—– NNPC now sole importer as oil price rallies
The Minister of State for Petroleum, Dr. Ibe Kachikwu has stated that the federal government would re-visit the pricing modulation model introduced in 2016 and remove the multi-layer charges on importation of petroleum products to maintain the pump price of petrol at the current N145 per litre.
This is coming as the Chief Operating Officer, Downstream at the Nigerian National Petroleum Corporation (NNPC), Mr. Henry Ikem-Obih has stated that the July 1, 2017 target for the importation of higher grades of petroleum products with lower sulfur content into the country, has been shifted to September 2017.
Kachikwu further stated that the federal government would also find a way to ensure that the modulation model allows Nigerians to enjoy a windfall when the price of crude oil goes down and limited exposure when the price goes up in the international market.
Speaking yesterday in Lagos at the 20th anniversary lecture of Rainoil Limited, the minister disclosed that the government was working to ensure that NNPC reduces its charge on the pro-forma invoice, which is the allowance for ship-to-ship (STS) transfer operations on imported cargoes from the current five per cent to one per cent, so as to reduce the burden on fuel marketers.
He noted that when the non-availability of forex and inability to raise letters of credit forced private oil marketers to stop importation in the first and second quarters of 2016, President Muhammadu Buhari encouraged the petroleum ministry to take the bullish decision of partially liberalising the downstream sector and eliminating subsidy by adjusting to the N145 pump price.
Kachikwu noted, however, that the country is at a turning point today where the required urgency for the repositioning of the downstream sector is more critical than ever.
According to him, when the N145 pump price was fixed, the price of crude oil in the international market was between $25 and $30 per barrel.
“Today, the environment has changed since we took those steps because back then, crude was selling between $25 and $30 per barrel. But today, crude is over $50 per barrel, which means that the federation’s revenue stream is improving.
“But whenever the price of crude goes up, as a fuel import dependent country, we see the prices of refined products go up and this comes with systemic challenges.
“Again, at this time, as crude oil rallies, we begin to see the gap begins to return, as our refined product imports become more expensive.
“Today, NNPC has almost gone back to importing almost 100 per cent to ensure supply stability in the country and this means it is obviously absorbing the cost implications resulting from the increase in crude oil prices,” Kachikwu explained.
Kachikwu said the country was about to enter two years of emergency as it moves towards fixing the refineries and identified infrastructure as a major challenge, saying that the refineries have continued to experience downtime as a result of years of little or no investment on maintenance.
“But we plan to get investments to repair them and inject best practices and to build transparency into the management of these assets.
“Hopefully, we will make them stand alone as commercial entities, making and sustaining profits. Our aim is to get to a point where we can reduce product importation by 60 per cent in 2018 and, in fact, eliminate importation of petroleum products by 2019-2020.
“Apart from the NNPC refineries, we are also looking at co-locating refineries, where the NNPC will not have equity. This entails identifying individuals who can come in and build refineries within the premises of the existing refineries and share existing infrastructure for efficiency.
“In addition, we are working with the private sector, the state governments in the Niger Delta and other stakeholders to build modular refineries of 20,000 barrels per day in each of those states to create capacity over time, create jobs and contribute to government’s revenue,” Kachikwu added.
He described refining as key, stressing that any country that continues to import its entire petroleum products without local processing is no different from a country that exports all its agricultural products and gets very little margins and no value added.
Kachikwu said to encourage investment in refining, incentives must be provided and fiscal conditions improved.
According to him, one of the key elements is pricing, adding that “a lot of time, we control pricing at the pump and the market because it is convenient”.
The minister, who was represented by Ikem-Obih, said price control has created an air of insecurity on investments and ultimately turmoil in the market.
Kachikwu also stated that if the federal government had continued with the price modulation it introduced last year, there would have been stability in the market.
The minister argued that the government would look into price modulation to allow Nigerians enjoy a windfall when oil prices drop and limited exposure when the price rises.
He said the government would review the pricing template to remove multi-layered charges on product importation, working with the Federal Ministry of Transportation.
On the movement of the July 1, 2017 take off date for the importation of higher grades of petroleum products with lower sulfur content into the country to September 2017, Ikem-Obih argued that if the importation of the new specifications is implemented in July, it could cause supply disruptions.
He said the NNPC was engaging the Standards Organisation of Nigeria (SON) to ensure smooth and orderly transition from the importation of the current grades of fuels to the new specifications.