From Judex Okoro, Calabar
Mr. Akshay Saxena is the Managing Director of Fynefield Petroleum, one of the major oil marketers in the country. He is a member of Depot and Petroleum Product Marketers Association of Nigeria (DAPPMAN) and a consummate professional in the downstream of Nigeria’s oil and gas sector. His over 17 years wealth of experience in the sector cuts across working in major and independent oil companies.
Saxena, in this interview with Daily Sun, suggests that one of the ways to tackle kerosene scarcity and make it available at affordable price to Nigerians was for the Central Bank of Nigeria (CBN) to restore approval rate for DPK to crash its price. He said it is high time CBN brought kerosene the same way it does for PMS (fuel) so that importers can use the right forex to import the product. According to him, if we use bank rate, the landing cost would become lower and there is nothing anybody can do because nobody would bring in a product at higher rate and sell at lower price. Excerpt:
Availability and affordability of kerosene to Nigerians
Since the focal point of the visit of the House of Representatives Committee on Petroleum (Downstream) and tank farms at the Calabar Free Trade Zone (CFTZ) on a fact-finding tour was to ensure the right price of kerosene and how the product can get to the consumer and at a cheaper rate, it is important that we understand the system first. Between the time of depot sales and distribution to the surface tanks owners, there are a lot of price differentials. The people who retail, kerosene, are mostly surface tanks owners who sell more quantities than fuel stations. They are mostly housewives, small scale business women and men. They require between 5,000 and 10,000 litres of kerosene to stock up their tanks. So, they do not have such money to pay in bulk to suppliers.
But the middlemen who have money to pay and buy large quantities would end up getting some discounts from depots. They then go back to these retailers and charge huge credit from them leading to hike in price. And since the surface tanks owners get it in bulk from middlemen on credit, they have no option than to pay. You now find a situation where a depot that sells a litre of kerosene, for instance, at N135 to middlemen, would end up selling at N200 to these surface tanks owners who will in turn add N5 or N10 to make some margin, thereby selling to end users at N210. This has been the case in the last two years. As government price increases, retailers also increase to remain in the market. This happens in relation to supply and demand theory.
Therefore, I suggest that government, through the Department of Petroleum Resources (DPR), should create a platform where the microfinance banks can come into the picture and take the position of these middlemen, buy product and supply on credit and at exorbitant rate to surface tanks owners. This will not only end up empowering microfinance banks to fill up the gap, but would have ended up doing one of their lines of businesses, which is to provide opportunity for people at grassroot level to do businesses. By doing this, they would act as a bridge between the supplier and the end users. Besides, microfinance banks would ensure that right pricing gets to retailers to put an end to transfer pricing from depots to end users. Under this arrangement, probably only transport cost and a little interest is what the microfinance banks would charge the surface tanks owners since the banks would be giving them some credit for some time. But again, there should be some regulations by DPR to ensure that these surface tanks owners are actually real or not fakes. They can have a database and begin to improve upon the consumption pattern. Already, there is a drive or effort by government to ensure the actual consumption rate and importation level of kerosene in the country so they can channel energies on the total consumption of the product.
Reasons for kerosene scarcity in the country?
One is the source of receipt, which are through local refining and importation. NNPC has so far tried by ensuring that out of 10 million litres of kerosene consumed locally daily, it bridge it by 5 million litres while the other 5 million litres are imported. Furthermore, government has to come into the importation of kerosene because it’s no more on CBN’s approved rate for importation as fuel. Kerosene has been removed for a while so I suggest it should be brought into the same approval as fuel so that importers can use the right forex to import. If we use bank rate, the landing cost would become crazy and there is nothing anybody can do because nobody would bring in a product at high rate and sell at lower price.
It is true that advanced economies are moving towards liquefied petrogas, cooking gas. However, as we try to ensure that kerosene is rightly managed, priced and not adulterated, we should look out at venturing into gas. There is a lot of gas flaring and we are trying to explore that to compete with the growing market. The gas market is going to be a good venture for us.
Aviation sector’s contribution to DPK scarcity
There was a report in the news media about something like that. But I don’t know whether it is true or not. There are two sides to a coin. It is important to understand the similarities and differences in DPK and ATK. DPK means dual purpose kerosene; so it has dual purposes. Though the two (aviation fuel, ATK, and kerosene, DPK) are different. However, I do not know how people can engage in such practices given the risky nature of aviation industry. The truth is that before you bring in ATK, you must meet all government rules and regulations, which among others, include having a specialised tank farms and trucks for them. Beside that, there are several checks before it finally gets to the final consumers. And it has remained so and I don’t think we have had incidences of air disaster associated with adulterated ATK. So, I disregard that kind of claim.
Downstream’s preparedness for biodiesel
Yes, some key players in the oil and gas industry, including us, are exploring the option of biodiesel. I am a member of DAPPMAN and there is a lot of drive by the association to venture into this area. But for now, it is more of underground study. Certainly, we would want to develop along that because the next line in the industry is cleaner gas and cleaner oil. For instance, you see a society that is cleaner; you see a lot of bio-fuel coming up in the market. There is a story making the rounds that in the next 15 years or so, there would be no more petrol-powered cars in Europe and some other developed countries. I do not know how true that is anyway. You can see the world is moving at a dynamic speed. Therefore, it is important we catch up with that speed if we want to compete in the industry. As we all know, Nigeria has abundant resources of cleaner gas, so we have to take advantage of that.
Major challenges facing the sector
Nigeria has a lot of prospects in this industry going by my experience so far. Nigeria is a fantastic country for investment. I have been in Nigeria for about 38 years and out of that, I have had a stint in the oil and gas for about 17 years now. Well, not much has changed just as there are challenges. But we look at challenges as an opportunity for better development in the sector. What has happened is that prices have changed drastically and there is always cause and effects relationship. Some companies have flourished including Fynefield and it is because of hard work and sticking to the rules. There are some other companies that played against the rules and they are no more in the business. I think the greatest challenge in the industry is consistency. Once a company is consistent and focused in policies and standards, it would definitely prosper but if consistency is lacking, such a company would not break even.
My experience in the industry has been very huge and engaging. I had worked with NIPCO Plc companies that started off giving dividends of 35k and jumped up to giving N4 and from revenue base of say N20 million a year to N500 million in asset; I also joined companies that started from ground zero and we still broke even. I did not come from abroad to sit in the office. No! I have also worked as a loader and as a logistics person in a company; I have pushed trucks out of depot. So I have had various experiences in the industry and that is what success stories are all about. Other companies I have worked for include Matrix Energy, Acorn, Capital Oil and Gas between 2010 and 2011 and now with Fynefield.
Current administration’s policies with regard to the sector
Well, we are lucky that we have a government that is keen on energising the oil and gas sector to drive the economy. The sector is a blessing to all of us because as long as you can cook your food, drive your cars and charge your phones, you will consume energy. So far, I can say that the administration’s policies have been favourable, despite occasional hiccups here and there.