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MOMAN Outlines Agenda to Take Nigeria Out of ‘Subsidy Trap’

Nigeria’s petroleum product marketers, under the aegis of Major Marketers Association of Nigeria (MOMAN), have outlined a comprehensive agenda to take the nation out of the gasoline subsidy regime, which cost around $2Billion to service in the last one year.

The roadmap contains five clear messages, starting with the government divesting  the power to increase or decrease  petroleum prices, and including calls for annulling the Price Equalization Fund (PEF), discontinuation of Direct sales and Direct Purchase (DSDP)  programme, amending the law setting up the Petroleum Products Pricing Regulatory Agency (PPPRA) and inaugurating an open access to foreign exchange to all petroleum product importers.

This radical blueprint of reforms, from one of the several stakeholders in Nigeria’s downstream sector, is contained in a statement by Tunji Oyebanji, Chairman of MOMAN.

In it, the association requests:

  • A fundamental and radical change in legislation is necessary. The clear and obvious risk is that the country has never been able to increase pump prices under the PPPRA Act, leading to high and unsustainable subsidies and depriving other key sectors of the economy of necessary funds.
  • Purchase costs and open market sales prices for petroleum products should not be fixed but monitored against anticompetitive and antitrust abuses by the already established competition commission and subject to its clearly stated rules and regulations.
  • A level playing field. Everybody should have access to foreign exchange at competitive rates to be able to import and sell petrol at a pump price taking its landing and distribution costs into consideration.
  • Discontinuation of the Direct sales and Direct Purchase (DSDP)  programme. All foreign exchange proceeds from all sales of crude be paid into the same pool from which all importers can access foreign exchange at the same rate.”
  • The Price Equalization Fund mechanism should be discontinued and its law repealed as the cost of administration of equalization has become too high and the unequal application of payments by marketers distorts the market and creates market inequities and unfair competition. Internal equalization has been the practice with diesel distribution and sales since 2010 when diesel was fully deregulated.
  • The pricing system should allow internal equalisation by marketers which would be both competitive and equitable.
  • Fuel import should enjoy priority access in allocation of foreign exchange, again through a transparent auditable and audited process of open bidding. Conditions for accessing foreign exchange should be streamlined and specific delays before access imposed unilaterally on the downstream oil industry should be discontinued as being inequitable.”

MOMAN said it was stating its position, in the context of the announcement by Timipre  Sylva, Minister of State for Petroleum Resources, that the government would implement a policy of “price modulation”, which means, in MOMAN’s view, that the state will give effect to existing legislation enabling it to set prices in line with market realities through the Petroleum Products Pricing Regulatory Agency (PPPRA) as provided in its Act.

“The clear and obvious risk is that the country has never been able to increase pump prices under this law, leading to high and unsustainable subsidies and depriving other key sectors of the economy of necessary funds”, MOMAN stated.

MOMAN admits that “there is no country or economy where governments do not have the power to influence prices”, however, “Governments use economic tools such as taxes or interventions on the demand side or the supply side of the market and other administrative interventions to influence prices where it needs to”.

“The problem here is that government has retained for itself by law the power and the responsibility to fix pump prices of PMS which is what puts it under so much pressure and costs the country so much in terms of under-recoveries or subsidies when it cannot increase prices when necessary to do so.

”It makes sense to relieve itself of this obligation now when crude prices are low and resort to influencing prices using the same tools it does for any other commodity or item on the market”.

“Our current situation, laid bare by the challenges of Coronavirus to the health of our citizens in particular and and economy of our country in general, demands that we are honest with ourselves at this time. A fundamental and radical change in legislation is necessary.

“When crude oil prices go up, government has always been unable to increase pump prices for socio-political reasons leading to these high subsidies and we believe the only solution is to remove the power of the government to determine fuel pump prices altogether by law.”

MOMAN recommends a legal and operational framework comprising of a downstream Industry operations regulator, the Federal Competition and Consumer Protection Commission (FCCPC) or Competition Commission (for pricing issues) and the interplay between demand and supply which will ensure a level playing field, protect the Nigerian Consumer and curb any market abuse or attempts to deliberately cause inequities in the system by any stakeholder.

“In line with change management principles, consultation and engagement with market players should clearly spell out the path and final destination which is full price deregulation”.

 


Industry Demands Clarity Over Nigeria’s End of Subsidy Regime

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TOTAL Sells out of Sierra Leone and Liberia

TOTAL has divested from Liberia and Sierra Leone.

The divestment was not from Exploration and Production (TOTAL was never in the upstream in these countries)

The French supermajor signed an agreement to sell its marketing and services businesses in both countries to Conex Oil & Gas Holdings Ltd., a regional player in petroleum products import, distribution and supply chain management in West Africa.

The asset consists of a network of 63 service stations, general trade fuel sales and petroleum products import and storage operations.

The sale of these two affiliates is expected to be completed in the second quarter of 2020.

These sales will contribute to Total’s ongoing divestment program and demonstrate our ability to relentlessly highgrade our portfolio” commented Jean-Pierre Sbraire, TOTAL’s Chief Financial Officer.

In the current context of low oil prices, these transactions support the action plan announced to weather the crisis.”  

 


NNPC Approves Aramco’s Bid to Challenge Dangote Refinery

Saudi Aramco is mulling investment in Nigeria, says NNPC, the country’s state hydrocarbon company and the most influential entity in the West African oil patch.

NNPC is keen on having Saudi Aramco invest in the Nigerian midstream, but the important part of the story is that the Saudi state firm wants to use NNPC as a platform to supply West Africa with gasoline, says Mele Kyari, the NNPC chief executive.

And the NNPC, surprisingly, doesn’t mind. The two parties are holding talks on potential cooperation.
Teams from NNPC and ADNOC, which is the UAE’s state hydrocarbon firm, have also met in Abu Dhabi to discuss investment opportunities that could range from upstream to midstream to downstream, Kyari told reporters at a recent industry event in Fujairah in the UAE.

Mr. Kyari doesn’t see a problem with the Nigerian state owned oil firm, having an agreement with a Saudi Oil Company to supply gasoline into West Africa, at the time a Nigerian owned business entity is at a significant stage of construction of a large refinery, to produce gasoline and other products, with focus on the West African market. The Dangote Refinery, the largest single train in the world, will cost between 9 and 11 Billion US Dollars, according to estimates.  Instead, the NNPC CEO gushes:  “Aramco is quite keen on getting the opportunity to supply gasoline to West Africa and we will provide them with the right platform.” Mr. Kyari also adds: “We are the largest importer of gasoline in West Africa. It is a clear opportunity for them.”


Gasoline, Diesel Prices, Keep Going Up in South Africa

Petrol prices, which have increased by almost 15% in South Africa since January this year, look set to increase further in October 2019.

The country’s fuel price is deregulated, which means a hike in crude oil price and a weakening of the local currency, the Rand, directly push prices up.

Those two have happened so far in September 2019, leading to warnings by regulators of an imminent hike of diesel and gasoline prices.

After an initial spike of 20% to above $70 a barrel, the oil price has since retreated, with Brent crude oil currently trading at $63 – compared to $60 before the attack. Saudi output was restored in the week of September 23, to pre-attack levels.

The Rand took a hit amid concerns about a global trade war and broke through the R15/$ level for the first time in three weeks. It was last trading at R15.03.

Based on the latest calculations of the Central Energy Fund, the biggest parastatal in the Department of Energy (DoE) the recent Rand and oil price movements will leave unleaded 95 octane petrol on track for an increase of 19c a litre, while 93 octane petrol could be cut by around 4c. Diesel prices will increase by 24c, and paraffin by the same margin.

 


Two Companies to Supply Gasoline, Diesel Into Angola, Until 2020

Sonangol has selected Totsa Total Oil Trading and Trafigura to supply gasoline and diesel to the country over the next 12 months.

The two companies were awarded following an international public tender launched on 27 February 2019.

The Angolan state hydrocarbon company explains that Totsa Total Oil Trading will supply gasoline and Trafigura will supply diesel and marine diesel for the navy throughout the tenor of the award.

The two companies were selected from a group of nine that submitted bids – BB Energy, BP, ENI Trading & Shipping (ETS), Glencore, Gunvor, Litasco and Vitol and Totsa Total Oil Trading and Trafigura.

Angola has a limited refining capacity of 57,000Barrels of oil a day from the 61 year old Luanda Refinery, even though the country produces around 1.5Million Barrels of oil a day and is Africa’s second largest crude oil producer.

In early May 2019, the city of Luanda faced a fuel crisis, which led to gasoline price speculation at some filling stations as well as on the informal market, where the price of fuel tripled to 500 kwanzas per litre.

The Board of Directors of Sonangol was dismissed as a result of the scarcity.


Sasol Swoops on Southern Africa

Sasol is on course of adding 12 new retail outlets for petroleum products in 2019, mainly in the neighbouring countries north of South Africa

In 2018, it added 15 outlets, but all of that was in South Africa, the company’s headquarters and heartland.

The retail outlet expansion is achieved by buying over the competition.

We are “progressing value-accretive acquisitions of super-dealers”, the company says, adding that it continues to evaluate major acquisition opportunities, guided by capital allocation framework”.

Sasol was originally focused on building and operating facilities to produce a range of products, including liquid fuels, chemicals and low-carbon electricity.

It entered the South African fuel retail market in 2004 to sell through its own retail network, based on its proprietary technology.

Africa’s largest homegrown petrochemicals company boasts that the current retail outlet expansion is driven by its strong technical and operational heritage”

“We intend to maintain a competitive edge in marketing our energy products”, it says.  “Our energy business is highly cash generative and thrives on an integrated competitive cost advantage”.

 

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Oil Prices Push up East African Retailer’s Growth

East Africa’s third leading petroleum products retailer had its profit shooting up on account of increased crude oil prices as well as growth in sales volume

 

KenolKobil’s net profit in the six months ended June 2018  rose 16.07% compared to a year earlier after sales revenue grew by a quarter and costs nearly halved, the company reports.

The Nairobi headquartered company, which operates in Uganda, Rwanda, Ethiopia, Burundi, Mozambique and Zambia, declares in a second half 2018 statement that the 24.17% increase in earnings to $890Million (Sh90.19Billion), was a result of by increased international oil prices and an 8% growth in sales volume.

Profit after taxation increased to $16.41Million (Sh1.65Billion) from $14.15Million (Sh1.422 Billion), the Nairobi Securities Exchange-listed firm said in a financial statement.

KenolKobil trails the Shell-led Vivo Energy and the French retailer TOTAL in distribution capacity and market share in the region.

Not yet out of the hole

KENOLKOBIL, HOWEVER, SPENT NEARLY $1.32Million (SH132.83Million) on servicing loans, a 61.96% per cent surge compared with $815,051 (Sh82.01Million) a year ago, “due to volume growth and increased international oil prices”.

“Along with a significant increase in LIBOR rates, this increased our local borrowing levels and cost of our dollar denominated loans during the period,” Mr Ohana said.

But we’ve done well…

Still, David Ohana, the managing director, said the company cut operating costs by 46.44% to $8.89Million (Sh893.94Million), compared with the same period in 2017, as a result of streamlined procurement processes, efficient cost management and absence of a $2.98Million (Sh300Million) debt provision a year earlier owed to the defunct Kenya Petroleum Refineries Ltd (KPRL).

The firm’s net earnings were also helped by a $270,580(Sh27.22Million) foreign exchange gain, a turnaround from $254, 570 (Sh25.61Million) loss last year, the company claims, “on stringent management of forex transactions”.


$10 Oil Soon? How did we get here?

By Olountele Dokun

On Thursday, January 14, 2016, “Oil-Price.Net”, a commodity trader, posted $30.31/barrel for the (North Sea) Brent Crude, against which our Bonny Light is indexed.

On the same day, anchor persons on BBC World Business Today, a daily Television dialogue, quoted Standard Chartered Bank analysts predicting, pessimistically, $10/ barrel for the black gold“someday soon”. The previous day, on January 13, 2016, Ibe Kachikwu, the Nigerian minister of state for Petroleum, in a CNN interview, hoped that production cuts, to boost price, could be achieved with OPEC and non-OPEC countries, Russia inclusive.

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Ramboll selected for onshore pipeline study in Uganda

Uganda’s Ministry of Energy and Mineral Development has awarded Ramboll a contract to conduct an early-phase study for the “Hoima–Kampala Refined Petroleum Products Pipeline” in Uganda, East Africa.

The project concerns a proposed pipeline to be constructed to transport products of crude oil refinement from Uganda Oil Refinery in Hoima to a distribution terminal to be constructed in Buloba, app. 17 km west of Kampala. The total length of the pipeline/corridor is app. 210 km.

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