Adewale Sanyaolu
The Federal Government’s inability to deregulate Nigeria’s downstream sector has created unwarranted distortions and hardship for stakeholders in the industry, leading to job losses, low investments, and the collapse of over27,000 retail outlets across the country.
Described as the most fragmented in the petroleum industry value chain, Nigeria’s downstream sector is also competing with the Nigerian National Petroleum Corporation(NNPC) which as operator and regulates imports close to 100 per cent of the nation’s petroleum [products requirements.
In this interview, the Chief Executive Officer (CEO) of OVH Energy Marketing (OVHEM) Limited, licensee of the Oando retail brand and ASPM Limited, custodians of the Lagos Midstream Jetty, Mr. Huub Stokman, urged the Federal Government to deregulate the sector to free up funds for the development of other critical sectors of the economy.
Excerpts:
Downstream constraints
It is our belief that the Petroleum Industry Governance Bill (PIGB) will soon be signed. The reason that is important for us as operators in the downstream sector is because it includes basically deregulation of the Premium Motor Spirit (PMS).
Under the current structure, the pricing regime does not allow us to do big investments.
For OVH, the ASPM is a separate entity. But the downstream sector is hindered by very low margins that prevent investments. And if you cannot invest, you will always go backward. But the key thing is that, I am always optimistic about the future. I believe that if the PIGB is signed, that will be great.
But on the other hand, even if the PIGB is not signed, we still need to continue to invest in the industry. It is extremely important we continue to strive to do so in order to keep the industry afloat even if it is going to be at a reduced rate, especially from a safety, operations and customer service point of view.
Having said that, it is instructive to note that, the signing of the PIGB and the deregulation of the sector will be a step towards unlocking the potential in the industry and also reduce the level of uncertainty in the industry, because that would help to improve standards in all aspects of the business.
It is worthy to mention that the margins we make on the major product which is petrol and is about 70 to 75 per cent of the product being consumed in Nigeria is extremely thin. And that is not just for us but for dealers that run on the retail side and also for those that run depots and need to sustain themselves through throughput agreement. It is also the same for those that transport using trucks to the end destinations.
And if I compare Nigeria to the other countries where I have worked, Nigeria is the lowest margin country that I have ever worked in. The margins in Nigeria in comparison to many other countries are the lowest in the industry.
So when you have low margins, the problem that comes with it is that it doesn’t give you enough cash to make investments in depots, transport, retail to improve customer experience, safety and operational excellence. I think those are the issues in a nutshell.
End to subsidy
I am not a politician and I think the decision on how the Federal Government wants to spend its budget rests solely in its hands. But l believe that if the price of petrol is deregulated, the money that is spent today in subsidising the importation of petrol could be spent on other sectors of the economy including infrastructure, rail, education, roads or health. So for me, it is a choice that the government has to make on where it wants part of its budget to go.
My argument is that when you support consumption today as against investing in the future which could be in the form of building infrastructure or education, that is a choice only the government can make in my view. I am not going to sit on the government in deciding what to do or how to run the budget but l believe that a free market environment is an open access and a good competition authority is the best way forward for Nigeria in the long term and also for the downstream
Sustainability of NNPC as sole importer of petrol
I think the biggest challenge NNPC has as a company or corporation is that it is both a regulator and a competitor. But I don’t envy them because it is difficult to do both. For me, the task of NNPC in this regard is to ensure that there is sufficient fuel in the country. I am convinced that all the players could work together with the NNPC to ensure there is always enough fuel in the country. There is no doubt in my mind that such is possible. This then takes away some of the necessity of NNPC always of having to take the role by themselves.
However, petrol at the moment is a regulated product which at the current price is not feasible to import. On petrol, we need to know that with the current price at the pump, only NNPC could import on behalf of all the marketers and the country as a whole.
On products such as diesel and aviation fuel which are deregulated, NNPC is also taking a big role in importing same which in my view is not even necessary. They started taking this role when the refineries went into refurbishment so I can understand that they were worried about supply security. But that hasn’t really happened. For me, they would have stepped back to say they would allow market forces to take care of that to ensure that there is enough diesel and aviation fuel into the country.
Investment in uncertain business environment
Even in a low margin environment, I and my team in OVH are ensuring that we do the best we can to generate as much as we can within the limits. We would like to invest more and go fast but with the kind of money we make, we are trying to make sure that we do some investments that make sense be it in retail, especially in those locations where we believe that it makes sense to have a new retail site.
At the moment, we are closing in on our automation project which is crucial to our operations because it makes the depot to be more efficient in terms of turnaround time for trucks and reduction of losses.
So we do invest but maybe at a lower level that ordinarily, we should have done more. But we do believe that you need to keep on investing in order to make the business sustainable.
Again, l do believe that one day, this market will be deregulated and you need to be prepared for that. You need to be ready from the infrastructure point of view be it in midstream jetty, depot, transport or in retail. And you also need to be ready with your operations, especially in the aspect of depot safety, training, and infrastructure.
In the midstream jetty, our footprints are equally feasible. We dredged our jetty up to 13 and a half meters draft which by implication means we can accommodate bigger vessels. We equally did pigging on the lines. What does that mean? Pigging on the lines means we cannot only take petrol but can now take diesel and aviation fuel which are the three major products that the country needs, thereby relieving pressure in other jetties in Apapa, ensuring quicker turnaround time for vessels so that the country is energy secured. These were some of our investment interventions in the downstream space in 2019.
Speaking more to the automation of our jetty, once you take 60 vessels in a year, alongside multiple products, you need to automate your operations. And that was exactly what we did. Our operations are now partly automated and manual. But we would like to automate the whole process, simply for two reasons; health and safety and operation point of view so that we can work faster than we are doing currently.
Safe roads
I think as a company, we bear responsibility for everyone’s safety not just for our staff but our partners including drivers and the general public. And we said we want to work with a transport company that has a track record for safety.
In this regard, we have done a couple of things. One of such is transport audit. Every transport company working with us is audited every year in terms of their efficiency, HSE, how they work with their drivers, route management, state of the truck fleet. If after all these audit processes, we discover that they fall below agreed operating standards, they stand the risk of losing the contract.
On the other hand, every year, we train all the truck drivers that are enlisted with us in conjunction with the Federal Road Safety Corps(FRSC) in defensive driving in order to make sure that they know how best to behave on the roads.
Also, we are working together with the banks to renew our truck fleet because the average age of trucks in Nigeria is quite high so it is important that we start even with the small steps with the renewal of the fleet.
We are also putting onboard computers on the trucks so that we can easily track where the truck. Coupled with this is the installation of speed limiters on our trucks to also make sure they don’t go above the advised speed.
Midstream/downstream Company of the year
Yes, it is true we won the midstream and downstream company of the year at the recently concluded Nigeria International Petroleum Summit (NIPS) in Abuja. But I must add that this award did not come by accident.
I think what we did with the midstream jetty is exceptional because we took the decision to invest in infrastructure when everybody didn’t believe it was the right thing to do. But that is not the only thing. Once it was done, we operated it safely and efficiently because it is not enough to put up infrastructure.