Dr. Gabriel Ogbechie is the GMD of Rainoil Limited, a downstream giant. In this interview with Modele Saharafa Yusuf on television, which was monitored by Razornewsng.com, the oil marketer gave insight on PMS price regime, impact of Covid-19 on oil sector and sundry issues. Excerpts:
When the NNPC announced the N145 pump price of petroleum in 2016, the plan we were told was to have periodic review and adjustment, but that merely did happen for political reasons. After a while the new PMS was not appropriately priced and even though, in theory, the government said it had removed subsidy on petroleum products, especially on PMS. In reality, it is the subsidy that was being rehoused and called all sorts of names. There was always a hole in the book somewhere. What does this latest adjustment in price mean to the economy?
What happened in 2016 was that government removed the subsidy in petroleum product without deregulating, so what happened was that the federal government moved the price of petrol to N145 and said marketers can go ahead to import petrol, so far they can sell at N145 and make money.
If you know you cannot import at N145 and also make money, leave it. NNPC will import on behalf of the federal government and then you go to NNPC and take fuel.
It worked for a while, because in 2016, I recalled that was when the price of crude oil went down as low as $30 dollars, which is about what are seeing now. So initially, marketers could nearly import and sell at N145 and things were okay.
But gradually, we saw the price of crude oil in chop, until it got to a point where it was no longer possible to bring in fuel and sell at N145. So at that point, NNPC took up the mantle. So for a very long time, let me say late 2016 – 2017, up till today, NNPC has been responsible for bringing in 100 percent of the fuel we consume in this country.
What was happening is that, NNPC was actually bringing the fuel at a price above N145 and selling to the marketers at a price below N145. So we could sell at N145, NNPC was essentially taking those losses unbehalf of the federal government. They call it “under-recovery”, but that is subsidy by another name.
What does this new price regime mean for the economy of Nigeria going forward?
What has happened is that, again, thankfully, let’s say, we found ourselves in the same situation we found ourselves in 2016. Prices of crude oil has gone down again because of the coronavirus (COVID-19) situation.
When you say thankfully, I am sure the finance minister will not agree with you?
Well, it depends on – from the fuel point of view I say thankfully. We now find ourselves in a situation where the cost of bringing in fuel into Nigeria is far below N145.
As you can see, the federal government has even dropped the price of petrol to N125, because even at N125, with the price of gasoline at the international market, and the current price of crude oil in the market, we can now import petrol today, sell at N145, and make some margin as marketers without recourse to the federal government for subsidy.
The good thing is that, the subsidy budget in 2019, federal government was reputed to have spent N800 billion, subsidising just one product called petrol. So the good thing in the immediate term is that the subsidy – that huge cost federal government was spending on subsidise that single product will not be necessary.
That cost will now be saved on the other side. The good thing is that, instead of NNPC now being the sole importer of petrol into this country, we now have a situation where other marketers can now come into play, we can now share that burden with NNPC.
Historically, the private marketers used to account for about 60 percent of the fuel that came into Nigeria. The major marketers accounted for about 20 percent and NNPC accounted for the rest. That was the situation we had for a very long time and it worked.
So a situation where NNPC alone was importing all the fuel we were consuming in this country was an abberation. It wasn’t sustainable. So thankfully, we now find ourselves in a situation we have more of level playing field, other people can come in to play to assist the NNPC in sharing this burden.
I think on the long-run, it will be better for the economy, you are going to see a bit of efficiency, more competition and of course, Nigerians would be better.
Is this the end of subsidy or are we going to see deregulation going forward?
From the promises statement, we can see from the federal government – from our engagement with NNPC, I think this is the end of subsidy, as we know it, subsidy is out of the window.
The minister of state for petroleum has told us, again PPPRA had told us the pricing modulation policy which was introduced in 2016 will now kick in, such that on a monthly basis, most importantly on a periodic basis, PPPRA will advise marketers how much petrol should be sold and the price would be determined by the price of crude oil and the cost of bringing in gasoline into Nigeria, while completely discounting any form of subsidy element.
So what we are going to see, going forward is that, if the price of crude oil goes up, the price of petrol will go up, if the price of crude oil comes down, the price of petrol will come down.
So the days of having a flat price for petrol – just drawing a straight line regardless of what happens to crude oil in those days are gone.
Nigeria is a member of OPEC and still importing fuel. The largest importer of refined petroleum in the world. I have heard OPEC saying the government should not continue to control the dynamics of importing petrol, that is what you are clearly saying – that it is not going to continue happening. Do you believe that government is finally going to take its hands off that process?
Government actually doesn’t have any business importing petrol. That is something the private sector should be able to handle. You have the private sector players who have massively invested in downstream.
We actually don’t need any help in the downstream, but if government was running subsidy regime, where government subsidise the price of petrol, then government has no choice but to step into that space.
But three years of being responsible for 100 percent of petrol that is being consumed in this country – I am sure they have come to the realisation that it is not sustainable. So marketers are going back into playing the role they have played very credibly in the past and the role they have played very well.
There have been concerns, especially diesel, specifically what they call “dirty diesel” that is being imported into the country. How concerned should we be?
We should be very concerned, I am actually very concerned. The quality of diesel we import into this country is not sustainable and it shouldn’t be.
If you go into the international market, there is what you call Nigeria grade gas oil and Nigeria grade gasoline – foreign traders are exporting and selling diesel into this country, which they cannot sell in their country.
In Nigeria we have diesel specification or gas specification, which is the high sulphur gas oil.
In Nigeria, we allow 3, 000 part per mille, that is for sulphur content that we allow into this country. In Europe, it is 20 parts per mille, in United States, it is about 20 parts per mille, even Ghana is as low as 50 parts per mille.
We allow 3,000 parts per mille and it is dirty and toxic, which should not be allowed and sustained. But until Nigeria wakes up and improve the quality of their specification for gas oil, it is not going to change.
Unfortunately, when I go down memory lane, what used to happen was that, the dirtier gas oil was cheaper and because we wanted a gas oil that was cheaper, we allowed it. Even now that price disparity has largely gone out of the window.
The unfortunate thing is that we buy gas oil basing the price of the low gas oil, the foreign traders who sell their gas oils to us priced those gas oil on the basis of low sulphur gas oil, yet they sell very dirty gas oil to us.
That is why you see trucks on the road emitting large smokes, spilling all kinds of things into the environment. This is the right time… For I remember when Amina Muhammed was the minister of environment. They actually tweeted that specification a couple of years ago – DPR came out with a regulation. I think by June of that particular year, maybe 2017 or so, that we were going to cut over to cleaner gas oil, but that never came to pass. That is something I think we should go back to.
Do you think that part of the problem is that Nigeria is importing its petroleum product, so quality control is difficult, which brings me to the issue of refineries. The house committee on the downstream recently visited the Port Harcourt and Warri refineries and talked about almost $400 million dollars spent on turn around maintenance with nothing to show for. Well it is a scandal that has refused to go away. Is it not shameful?
I don’t want to use the word “shameful”. Like they say, there is no point flogging the dead horse. We have four refineries in this country – two in Port Harcourt, one in Warri and one in Kaduna.
The newest of all the refineries was that of Port Harcourt that was commissioned in 1985.
1985 till now is 35 years ago, so the newest of the refineries was commissioned 35 years ago.
Look at the population we had 35 years ago and the population we have now. Look at the level of fuel consumption we needed in the country 35 years ago and now. Today we are consuming 60 million litres of petrol everyday.
So our refinery capacity is grossly inadequate, in addition to that, our refineries are pretty old.
Again, because of the ownership structure of the refineries, maintenance has been a challenge. If you have a very old car, a time comes that it becomes obvious to you that you stop spending huge amount of money trying to tune a car you know is old.
You simply go buy a new car, but thankfully, Dangote is coming to the rescue of the nation with the new 650, 000 barrels per day refinery, which he is setting up in Lekki, Lagos State. We are all optimistic that within the next two years, the refinery comes on stream.
Should government sell off its refineries or should they continue to rehabilitate them?
When Dangote comes on stream, the government refinery will follow its natural course. I think, sorry to say, they will die natural death because it will become very obvious that you don’t throw good money after bad money. As we speak today, the refineries are not working.
Are they never going to work?
I can’t say the fact that they would never work. I wish they would work, but unfortunately, they have never really worked at any reasonable point.
What further reforms are needed to transform the nation’s petroleum sector to achieve greater transparency and accountability in that sector?
I think government should take one or two steps backwards and allow the private sector to drive the sector. Private sector has shown capacity over the years, it has shown faith. The private sector has invested and will keep investing.
If you look at the number of tank farms that have been built over the last 20 years, if you look at the number of retail stations that have been built across the country and the level of investment that is currently going into Liquified Petroleum Gas (LPG), private sector has shown they can very well take care of that sector, so government should take one or two steps backwards and allow the private sector take the lead.
You talked about the tank farms. The tank farms have continued to be the biggest problem of Apapa and Apapa is the gateway to the Nigerian economy. What are you and your colleagues doing about that problem?
For us to appreciate the issue of the tank farms, we need to go down memory lane. This country is actually wired by pipelines underneath the ground. NNPC up till – I came into this industry in 1992 and up till 1999, NNPC has petroleum storage depots across the country. This country is actually wired underground, such that if you are in Dutse in Jigawa State and you need petrol, you don’t need to go beyond, just go to Kano State depot, if you are in Ogbomosho, just go to Ibadan NNPC depot to load.
That is the way this country was structured, but what happened was that, when pipeline vandalisation came, that model changed, such that people now start going to the coast to go build tank farms. So if you look at all the tank farms, they are by the coast, such that the ships come to berth and over a very short period, you pump into the tank farms.
So the trucks can come to the tank farms, load and then go to the up country. So it was only natural that the first place the tank farms went to was Apapa and of course – again, due to concentration and growth, all that problem came.
The problem in Apapa is not the tank farms. If you analyse the traffic in Apapa, the bulk of the traffic in Apapa is actually caused by the ports. Trucks having to go into the ports to lift that containers, discharge the containers and go back into the ports to return the empty containers.
So for every container, there has to be a dual movement, which is what is causing the bottleneck in Apapa, not the tank farms.
But they are part of the problem?
Yes they are part of the problem, but on a ratio – it is more on the port. In Nigeria, look at our coastline from Lagos to Ogun, Ondo, Edo, Delta, Bayelsa, Rivers, Akwa Ibom, and Cross River – look at Lagos here, the coastline of the Atlantic from Lagos all the way to Calabar, I will tell you this, it is a shame that despite the length of our coastline, the whole country is relying on Tin can and Apapa Wharf to bring in goods. A country of 200 million people.
I was in Italy a couple of months ago from Flourent to Rome, there are ports everywhere. In the United States, you can’t count the number of seaports. Those of us who have tank farms have our Jetties, we build Jetties, which are small ports.
Even when you look at the Tin can port, if my history is not failing me, Tin can port was commissioned in 1978. Between 1978 and now, which is like 42 years, why haven’t we built additional ports.
With the increase in the volume of trade and traffic, we should go back and invest.
Talking of Petroleum products continuing unabated, your company has fleet of about 80 trucks moving products all over the country. Trucking is clearly unsustainable. What should government do to ensure the development of oil and gas infrastructure for a more effective distribution of oil and gas products in the country and how would this impact your business?
You cannot do without trucking, but trucking is supposed to be for very short distance, and that has changed over the years because of pipeline vandalisation.
If NNPC tries to pump product from Port Harcourt to Aba, less than half of the product will get to Aba and it is the same all over the country.
The pipelines have been ripped. The truth is that the model that was built was such that trucking was strictly supposed to be for short distances.
When I came into this industry in 1992, bridging was an abberation, or moving products over a long distance, it was an abberation, it was the exception rather than rule.
Today, that is the rule. Every product going to Maiduguri and Gombe is bridging. If you go up country, the depots are empty. If you want to fix the issue of trucking, then we need to sort the issue of security. We need to ensure the integrity of the pipelines. But until that is done, we cannot help but truck.
Every big time marketer also invest a lot in trucking, because you can’t do without huge fleet of trucks.
The federal government is being advised to subsidise renewable energy, rather than spending large amount of money on Petroleum importation. How is your company preparing for a fossil fuel free future?
I don’t want to use the word “subsidy” again. All the government needs to do is to come up with policies that will encourage people to begin to invest in that direction.
I am a firm believer of the fact that the only thing that is constant in life is change. A couple of years ago, one product that was in very serious demand was DPK or household kerosene. It was one product all of us wanted to sell because the demand was very high.
Today, you have kerosene in your tank farm and nobody is interested, even the rural women have all moved from using kerosene to using LPG. So what we have seen is that very recently, investment is now going seriously towards LPG.
Rain Oil – we have just completed an 8, 000 metric ton LPG facility in Ijegun, Lagos State and that cost us a humongous amount of money.
As changes comes, whether fossil fuel or LPG, investment will move in that direction, but government need to support that with the right policy and the right incentive, but definitely not subsidy.
The Minister for State of Petroleum, Timpre Silva, said the argument is not really about carbondioxide emission and was advocating for gas, which produces lower emission and suggested that we transit to gas before we join the race to renewable energy. I see that you agree with him?
Definitely, then again, I was in Paris not too long ago. I was walking down the street, and saw motorcycles and cars parked along the road, all plugged to a charging point. I pulled back and took pictures of it and then sent them to my staff. I said the world is moving on, we are moving away from all these fossil fuel.
The world is moving towards electric cars, moving away from hydrocarbons and Nigeria needs to be prepared.
The United Kingdom has come up with a policy that by 2040, they don’t even want to see any vehicle on the road that is running on petrol. So we need to begin to think along those lane, because we will wake up one day and see that the world have moved away from our crude oil.
Then nobody will be interested in our crude oil. We also need to act along those lines.
“Government actually doesn’t have any business importing petrol”