In spite of Organised Labour’s recognition of the real advantages that a deregulated downstream oil sector would bring to the economy, there is yet no sign that Labour’s opposition to this policy has waned! Labour, of course, recognizes that NNPC (Nigerian National Petroleum Corporation), like all monopolies (especially state run monopolies) create price and market distortions which do not generally favour the masses. Thus, even when it is clear that deregulation will not only release at least N600bn revenue annually for critical infrastructural upliftment, but also reduce the space for corrupt enrichment within the petroleum sub-sector and induce keen competition with improved consumer services, Labour is not convinced that deregulation would translate into cheaper or stable petrol prices, especially when global crude oil prices follow an upward trajectory.
In truth, this column shares Labour’s apprehension and I will even make bold to say that any assurance from any quarter that deregulation as proposed in its present jaundiced form will bring down petrol prices from its current level even when crude oil prices continue to rise must be a calculated attempt to deceive Nigerians, before our income values are taken to the cleaners! Indeed, Deregulation within the context of our current monetary framework will be suicidal! In their eagerness to encourage Labour to embrace deregulation, government and its agents have been quick to point to the gains in the telecom sector with the advent of liberalisation. In truth, prices of mobile handsets and cell rates have tumbled endlessly over the past five years and Nigerians are urged to be patient so that the same favourable scenario would play out in the downstream oil sector; but, sincere and insightful analysts will be quick to caution against such expectation. In the first place, competition may indeed have impacted favourably on consumer prices, but the more important fact is that it is the increasing size of the market (the cost benefit of mass production/service) that has been the main driver of the favourable prices! Secondly, and certainly of equal significance, price reductions are made possible with an expanding market in the telecom sector by the nature of its revenue base; for example, telecom operators receive their incomes in local currency (i.e. naira) from Nigerian based customers, and furthermore, the telecom operators do not have any direct influence on the determination of the naira purchasing power!
Meanwhile, deregulation of the downstream sector may mean more suppliers, but the demand for petrol as in the case of telecom is unlikely to enjoy an astronomical increase, so the relatively static size of local demand for petrol will not increase and thereby instigate the cost savings that will ultimately reduce prices of petrol, especially when the crude oil market is buoyant! Thus, more refineries with increased capacities and an influx of importers will not necessarily increase demand such that prices will come down with the advantages of large scale production. Furthermore, it is clear that the universal driver of petrol prices is actually the international crude oil price movements. This is certainly the most significant factor in the pump price of fuel.
Yes, the distance between refineries and the market, and the index of efficiency in each refinery would also contribute to the price level, but in reality, these two factors may not account for more than 20% in the price structure of petrol; however, the most critical factor that could induce wild swings in petrol prices is certainly the market price of crude oil. The price of crude oil is, however, denominated in dollars and unlike telecom, our export revenue is consequently received in dollars and not in naira. Meanwhile, the naira value derivable from this dollar revenue is in turn determined in a market which is inexplicably dominated and controlled by the worst form of monopoly (i.e. government parastatals).
Thus, the foreign exchange market which determines how much our hard earned dollar income will command in the market, by its monopolistic nature, is plagued by price distortions, corruption, and market dislocations!! In spite of vastly increased export revenue, the monopolistic posturing of the Central Bank in the foreign exchange is in fact at the root of our underdevelopment! The CBN in its role position as the nation’s banker is the prime custodian of our currency; i.e. the naira, and it is appropriate that it controls all naira issues and it is, by its mandate expected to maintain price stability which also includes an appropriate monetary framework which ensures that the naira we all earn does not continue to buy less and less in the market! Thus, while a Central Bank’s monopoly of a nation’s currency issue and management is universally accepted as inevitable, the waters become seriously muddied when the same Central Bank becomes not only a major player but also a monopolist in the supply of foreign exchange to the domestic market; this would lead us into a very poisonous matrix that guarantees that our people become poorer with increasing dollar export revenue.
Currently, the CBN is annually responsible for about 70% of all dollar revenue that enters into the domestic forex market. The balance 30% or less is supplied by oil companies and a few exporters outside the oil sector! While these private dollar suppliers are legally permitted to approach the banks directly for the exchange of their dollars to naira, the owners of public sector dollar revenue in our reserves are not so lucky! Over the last three decades or so, the CBN has played the role of the all-knowing big brother with our dollar earnings. In the present framework, the CBN actually captures the monthly distributable dollar revenue, and proceeds, with no serious attempt at a market-determined naira/dollar rate, to print and supply loads of naira to the three tiers of government at its own unilaterally determined exchange rate! Consequently, with such framework, increasing dollar revenue will mean increasingly worthless naira value, as more and more naira will be pumped into the system with the attendant problems of excess liquidity, high interest rates, heavy government borrowing (not for infrastructural development but for reduction of excess cash in the system) increasing unemployment, lower demand and comatose industrial landscape as a result of CBN’s monopoly of the people’s dollar revenue!
As you may imagine, the above is a veritable paradox, as increasing dollar revenue (whether from crude price rises or additional export revenue) should realistically improve the value of the naira if the increased dollar revenue provides us with longer forex demand cover. For example, our $60bn or more reserves in 2008 gave us over 30 months demand cover according to CBN and our exchange rate hovered between N120 – N150=US$1, but compare this with our $4bn dollar reserves and four month’s demand cover in 1996 and yet our naira exchange in 1996 for just N80/$1.
Some Nigerians have argued that crude oil is our natural endowment and we should therefore enjoy a subsidy akin to agric product subsidies elsewhere in Europe and U.S.A. Thus, even if a subsidy regime cost us N1 OOObn a year (a third of federal budget) or indeed breeds corruption and dislocates the price structure, such Nigerians maintain that subsidy is our birthright! I do not have any quarrel with this argument, but the point is that the concept of incidence of subsidy is misplaced in this instance. It should be a realistic expectation that when crude oil prices increase, our nation’s treasury benefits with increasing dollar reserves, which would in turn improve our dollar demand cover; when dollar demand cover improves as per the above example, we should rationally expect our naira to be stronger against the dollar! A stronger naira, with rising crude oil prices should normally translate into reducing petrol prices locally!!
The cheaper petrol prices will, however, mean higher cost to all cross boarder smugglers of petrol who have contributed to push our daily consumption of petrol over to 30 million litres! What our economic experts do not tell you is that the resultant stronger naira, cheaper petrol prices, the damper on inflation, and a savings ofN600bn erstwhile subsidy are actually the real subsidies that ownership and export of crude oil provides!
Partners Execute Shareholder Agreement For Brass Products Terminal
The Nigerian National Petroleum Corporation, (NNPC), along with their partner, the Nigerian Content Development & Monitoring Board, NCDMB, and Zed Energy have executed a shareholders’ agreement for the establishment of a 50 million litre Petroleum Products Terminal in Brass, Bayelsa State.
The N10.5 billion Brass Petroleum Products Terminal project is expected to deliver an automated 50 million litre depot with two-way product jetty, automated loading bay, and 6 automated tanks for storage of 30 million litres of Premium Motor Spirit (PMS)and 20 million litres of Automotive Gas Oil (AGO) and Dual Purpose Kerosene (DPK).
While speaking at the signing ceremony, the Minister of State for Petroleum Resources, Chief Timipre Sylva commended President Muhammadu Buhari for his giant strides in the Niger Delta which is making a huge impact on the people of the area.
“I make bold to say today without any fear of contradiction that no President has impacted the people of the Niger Delta like President Muhammadu Buhari. Aside from what we are witnessing today, remember there is also the Brass Fertilizer & Petrochemical Company, the Oloibiri Oil and Gas Museum and the Oil & Gas Park in Ogbia, all under Mr. President,” the Minister stated.
Sylva added that the establishment of the Terminal further demonstrates Mr. President’s commitment to the enhancement of the livelihood of the Niger Delta people particularly, the riverine communities in Bayelsa State where people purchase products at exorbitant prices due to logistics challenges associated with transporting products to that area.
Speaking shortly after signing the agreement, the Group Managing Director of the NNPC, Mallam Mele Kyari said the Corporation was proud to be part of the project which aside ensuring products availability in all nooks and crannies of the Niger Delta, will also guarantee the nation’s energy security and generate employment.
“This Terminal will create 1,000 direct jobs during the construction phase, and over 5,000 indirect jobs during its operation. Considering the potential for employment when completed, this will definitely reduce youth restiveness in the Niger Delta area and will also address the problem of illegal refining in the area,” Kyari stated.
In his remarks, the Executive Secretary of NCDMB, Simbi Wabote stated that this milestone was as a result of strong interagency collaboration and public-private sector partnership.
“The NCDMB will continue to drive such partnerships across the industry to bring development in Nigeria,” he noted.
Earlier, the Coordinator of the Project and Group General Manager, National Petroleum Investment Management Services (NAPIMS), Mr. Bala Wunti stated that the project would enhance the economics of marine petroleum products distribution.
Senate Hails NNPC’s Drive Towards Profitability
The senate has commended the Nigerian National Petroleum Corporation (NNPC) for its efforts towards attaining profitability and stamping out corruption from its system.
Chairman, Senate Committee on Anti-corruption and Financial Crimes, Suleiman Abdu Kwari, gave the commendation at a hearing which was held at the national assembly complex, Abuja.
Kwari said it was heart-warming to learn that the NNPC was making great strides towards profitability and urged the corporation to sustain the gains recorded so far for the good of the country.
In his presentation at the hearing, Mele Kyari, the group managing director of NNPC, said the corporation was championing the fight against corruption in the oil and gas industry by placing measures to curb incidences of corruption across its various business portfolios and by enlisting as a partner company of the Extractive Industries Transparency Initiative (EITI).
He also said that the corporation has reported several incidences of infractions such as products diversion and crude oil theft to the police, EFCC and other investigating agencies of the federal government to stem corruption within the oil and gas industry.
In an effort to clampdown on fuel smuggling, the ministry of petroleum resources launched the operation white project in October 2019 to monitor and track the movement of petroleum products in the country.
Also in February 2021, the Department of Petroleum Resources (DPR) launched the downstream remote monitoring system (DRMS) to track the movement of petroleum products from depots to retail outlets.
“We have created an anti-corruption desk in NNPC that engages the Economic and Financial Crimes Commission (EFCC) and other anti-corruption agencies on a regular basis,” NNPC GMD said.
“The desk ensures that in all our operations, every staff complies to the code of conduct procedures with consequence management.
“We have established a regulatory compliant governance charter and transparency policy; this is a mark of our compliance to the anti-corruption strategy.
“For the first time in 43 years, NNPC, as a part of the evolving culture of transparency and accountability, published its Audited Financial Statements (AFS) for 2018 and 2019. We are going to publish that of 2020.
“The AFS is the only document that tells how a company does its transaction. We are happy that by the time the 2020 AFS will be published, Nigerians will see the dividends of our accountability.”
Chevron Spends $10bn On Nigerian Suppliers, Service Providers
Chairman/Managing Director, Chevron Nigeria Limited (CNL), Rick Kennedy, said the company has in the last 10 years spent an estimated annual average of $1 billion on Nigerian suppliers and service providers in line with its commitment to Nigerian Content Development.
Highlighting the opportunities and new approaches to the future of hydrocarbons at the ongoing 2021 NIPS in Abuja, Kennedy stressed the need for robust policies and regulations to address and remedy existing challenges in the oil and gas industry; digital technology/innovations; cost efficiency initiatives; sustained social investments as well as continued support for Nigerian Content Development.
Kennedy, who was represented by Monday Ovuede, director, NNPC/CNL Joint Venture, identified opportunities in lowering carbon emissions and harnessing Nigeria’s gas resources as key enablers in complementing the new approaches to future of hydrocarbons in the Nigerian oil and gas industry in the post COVID-19 era.
According to him, the global community has continued to scale up the collaboration towards lower carbon emissions, adding that Chevron supports global efforts to reduce carbon emissions and is actively investing in operations to improve environmental performance while also working with industry to develop new innovative technology and best practices to achieve these objectives.
He emphasised that CNL’s gas strategy is to end routine gas flaring and build a profitable gas business through a portfolio of projects, and stated that in Nigeria, CNL, with its joint venture (JV) partners, the Nigerian National Petroleum Corporation (NNPC), has progressively reduced routine gas flaring by over 95% in the past 10 years and remained ahead in terms of maximising supply of on-spec gas into the Nigerian domestic market.
He also highlighted the NNPC/CNL’s Gas Sales and Aggregation Agreements with Egbin Power Plc, Dangote Fertilizer Limited, and Olorunsogo Generation Company Limited, while mentioning the positive impact of the West African Gas Pipeline (WAGP) through which Nigeria supplies gas to countries in the West African sub-region – specifically, Ghana, Togo, and Benin – thus, helping to boost economic development in West Africa.
Kennedy also noted that Chevron has joined other energy companies supporting the Methane Guiding Principles to reduce methane emissions from natural gas exploration and production operations through digital innovation and deployment of best practices, which include designing, constructing, and operating its facilities in a manner to reduce emissions from its operations.
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