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Absence of a fully deregulated Premium Motor Spirit (Petrol) market in Nigeria is distorting price mechanism on the West African sub region, and Ghana is urging its neighbour to fully deregulate the downstream sector now or watch it emerge as a refining hub for the region.
Mohammed Amin Adam, deputy minister of energy, Ghana, while delivering the keynote address at the 11th edition of Oil Trading & Logistics Expo holding in Lagos from October 23 – 25, called on Nigeria to fully deregulate its PMS market as other African countries including Ghana, Kenya and South Africa had done.
Meanwhile Ibe Kachikwu, minister of state for petroleum resources, said the Federal Government was planning to launch a fund that would cater to the provision of downstream infrastructure including refineries as well as put in place attractive tax and fiscal incentives for investors.
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Plagued by challenges of largely inadequate and decrepit infrastructure and lack of liquidity in the sector due to non-payment of subsidy arrears and poor access to finance, Nigeria imports about 90 percent of its refined petroleum products with 30 percent of its foreign exchange earnings.
This is not only unsustainable but creates problems for its neighbours.
According to Adam, since Nigeria constitutes the region’s biggest market, its policies have serious impact for other countries in West Africa. He said that if Nigeria was not willing to wake up to its responsibility, Ghana was preparing to rise to the occasion.
“On this note, I wish to call on the Nigerian government to make efforts at reaching full price deregulation given that it is the largest market for products on our continent and any failure at reaching full price deregulation will lead to distortion on the sub regional market on the continent,” Adam said.
A study by PwC on Nigeria’s refining prospects, found that the country is also one of the largest consumers of refined products in Africa (5th as at 2014, behind Egypt, South Africa, Algeria and Morocco) and accounts for over 7% of Africa’s refined products consumption.
In 2015, the refined products consumption was estimated to be about 24 billion litres and products consumed include: Premium Motor Spirit (PMS), Automotive Gas Oil (AGO), Dual Purpose Kerosene (DPK) and Aviation Turbine Kerosene (ATK).
Markets dictate the prices of diesel, kerosene and aviation fuel, but Nigeria is yet to fully deregulate its petrol market of which 17 billion litres of PMS are consumed annually driven by needs in the transportation sector and for power according to PwC Nigeria study.
A centrally controlled market for petrol which is the most consumed petroleum product in the sub region, creates room for smuggling and discourages investments in the downstream sector of the region.
“At the same time, we must put in place polices that punish domestic capitalisation anti-competitive behaviours. This will make deregulation polices become effective instruments for increase in public confidence in our markets and prevent us from turning to the days of subsidies and under recoveries which have met very negative long-term effect on many economies on our continent,” he said.
Kachikwu said that Nigeria is ready to turn the corner with better access to capital to fund infrastructure. “The government seeks to put in place a domestic funding line, an infrastructure fund system that will enable private participants interested in downstream infrastructure to borrow at such interest rates that will enable investments in midstream and downstream assets such as refineries, depots, pipelines, jetties and tank farms. Only recently the $200m NCDMB intervention fund was established to demonstrate this commitment,” the minister said through a representative.
Africa suffers acute infrastructure deficit and facilities such as ports, jetties and tank farms are not only inadequate but are in deplorable state. However, the downstream sector, characterised by tight margins requires efficiency to be competitive. Absence of these has led to over dependence on refineries of other countries.
