February 10, 2018 at 12:16 pm #5496
REPOSITIONING OF THE NIGERIAN PETROLEUM SECTOR FOR GREATER PROFITABILITY THROUGH INCREASED COMPETITIVENESS
As a brief introduction; I am a Nigerian youth who is proud of his heritage and –like most young Nigerians– is focused on innovative initiatives that help to tackle the root causes of the current existential problems that plague our beloved country, Nigeria.
Focusing on the Nigerian Oil and Gas sector, one of such problems -again recently witnessed- is the issue of Fuel Scarcity. This is an unwelcome situation in which Petrol (premium motor spirit), a very important and in-demand commodity for both homes and industries, suddenly becomes unavailable. This is even more worrisome and embarrassing considering the fact that Nigeria is abundantly blessed with this resource (Crude oil) and also endowed with the necessary manpower to maximise the resource’s potential. This therefore causes one to wonder:
“What exactly are the root causes of these problems and how can these unpalatable situations be corrected and prevented from reoccurring?”
The above statements in no way assume nor attempt to suggest a total or complete lack of progress in the sector. It also does not intend to be dismissive of all or any effort that might have contributed to the attainment of these achievements. Instead, it focuses on how the achievements made -if any- can be consolidated upon. Taking advantage of this opportunity therefore, I will attempt to make suggestions and proffer some solutions to this enormous challenge we cannot allow to continue for the progress of our great nation and its people.
The first step towards the consolidation of the current progress within the Nigerian Oil and Gas sector is to re-evaluate the journey so-far. There is the need to critically audit what has been done. The result of which would set the stage for us to reinforce or improve on the strategies and actions that have yielded positive results, as well as, change or modify actions or strategies that have failed to yield the intended results.
To put this into perspective, the brief flirtation of Nigeria with recession is thankfully over. In line with the above, while we celebrate finally exiting the recent recession, it is important that we identify the mistakes of the past and how a country as blessed as Nigeria fell into recession in the first place. Then we can decide, looking at the facts, if those mistakes or deliberate errors have been corrected so as to avoid a repeat. It is also important to acknowledge that as a result of the currently employed policies that govern the Production or Importation, Distribution, and Sale to the final consumers of Petrol in Nigeria, the supply framework is rather too complicated and easily entangled in economic disagreements to be of any real benefit to Nigerians.
I therefore start the problem-search by stating that, chief of our problem is the attitude of our great nation and its managers to the Oil revenue. We have grown too reliant on the proceeds from this sector; an unfortunate circumstance that has led to an unhealthy addiction of the government (both at federal and state level) to “sharing the money”. This habit has so far discouraged states from passionately seeking greater economic independence from the federal government. Efforts of most states towards creatively generating local revenue are insincere or at best abysmal. Their energy is
rather expended dragging the federal government to court over its reluctance to deplete the nation’s foreign reserves so as to enable them (the states) “pay salaries”. Sadly, this also has led to a systematic abandonment of other important sectors and industries, leading to a gradual extinction of revenue generating opportunities, jobs, and important skill-set. In ascribing blames, permit me to borrow a phrase from Mrs Okonjo Iweala in saying that a “Lack of political will” has been the most cantankerous of our political syndromes. This supposed “lack of political will” cannot be blamed on holy ignorance. Instead, it results from a lack of the strong desire to implement the required corrective measures and deliberate attempts at preventing others from doing the needful. Sadly, these acts of sabotage are fuelled by greedy intents and the grandiose positioning of opposition stakeholders eager to score cheap economic and political points; earning undeserved returns at the detriment of our great nation and its people. I have therefore coined the phrase “Economic/Resource Terrorists” in reference to this greedy bunch of people.
Devoid of ethnic, religious, or political affiliations, there is a common consensus on the fact that the status quo needs to change. It has to change for the better, for our economic fortunes to positively turn around. The realisation that we cannot blindly continue on this doomed path and expect to magically arrive at the promised paradise of “Change” is glaring for all to see. The consensus is therefore that we must embrace tried and tested world class solutions and in the same vein, abandon the “local” practices that have so far resulted in; recurring union/workers strikes, non-functional or underperforming refineries, un-affordability and unavailability of petroleum products to consumers, environmentally degraded and polluted oil producing communities, intellectual/skills drainage and migration, exit of foreign investments, a mass retrenchment or redundancy of workers, etc.
To achieve the above, it is pertinent to answer the following questions:
By what means can we achieve this desired paradigm shift?
How do we refocus the Petroleum industry for; greater participation by all stakeholders, greater productivity, increased transparency, and finally, the realisation of greater economic benefits/Economic rent from the sector?
Permit me at this juncture to commend the Minister of State for Petroleum, and the Group Managing Director of the N.N.P.C. for the growth and many achievements of the petroleum sector under their leadership. Most importantly, for driving the renewed effort to refocus the nation’s Oil and Gas industry for greater productivity; transforming the N.N.P.C. from an opaque and struggling national oil company to a profit-oriented world class Oil Company. Worthy of mention at this point is the “Seven Big Wins” initiative of the Ministry of Petroleum Resources which seeks to guide the oil industry and its stakeholders with short and medium term priorities targeted at growing the Oil industry.
Another important action of this regime was the December 2015 introduction of the Federal Government price modulation policy for imported petroleum products; a response to the agitations and incessant strikes within the oil sector. As much as I wholeheartedly agree that there was the need for policy restructuring, I fear that this is a temporary solution that serves to only manage the situation (as the Minister of State for Petroleum already pointed out in saying that at intervals, the
price structure would have to be revisited and restructured in line with the varying new economic realities) as opposed to permanently solving the challenge. It is my belief that the same result of a profitable and sustainable petroleum product supply chain can be achieved without the divisive effect and distractions of upset opposing stakeholders that rear their politically clouded heads with every new policy implementation or restructuring and also, without the economy-crippling-strikes and mass agitations that result in unending queues at filling stations around the country.
In suggesting reforms or enacting policies, it is important that our thought process be guided by the realisation that the sincere interest of all stakeholders must -at all cost- be always protected. The needs of these stakeholders aptly categorised as “Nigeria” as an economic entity, and “Nigerians” as constituents of that entity must guide our thought process and should always remain in focus.
With the above in mind, the prime focus of any government as regards its downstream Oil and Gas Sector anywhere in the world should be Availability and Affordability. In other words, the availability of quality Petroleum products at the various points of purchase, and the price of these commodities, while accommodating reasonable profit margins, should not exceed the purchasing power of the common man. This therefore implies that these two factors (Availability and Affordability) are both “equally” significant. I say this because having the price fixed at One naira per litre without being able to find it for purchase is just as much disruptive as having stockpiles of unaffordable petroleum products lying around in our depots and filling stations.
I therefore suggest a two-prong approach for tackling this challenge;
● Firstly, that the pricing of petroleum products in the downstream sector of the industry be largely left to market dynamics with private marketers freely competing against each other for market share as successfully implemented in the Nigerian telecommunication sector. The government however would retain its oversight role/function.
● Secondly, the NNPC maintains its 50-60% presence in the downstream sector & sustains a reasonable level of its product’s subsidization as an alternative to the common man; therefore serving as a government-backed active participant/competitor in the downstream market. This suggested subsidization is to be wholly financed by the interests of the NNPC with the economic intention not to incur losses but reduced profit margins.
Also, considering that a significant portion of the pump price of PMS is the cost of importation, storage, and other related costs, we must prioritise becoming self-sufficient as a nation through increased local refining capacity.
With the first approach on one hand primarily focused on providing security as regards product availability, while also guaranteeing a best price scenario in the long term; resulting from a rapid increase in the rate of supply, unmatched by a more steady increase in demand. The second approach on the other hand is primarily focused on ensuring affordability by guaranteeing price security in the form of an alternative for the common man. All of these would once and for all put a stop to the incessant strikes and agitations of these oil importers, producers, or distributors as the problem had always revolved around profitability. The other benefits of these measures include that; it takes away from the government, the burden of subsidising about 50% of the nation’s consumption need, while also arresting the fraud perpetrated by some of these marketers who go
on to export these subsidised products to other Neighbouring countries (thereby contributing to commodity scarcity) or those that away from the prying eyes of regulators still sell at exorbitant prices. Also, this approach will serve as a welcome catalyst for further encouraging local private participation in the sector and as a result, the economic interest of the common man is further protected.
With this recommendation, the subsidised products would only be distributed at NNPC terminals/ Gas stations, at the fixed prices, and directly to the final consumers. All other marketers would source for and sell at their discretion but restricted by competitive market forces. In situations where the NNPC, through maybe its refineries decides to sell to other marketers, the commodity would be priced at the international or standard price (not subsidized and with all the factors and cost of production considered). These marketers also would be forced to sell at a fixed price that accommodates a reasonable and fair amount of profit. In implementation, the Government’s role/function would include, but not be limited to: the discouragement of any form of monopolisation within the Oil and Gas sector/market through the enactment and implementation of policies that encourage small and medium scale private sector participation; the prevention of any manner of exploitation by petroleum marketers; and, the assurance of maximum economic recovery for the State.
Another recommendation has to do with the sharing of the oil revenue. As stated earlier, the current system has largely encouraged two scenarios;
The looting and mismanagement of these funds at Federal, and State level. This has also led to underwhelming efforts or a complete lack of interest by some states in internally generating revenue.
The gradual abandonment of other formerly lucrative sectors leading to a gradual extinction of certain skills, opportunities, and jobs, and by extension, a lack of diversity in our economy.
The solution to this is to ensure that the proceeds of the Oil and Gas sector are strictly injected into building human capacity and boosting other important and profitable but less financially viable sectors such as Agriculture, Healthcare, Education, I.C.T., Sports, Entertainment, etc. Backed by the necessary laws and policies, the money should be invested and not “spent”, as is sadly the case today. By so doing, the government would have created various industries that in turn, create new jobs and opportunities, Tax returns for the government, and encourages Local investments.
In conclusion, it is important to note that achieving the above is largely dependent on new policy formulation and implementation. This therefore suggests that the Legislative arm of government has a critical role to play in this process. It alone can drive the efforts targeted at repositioning the Nigerian petroleum sector for greater profitability as well as ensuring that the issue of fuel scarcity does not rear its ugly head again. Standing on its mandate to represent the interest of the people, it is therefore the duty of both chambers of the National Assembly, supported by the Ministry of petroleum, Department of Petroleum Resources, N.N.P.C., and other stakeholders in the sector to execute/implement this change.
This is my humble submission. I trust the tenacity, resolve and ability of the Nigerian people to steer the Nigerian oil sector away from this quagmire and into the Promised Land of greater profitability, prosperity, and transparency. In unity and under the right leadership I believe that the vision of our founding fathers for our great nation, Nigeria, especially those of repositioning the country to become a leading industrial nation in the world will be actualised.
Contact: [email protected]Thoughtful Comments: 20. 20 (interesting)
February 11, 2018 at 12:44 pm #5589
The first and most important thing to get rid of is greed. The notion that there is the national cake to ‘chop’ is the bane of our economy.
Before we talk about the government, let’s look at the society itself. The best paying jobs are in the oil and gas sector. The best scholarships are given to studies in the oil and gas sector. The juiciest deals are made in the oil and gas sector. Consequently, there is a high degree of dependency on the oil and gas sector and its patrons. I suggest then that we use resources from the oil and gas sector to improve the other sectors, especially the ‘informal’ ones.
To this though, the executors of the project must lack a certain quality i.e. the propensity to line their own pockets or favour their friends and family. Currently we all depend on oil and gas and their end products. As I type, my computer is powered by a generator. Eliminate the need to use petroleum for household needs by ensuring there is uninterrupted power supply and you cut the craze for ‘making it big’ in oil and gas goes down.
If after that, we invest in greenhouse energy, solar, and so on, we further eliminate the craze and compel a lot of people to look elsewhere. Many are taking up subsistence farming because of skyrocketing food prices but the vast majority still have to depend on the markets to buy. If every state or local community produces enough food to feed 2/3 of its population, we’ll see a better country.
Now for the government. It’s not far from the truth to say that 95% of those who go into politics do so because there is wealth to be made. Cut salaries and entitlements in half or place them on the same level with civil service salary structures and we’ll begin to see some thieves dropping off. Fortify the legal system and make it impossible for those who steal our money to enjoy it home and abroad and you begin to sanitise the society.
No matter how much we try to reposition the oil and gas sector, if the wrong people are at the helm of affairs; if the notion most people have is that the oil and gas sector is the place to make crazy money, we will continue to spend as a nation rather than invest.Thoughtful Comments: 0.
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