Why we are still experiencing petroleum products scarcity – Obi

By LOUIS IBA

The demand for petroleum products, particularly the Premium Motor Spirit (PMS), is far greater than available supply, says Mrs. Nkechi Obi, executive vice president/CEO of Techno Oil Limited. Obi, one of the few female CEO’s in Nigeria’s largely male-dominated oil and gas industry, has lamented the over involvement of the government in the management of infrastructure in Nigeria’s downstream sector, which she noted, over the years, had failed to yield tangible dividend to citizens.

One of the hiccups she held as responsible for the on-going crisis in the petroleum products supply is the absence of functional refineries, a development which had forced the country to become a net importer of products. But she noted that the trend, which appeared to have been surmounted in the past two years with more marketers importing privately to augment supplies by the Nigerian National Petroleum Corporation (NNPC), had suddenly reared its ugly head again as government, in recent months, had failed to honour its financial commitments to reimburse marketers, who imported and sold on behalf of the government under the fuel subsidy scheme.

Said Obi: “We are not attracting investors to build new refineries and the ones we have cannot refine enough to meet the daily consumption volume that we need. And then the marketers, who are importing and selling, are not getting paid on time by the Finance Ministry. The pricing of products, which is supposed to be regulated, is not working, as you notice that some marketers are selling above regulated pump price. And so we have this problem of product being scarce because we are not doing the right thing.” When asked what exactly is the right thing that should be done? Obi said: “It was time the government backed out of being an operator and regulator of the industry.

“The panacea to the crisis in supply of products in Nigeria remains the deregulation of the industry to provide a level playing ground for operators and for competition,” said Obi. “That is the best way to guarantee steady supply of products to consumers, and that is the answer to the on-going fuel scarcity,” she added. Obi, who is our CEO for this week, also spoke about her company and the various investments it is making to boost the quality of education in tertiary institutions in the country. Excerpts:

The on-going scarcity of products

Let me start by saying that anywhere the right thing is not done, growth will always be stunted. And the next thing I want to say is to acknowledge that I am a player in the downstream sector of the oil and gas industry in Nigeria. And so I must be honest to tell you that we are not doing the right thing in the industry and that is the reason we have not been having the right result; that explains the crisis we are witnessing in the industry as it concerns the distribution of petroleum products. That also explains why products are scarce and why the prices of a product like petrol that is regulated is sold differently in various places and in various retail stations, even within the same city. We have not done the right thing. Or, rather, we are not doing the right thing.

The first error is that as it stands now in the industry, the government has no business running any enterprise as a business in the downstream sector, except as a regulator. They won’t make any progress, I tell you. For us to move forward, the downstream sector has to be deregulated. It may sound hurtful, but that is the truth. That is the reality, and we cannot run away from it. We must confront it. I speak as a Nigerian and as an operator. The panacea to the crisis in supply of products in Nigeria remains the deregulation of the industry to provide a level playing ground for operators and for competition. That is the best way to guarantee a steady supply of products to consumers. This is the answer to fuel scarcity. We cannot, as operators, keep relying on allocation of products sometimes imported by government, and then we sell it and wait for re-imbursements under a subsidy scheme, and we won’t expect a crisis in the system. We cannot continue that way.

In fact, I continue to fault the subsidy scheme, even as an operator because I know that the target beneficiaries are not gaining anything from it. The people benefiting are the very few privileged in the society. Ask yourself one question: we say we are subsidizing and the government budgets money for the subsidy, which should make petrol sell at N97 per litre all over the country. Now, how many filling stations are selling the product at that subsidized amount?

The argument has always been that as an oil producing nation, citizens should enjoy one form of subsidy from a resource made abundant to us by nature. Are we enjoying the subsidy? I don’t think so. The answer is No! We cannot continue to live that way. We must be realistic and face the facts. Subsidy is inimical to our economy. It doesn’t free up funds for other development projects. Okay, for me as a marketer, you bring in products under a subsidy scheme where the government issues sovereign debt notes and this is supposed to mean cash, but then it takes months for you to get your money. That is not the kind of business you consider very profitable, and we cannot continue that way as a country.

Government is not making its remittance as at when due and this is affecting a lot of importers and marketers. I am an economist. I know how this thing affects any business. So when you run this type of system, you already create a problem because the products will not be there…and then you have a situation where demand is greater than supply. And that is what we are witnessing in Nigeria today. The demand for petrol, for instance, is far greater than the available supply. At a point some marketers were not bringing in products. And you also know that the pricing of products, which is supposed to be regulated, is not working, as you notice that some marketers are selling above regulated pump price. Whenever the product is supplied under a subsidy scheme the supply will not match the demand, and the result will always be scarcity.

I will tell you that the only way subsidy will work is for the supply point to be greater than the demand. Our borders are porous and if we want to say ‘let us provide enough supply under a subsidy arrangement to meet the demand’, then that means we will be feeding an illegal market, as the products will find their way through our borders to the neighbouring countries. And Nigerians will be worse for it.

The way forward

In a situation like what we have found ourselves as a nation, I tell you, the industry has to be deregulated. And whatever policy is thereafter put in place by the government, they will not monitor and regulate the compliance and ensure that things are done properly and in the way and manner it should be done. For now, I don’t think there is any other immediate solution. Because on the government side, I don’t think they are doing the right thing. They are not doing their bit very well by not making payments to marketers as at when due. Already if you examine the industry critically you would have noticed that there is a form of partial deregulation in place. A product like diesel has been 100 per cent deregulated, while for kerosene you cannot say its price is still regulated because consumers are paying or buying the product at a deregulated pump price.

So what this depicts simply is that a price regulation regime is not working. For petrol, the demand is greater than supply. The scarcity you have today is as a result of a shortfall in supply to match the demand. The supply point is not adequate because marketers are not bringing in enough products into the market. And the problem also is that for some of them that import, they are not being paid as at when due. I have to emphasis this point. So the government is not keeping to its words. There had been a backlog of arrears over the months.

And then you had this multiple probes which we were subjected to. How can I be happy to be subjected to all these probes. Our business is to market products; our business is to sell, to serve consumers and not to waste man-hours facing probes. It has really taken our time this year. But I think one of the probes that turned out well in terms of management and thoroughness was the Aig-Imohkuedue led Presidential Committee probe. For us as a company, we were cleared by all the probe panels. I believe that this should be the last of these probes and that the government should go ahead to implement the report of the probes. And if there are other grey areas that some marketers are contending with, then they should give them the benefit of the doubt and a fair hearing to state their case.

And I also have to add that one of the benefits of deregulation is that investors will have the confidence to come in and build private refineries. No one will invest under a regulated regime where the government dictates price of products for you to sell. Even getting credit for such a business can be very difficult. You have to be able to plan how you will recoup your investment and it is deregulation that gives you this guarantee. I know some people will say they have deregulated diesel, why are the investors not coming in to build refineries to refine diesel. The truth is that diesel is not a much sought after product as people assume. In fact, the demand for diesel has gone down. In terms of the percentage consumption of petroleum products in Nigeria, the product that is in high demand is PMS or petrol. I am an operator. And I know this. So whoever wants to invest in a refinery looks at petrol. And we are yet to deregulate petrol.

The big manufacturers that use to consume diesel have all converted to natural gas which is far cheaper and cleaner for them as a fuel to fire their boilers, turbines and other facilities. Immediately these companies started using gas, the consumption level of diesel dropped. And then you also know that not many people will favour building a refinery that can refine just one product like diesel when you can get other finished products from the raw crude. So people should note that. I have always believed that government should focus on governing and regulating and not running profit venture businesses.

Even the idea of a refinery, I still believe that if the government had to come in, it should be as equity stakeholders, not as a sole-owner as we are having now. If we deregulate the sector we will have investors.

The on-going reforms in the energy industry

I think the way the President is handling the reforms in the power sector, if it is sustained with the right caliber of people put at the helm of affairs of the industry, we will see good results. The privatization programme has its challenges and I notice they are being addressed accordingly. The President is listening very well and is taking steps to correct issues that are raised. So we are making progress.

In the petroleum sector, the local content law was passed by the President as soon as he came on board and that legislation is helping a lot of Nigerian companies to grow their capacity in the industry. Everyone is commending the President for that law. And I know that in the years to come, that law will produce local companies that will compete and even do more than the foreign firms.

But there has been issues with the Petroleum Industry Bill (PIB). That is the bigger law as many people will describe it; it is the law that will transform the whole industry in such a way that the country derives better benefit from the crude oil and gas deposits we are endowed with. And you know that this PIB has been delayed by the various interests contending with certain provisions in it.

The date for the signing of the PIB has like a goal post been shifted and shifted and we are losing time. To me I think it is about time we ended the whole procrastination of this essential bill becoming a law in Nigeria. It is time we allowed it to work. Let them get it out of the National Assembly and let the President sign it into law. And then let us commence the implementation.

We are losing time and losing investments by delaying it. There will always be grey areas in a law, and we will address it. But let us start something. Let us learn. It is not good that we are dragging. Today the international oil companies will say they don’t like this one and they don’t want this one. And tomorrow the government will say this is what we want and this is how we want to go about it. The indigenous oil companies will also come out and say yes!

This is what we want inserted in the bill. We have had enough of all these. Let us move forward. Like I said earlier, it cannot be entirely flawless. That document cannot be cast in stone or iron. There will always be room for amendment as long as we are operating a democracy and we have a National Assembly and judiciary as arms of government.

The rising unemployment problem in the country

The best way to create jobs in Nigeria is for us to fix our infrastructure. We have to fix our roads, ensure stable electricity supply, and security of lives and property. The next is that we have to grow the SMEs. That is the area that most countries globally speaking utilize to create jobs in large numbers for citizens. And you have to create the enabling environment that will create these SMEs. Our company, for instance, started like an SME even though today we have grown to employ more than 200 people, in the beginning it was less than 10 staff. And you have too many other companies with our own kind of story that started as SMEs.

And then we also have to put the policies on the ground that will encourage even the bigger industries to thrive. And like I said earlier we have to grow our infrastructure. And my believe is that as long as our infrastructure is strong enough to support the emergence of a vibrant SME industry as well as thriving industrial and manufacturing sector, we will see a tremendous growth in the figures of jobs created in the country.

On our own part, we are investing in the education sector by adopting schools and trying to boost their ICT infrastructure and in the long term provide the requisite manpower for the country’s future. You know that information and technology hold the key to the future. So far we have committed more than N200million in schools in Lagos, Anambra, Abia and Port Harcourt under our corporate social responsibility programme and the results have been quite impressive. I always see our CRS activities as a partnership with the government to creating congenial environment to engender teaching and learning recognizing that economists have established quality education at the primary and secondary school levels as one of the most important indicators of potential GDP growth.

We also know that some of these students will one day return to the industry to work for us. And we have to provide access for them to acquire the skills they need to succeed as engineers, geologists, technicians, economists, accountants etc. all the professionals that the industry require. Above all I believe that the task of job creation is one that should be jointly executed by the government and the private sector.