses.

Fuel accounts for up to 40 per cent of overhead or cost of opera­tion for most businesses in Nige­ria. In the last one year, the scar­city of petroleum products had wrecked havoc on most business­es, leading to either the shutdown of some manufacturing firms or having them operate at half their installed capacities.

“The deregulation of the down­stream petroleum sector by the government is the only way that would ensure the availability of stability of the product in the country. It is a welcome develop­ment,” said Franks Jacob, Presi­dent of the Manufacturers Asso­ciation of Nigeria (MAN).

“In the last one year, although the Nigeria National Petroleum Company (NNPC) outlets and other major marketers were sell­ing the products at N86 and N86.50k, but not many people were getting it at the regulated price.

“Other outlets by the indepen­dent marketers in Lagos sold above N100 to N150. And in Abuja and other states of the country, people were buying for even as high as N250 per litre. So the N145 a litre is not too high. Availability of product is what we want for now. We believe that overtime market forces will even­tually bring down the price,” Ja­cob added.

The Organised Private Sector (OPS), an umbrella body which covers investments in other sec­tors, outside manufacturing, de­scribed the policy as “the best for the economy at this critical pe­riod.”

“The overregulation of the downstream sector and the subsi­dy regime had put enormous pres­sure on government finances and on the country’s foreign reserves and it was evident that the policy choice was not sustainable,” said the Director General of the Lagos Chamber of Commerce and In­dustry (LCCI), Mr. Muda Yusuf. “The review is in the long term interest of the economy and the people,” he added.

Demerits of regulation

Proponents of the deregulation of the petroleum industry had kept pointing at the leakages in the fuel subsidy regime which allows large scale fraud to continue unchecked as one reason for the abolition of the policy.

Many analysts had therefore reasoned that apart from the fact that fuel got to some consumers in some states of the country cheaper at N86 per litre, fuel price regula­tion had no other benefits.

“There were two components of the subsidy phenomenon in Ni­geria. The first, the actual subsidy, which is the differential between the pump price and the landing and other costs of fuel. And the second (and the more disturbing component) the blatant corrup­tion inherent in the fuel subsidy regime,” noted Muda Yusuf.

“Petroleum subsidy manage­ment has been characterised by serious transparency issues for several decades. The Nigerian economy, for several years had suffered severe bleeding from the phenomenon; with subsidy pay­ments hitting the N1trillion naira threshold, and even more,” added Yusuf.

“It was not in the overall inter­est of the economy and even of Nigerian citizens to continue with the subsidy regime when citizens were suffering from the absence of basic social infrastructure,” said Ken Abazie, an analyst.

“What is the point subsidizing petroleum products at the expense of essential infrastructure like schools, hospitals, potable water, security, electricity, etc,” he added.

Managing Director/CEO, Mo­bil Oil Nigeria Plc, Mr. Tunji Oyebanji in an interview granted Saturday Sun cited the continu­ous price regulation of products as one reason multinational oil firms that had done business in Nigeria for several decades had failed to build functional refineries in the country.

According to him, no bank or creditor institution would give you a loan to embark on a project whose final products prices will be determined or regulated by the government, thus hampering any effort to ensure timely recouping of the investment.

“It will be very difficult under a regulated environment for pri­vate firms to invest in refineries in Nigeria because people invest to make money,” said Oyebanji.

“Bank money is shareholders money. This things are economic things and not emotional. banks will not give you money if they are not sure of how they will get their money back.,” he added.

Benefits of deregulation

With Wednesday’s announce­ment that the government would no longer continue with fuel sub­sidy payments, stakeholders in the industry finally heaved a sigh of relief that the long awaited re­prieve had come.

Managing Director/CEO, Petrowest Energy Resources Limited, Mr. Reginald Stanley who had been at the forefront of the campaign for the deregula­tion of the industry said the policy remains the panacea not only to ensure stable fuel supply in the country, but to ongoing efforts to attract private sector investments in the construction of functional refineries.

Stanley, a former Managing Director of the Petroleum Prod­ucts Pricing Regulatory Agency (PPPRA) said based on his experi­ence as a regulator in the industry, it was futile for the Federal Gov­ernment to continue to attempt to meet a national demands of over 40 million litres of petrol per un­der a price regulated regime.

“Nigeria had gotten to a stage where it had to toe the line of what other countries were doing to en­sure uninterrupted fuel supplies to their citizens.

“Deregulation, opens up the in­dustry to private sector investors to build refineries, and for market forces to determine fuel prices. This remains the panacea to Nige­ria’s lingering fuel scarcity,” said Stanley.

“Look at all other industries that have been deregulated and see how it is being managed,” said Oyebanji, the Mobil Oil boss..

“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 and know what is the require­ment of the market and how he can achieve his profit. And this can only be achieved is a system that frees up the market and that allows the private sector and mar­ket forces determine prices just as it does in all other industries to compete

“Petrol remains a product. It is manufactured like many other things that we import and sell. I feel that if the private sector is given the freedom, and am not taking 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.

“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,” Oyebanji added.

Corroborating Oyebanji’s po­sition, Franks Jacob, President of the MAN says “It will boost private investment in the down­stream oil sector especially in pe­troleum product refining.”

“This will ultimately reduce importation of petroleum prod­ucts and ease the pressure on the foreign exchange market as well as foreign reserves: It will elimi­nate the rampant patronage, rent seeking activities and corruption that currently characterise the downstream oil sector

“It will improve product avail­ability and eliminate fuel queues. It will create more jobs for the teeming youth of the country in the downstream oil sector as in­vestment in the sector improves,” Jacob said.

But for the policy to go on smoothly, he opined that the current foreign exchange policy must be urgently reviewed to im­prove liquidity and transparency in the foreign exchange market.

“Only a limited success will be achieved if the current rigidities in the management of the for­eign exchange market persist,” he said.

But others like Ken Abazie, President of the Downstream Group of the Lagos Chambers of Commerce and Industry (LCCI) are skeptical the new government policy would attract the requisite investors into the building of new refineries.

Abazie told Saturday Sun that some operators were not still comfortable with the govern­ment fixing any ceiling on pump price.

“What we need as Nigerians and which is what the operators have been canvassing for, is full deregulation of the downstream industry where market forces will determine prices of prod­ucts,” said Abazie.

“Operators never wanted a de­regulation in which any form of ceiling will be placed on prices by the government and it has just been done with the N145 per li­tre maximum pump price.

“We are not happy with the ceiling policy because that is not the right thing that the govern­ment should have done. No one will invest in a refinery under a regime where the government has any form of control on prices of end products,” he added.