Deregulation, Trade Unionism and Opportunism - Africa’s premier report on the oil, gas and energy landscape.

Deregulation, Trade Unionism and Opportunism

By Adedayo Ojo

Is Julius Malema an enigma? Just maybe. Today, the 31 year old is a thorn in the flesh of the African National Congress (ANC)-led government of Jacob Zuma in South Africa. A former Zuma ally and former President of the ANC Youth League, Malema was expelled from the ruling party in February 2012 for anti-party activities. Since then, the man who was once described by Zuma as “future leader” of South Africa has become one of the harshest critics of the President and his government.

Malema featured prominently during and after the recent industrial action by workers of the Lonmin-owned platinum mine in Marikana. The protest erupted into a police action in which 34 of the demonstrating workers were shot. Malema heaped scorn on the poor handling of the crisis by Zuma and has since called for a national miners’ strike in South Africa.

Love him or hate him, it has never been said that Malema is acting out the script of some paymasters. His posture has always aligned with the popular aspirations of the common man.

Now back to Nigeria.

The latest incident of petroleum products scarcity that hit Abuja in the middle of August 2012 was a harsh reminder that all is not well with the downstream sector of the oil and gas industry in Nigeria.

In the days leading to the Eid-el-Fitr holidays, long queues of motorists searching fruitlessly for premium motor spirit (PMS) were seen at many filling stations in Abuja, Nigeria’s. The scarcity was the outcome of an industrial action embarked upon by members of the National Union of Petroleum and Natural Gas Workers (NUPENG) who were protesting non payment of subsidy claims to marketers of petroleum products.

Arguably, the marketers were the ones who ought to embark on industrial action, not NUPENG. Curiously, NUPENG decided to make subsidy payment a condition for moving products from depots to filling stations. The hand of Esau; the voice of Jacob!

The downstream sector of the oil and gas industry makes the most noticeable direct impact on the lives of the people. The effect of the downstream operations is always immediate.

At the heart of the challenges in the downstream sector is the problem of policy. Added to this are challenges resulting from facility integrity, poor financing and corruption. Incessant labour disputes also contribute to a substantial reduction in the level of efficiency and the volume of available petroleum products. The health of the downstream sector, or any sector for that matter, is largely dependent on the ability of the government to legislate and implement the appropriate policy. Policies have been designed to make the sector work smoothly.  This reiterates the point about reform of the industry.

The most divisive of the policies designed to sanitise the sector and make it work is the deregulation policy. Since the policy was proposed by the federal government, it has been fiercely contested, criticized and resisted. While advocates of deregulation contend that it is the best thing that has ever happened to the sector, critics insist the aim is to hurt the man in the street.

There is hardly any doubt that Government’s plan to deregulate the downstream oil and gas sector is geared towards opening up the sector to new investments to bring about a competitive market which will eventually drive down the pump price of PMS.  Deregulation will involve the removal of the subsidy paid on petroleum products.

Government reportedly spent about N1.4 trillion to subsidize petrol alone in the last five years. Kerosene is also subsidized.

The pricing template of the Petroleum Pricing Regulatory Agency (PPPRA) for PMS for December 2011 showed that the landing cost of a litre of petrol is N124.76 while the distribution margin for transporters, retailers, bridging fund, marine transport average (MTA) and administrative charge is put at N15.49. This brings the total cost of petrol to N140.25. At the present official pump price of N97 per litre, the government is subsidizing N43.25 per litre.

Meanwhile, recent events have revealed that the system through which the subsidy is being administered is faulty, making room for fraudulent petroleum product marketers to collect money as subsidy for products not supplied.

Facility Integrity
There is the issue of refineries working far below installed capacity, no thanks to aging facilities and inadequate maintenance, resulting in incessant equipment failure and breakdown.

The public ownership structure that precludes private investors is also contributory to suboptimal performance of the refineries.

The downstream sector has also been hampered by the rampant pipeline vandalism and the frequent incidence of fire outbreak. These developments frequently obstruct the supply system. As expected, pipeline vandalism and illegal tapping of refined petroleum products between the refineries and the depots disrupt the supply system.

Financial Challenge
Downstream operations require significant capital. Without the support of the financial system, the operators will find it difficult to bear the cost. The result will be inadequate service provision and an outright lack of service in some areas. Tank farms, jetties, filling stations, tankers and other structures needed for the sector to run smoothly cost money. Operators in this strategic sector, at this stage of the national life, should not be left entirely without support.

Stabilizing the Downstream
The move to remove the subsidy will open up the sector to new investments, where competitive forces are unleashed. It will result in efficient resource allocation which will eventually drive down the price of fuel. In addition, it will free the money that the government spends on subsidy to be used to take care of infrastructural and other social needs.

Aside from properly implementing the deregulation policy, there should be such pragmatic and practical steps such as increased border patrols to curb illegal siphoning of petroleum products to neighbouring countries and stern punishment for apprehended smugglers and vandals of the pipelines network.

In addition, there should be a strategic reserve system whereby refined petroleum products will be stockpiled to meet demand during emergencies.

Government can intervene by working with the banks to ensure that, just like the strategic roadmap to power generation, downstream petroleum operators are supported by government backing when they borrow from the banks.

Until subsidy is totally removed from petroleum products, it is important for the government to improve the system used for payment and make it prompt. In this way, marketers will not suffer the cost of paying high interest rates to banks and other financiers as a result of delay in subsidy payments.

Finally, no trade union should allow itself to be used for personal goals or to fight political battles. NUPENG and other trade unions should also acknowledge that they are rendering essential services and as such, should weigh the consequence of their actions and refrain if it will hurt the man in the street.

Adedayo OjoAdedayo Ojo is Lead Consultant/CEO of Caritas Communications Limited, a specialist reputation strategy and corporate communication consultancy based in Lagos.
Caritas is the West Africa affiliate of Regester Larkin, a pioneer reputation strategy/management consultancy with offices in London, Washington and United Arab Emirates

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