Petrol: Marketers kick against price modulation

File: A Total petrol station

The oil marketers, under the umbrella of Major Marketers Association of Nigeria (MOMAN), on Thursday called for full price liberalisation of Premium Motor Spirit (PMS), commonly known as petrol, instead of price modulation.
Its Chairman, Mr Tunji Oyebanji, who made the call in a statement on Thursday in Lagos, said that declaring full price deregulation would bring about long term stability in the downstream sector.
According to him, it becomes necessary for the association to state its position on the matter.
He said the Minister of State for Petroleum Resources, Chief Timipre Silva, had recently announced that the Federal Government would implement a policy of “price modulation”.
The chairman said that price liberalisation would give effect to existing legislation, and enable it to set prices in line with the 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.
“Our current situation laid bare by the challenges of Coronavirus to the health of our citizens in particular, and economy of our country in general, demand that we are honest with ourselves at this time.
“A fundamental and radical change in legislation is necessary,” Oyebanji said.
He said that government had always been unable to increase pump prices for socio-political reasons when crude oil prices go up, leading to high subsidies.
Oyebanji noted that the only solution was to remove the power of the government to determine fuel pump prices altogether by law.
He said: “Purchase costs and open market sales prices should not be fixed, but monitored against anti-competitive and anti-trust abuses by the already established competition commission and subject to its clearly stated rules and regulations.
“There is no country or economy where governments do not have the power to influence prices. Nigeria is no different with respect to any other commodity or product.
“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.
“This 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.”
Oyebanji said the market should determine the price, and there should be a level playing field.
“Everybody should have access to foreign exchange to be able to import and sell petrol at a pump price taking its landing and distribution costs into consideration.
“Government should no longer fix petroleum prices. Health and educational sector should be given a higher priority than paying for subsidy on petroleum.
“We support the pronouncement of the NNPC Group Managing Director,  Malam Mele Kyari, which said subsidy or under recovery must be things of the past,” he said.
According to him, downstream sector operators advocate for a market-based philosophy based on sustainability of the petroleum industry.
Oyebanji said that encompasses free market competition where equal access to foreign exchange at competitive rates to all market players must be guaranteed.
This, he said, would mean the discontinuation of the Direct Sales and Direct Purchase (DSDP) programme and all foreign exchange proceeds from all sales of crude shoulders be paid into the same pool for importers to access foreign exchange at the same rate.
“Fuel import will, however, 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,” Oyebanji said.
He said that MOMAN had recommended a legal and operational framework comprising of a downstream industry operations regulator, the Federal Competition and Consumer Protection Commission (FCCPC) for pricing issues.
Oyebanji said the commission would also interplay between demand and supply to ensure a level playing field and protect the Nigerian consumers.
The MOMAN boss said it would also curb market abuse or attempts to deliberately cause inequities in the system by any stakeholder.
He said the pricing system should allow internal equalisation by marketers which would be both competitive and equitable.
“MOMAN recommends that the Price Equalisation Fund mechanism should be discontinued and its law repealed as the cost of administration of equalisation has become too high.
“Also, the unequal application of payments by marketers distorts the market and creates market inequities and unfair competition.
“Internal equalisation has been the practice with diesel distribution and sales since 2010 when diesel was fully deregulated in line with change management principles, consultation and engagement with market players.

“This should clearly spell out the path and final destination which is full price deregulation,” he added. (NAN)