Published in Oil and Gas
The ensuing dialogue that followed FG’s announcement of oil and gas deregulation has brought with it many revelations. One of which is how this pseudo regulation is void as long as they do not repeal two laws. Israel Aye, Senior Partner- Energy & Commercial Contracts nudged our attention to Sections 6(1) of the Petroleum Act and 4(1) of the Price Control Act.
September 16th, 2020
Federal Government’s claims of deregulation- a farce, Oil and Gas expert suggests.
Petroleum Act and Price Control laws give the federal government (FG) absolute control of Petrol pricing;
Yet, FG insists it deregulated the sector
Meanwhile, two government agencies in charge of petroleum products pricing regulation are still in operation.
The ensuing dialogue that followed FG’s announcement of oil and gas deregulation has brought with it many revelations. One of which is how this pseudo regulation is void as long as they do not repeal two laws. Israel Aye, Senior Partner- Energy & Commercial Contracts nudged our attention to Sections 6(1) of the Petroleum Act and 4(1) of the Price Control Act.
The two sections empower the Minister of Petroleum- President Muhammadu Buhari and the Price Control Board to fix the price of petroleum products. So for all intents… oil marketers cannot set the price by law, nullifying the aim for deregulation and raising the question, why? Why do these laws still exist?
“the Minister may by order published in the Federal Gazette fix the prices at which petroleum products or any particular class or classes thereof may be sold in Nigeria or any particular part or parts thereof.”
Section 6 (1) Petroleum act 1
For years, the Federal Government had been using the Petroleum Products Pricing Regulatory Agency to fix the prices of petroleum products. And to ensure uniform pricing across the country, FG used the Petroleum Equalisation Fund (PEF). The scheme works by paying subsidies to marketers to cut transportation costs among others.
However, Mr Aye explained that the two provisions are at variance with the subsidy removal policies of 2017. According to him, the law precedes the policies both in time and hierarchy. So the Law prevails until the government amends or repeals it.
“the bedrock of regulating the downstream and petroleum product price control is S.6(1) of the Petroleum Act & Sch 1 Price Control Act. To deregulate the downstream sector, we need to amend or expunge S.6(1) as it is currently written & amend the Price Control Act to remove Petroleum products from Schedule 1. Until then the Minister may by regulation replace subsidy with the Price Modulation template [2015] subject to price regulation mechanisms prescribed in the regulation”
Recall, in March, when Mr Sylva remarked on the government’s unwillingness to allow marketers to fully determine the price of petrol. Yet, the government was “deregulating” the sector. Even more interesting was that it was in the interest of Nigerians. The government was allegedly protecting citizens from undue exploitation from oil marketers who could profit off of a full-deregulation. So, they still have to monitor and regulate the price of Premium Motor Spirit (PMS). But they deregulated the sector?
First, PPPRA failed to announce a new retail price for September. Next, marketers dispensed the product at ₦162 amid the Nigerian National Petroleum Corporation’s (NNPC) announcement. NNPC and its subsidiary Petroleum Products Marketing Company (PPMC) declared ex-depot prices at ₦151.56, then ₦147.67.
PPMC, in the first statement dated September 2, 2020, with reference number PPMC/IB/LS/020, notified stakeholders that the price had increased to ₦151.56 per litre.
The same agency, in the second statement, with reference number PPMC/MOD/SALES/346, said the price was now ₦147.67 for petrol.
If FG does not address these laws, chances are Nigeria can return to subsidising fuel which cost FG over ₦10 Trillion in 12 years. It cost the present administration about ₦1.2 trillion from 2015 to 2018. And while FG still insists on subsidy removal, findings suggest it gulped ₦51.1 billion between March and June this year.
Similarly, NNPC in June’s statement said it incurred ₦5.4 billion as under-recovery- a subsidy payment which occurs when the pump price of petrol is lower than the actual cost price of the commodity.
In the same vein, the IMF made a case against subsidy in a blog post titled, “Fuel for Thought: Ditch the Subsidies.” The article revealed that the fuel subsidy which some countries pay as an attempt to reduce the price of fuel for consumers typically benefits the rich over the poor.
Still, despite the doubts from experts due to the provisions highlighted, Mr Sylva insists that the country’s downstream sector is fully deregulated… only time will tell.
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The ensuing dialogue that followed FG’s announcement of oil and gas deregulation has brought with it many revelations. One of which is how this pseudo regulation is void as long as they do not repeal two laws. Israel Aye, Senior Partner- Energy & Commercial Contracts nudged our attention to Sections 6(1) of the Petroleum Act and 4(1) of the Price Control Act.
