– ‘Deregulation Does Not Mean Govt Will Abandon Downstream Sector’
The Minister of State for Petroleum Resources, Mr. Timipre Sylva, in this revealing interview with THE WHISTLER, defends government’s decision to deregulate the downstream sector and speaks about spirited efforts to stimulate gas demand in the country, the taking of the Final Investment Decision for NLNG Train 7 and the flag-off of the construction of the Abuja-Kaduna-Kano Pipeline.
What are the key achievements recorded by the Petroleum Ministry in the past one year?
The petroleum industry in the past year has been very active. Our flagship achievement is the NLNG Train 7 FID, which a lot of people thought would not be possible at this time. In spite of COVID-19, I am sure that this is the only FID of its kind taken in the world during this period. It is something we are very proud of and that we are able to achieve in spite of all the challenges.
Another achievement that has gone down well with us is the Ajaokuta, Kaduna and Kano (AKK) gas pipeline. The AKK gas pipeline has also been in the plan for a long time. There has been a plan to build the trans-Saharan gas pipeline to take off from Kano to take our gas to Algeria and then all the way to Europe. That plan has been there like forever, but the plan couldn’t have taken off without the AKK, because to take the pipeline from Kano to Algeria, you must first take the gas from the South to Kano, and we have not even been able to achieve that gas pipeline from the South to Kano. But this time. it has become a reality. The AKK pipeline FID has been taken and of course construction has already commenced. Unfortunately, COVID- 19 has slowed us down a little bit, but if not for COVID- 19, a lot more would have happened with the AKK. These are some of the two major projects that have been kicked-off in spite of the problems.
But another big achievement, as far as I am concerned, is that the industry has been better managed, I must say within this period. With COVID-19, we have been able to also make a decision finally on deregulation. Deregulation is something that we had always wanted to do as a country. Everybody knows that we cannot continue with the subsidy, especially for PMS. We have been attempting to take out subsidy, but we have succeeded in taking it out for kerosene, diesel and it was almost impossible to take it out for PMS. Finally, we found the opportunity. We thought it was a golden opportunity and we were able to take advantage of the opportunity; we have taken out subsidy finally and I believe that we have been able to actually put the oil industry now on a path of growth.
The construction of the AKK line will be flagged off on the 30th of June, and you see why the AKK pipeline is very important to us as a country is that it is going to create a development backbone; a development corridor across Nigeria, which means that an energy corridor will now be created from the South all the way down to the North and there will be gas in that pipeline. That means that all kinds of industries, gas-based industries and power plants can spring up along that corridor and we believe that it is going to be trans-formational for this country.
Nigerians are seeking some clarity on the removal of petrol subsidy. Some Marketers are saying that the market needs to be totally deregulated and that a deregulated market will not need agencies like the Petroleum Equalisation Fund. So, do we have full deregulation now or guided deregulation?
With every respect to those marketers, I would say that they probably do not understand the issue at all. When you say that you have deregulated a sector that does not mean that the government will not be interested in what is going on in that sector. It does not mean the abandonment of the sector. Everybody says that the government role traditionally is to be a Regulator and that the government has no business in business; that is what they say. Everywhere in the world, the government continues to be a regulator. If you go abroad, you have a recommended weekly price for everything and the government is interested in protecting the consumer; more so, for a product like petrol that is so strategic to the corporate existence of this country. Anybody who thinks that the government is not going to show continuously at least some interest in making sure that the consumer is not exploited by the marketers is not serious. So the government will continue to show interest to make sure that marketers do not profiteer on the consumers. So we will continue to monitor the prices and advise the prices.
When you are also talking of PEF, it is also government’s role to ensure that there is some form of uniformity. If you now allow a marketer to sell the product in Sokoto at N500 per litre and sell in Port Harcourt at N150 per litre, it is not right. This is a country. So the government must play that role of equalising, so that there will be some kind of uniformity of prices. Even in the airline sector, you cannot say because the government has deregulated the airline sector, then it will become uninterested in how much airlines are charging. In the banking sector, it is not because the government has deregulated the banking sector, the government will be uninterested in the interest rates charged by banks and the government will now allow a bank in Kano to charge interest rate at 20%, while a bank in Lagos charges at 10%. It does not work like that. This is one country, so the marketers must continue to allow the government to play that role because we have a role to protect the consumer. We and Labour unions representing the consumers are now on one side to protect the people. If not, you will have a situation where marketers will sell at any price they like, which is not done anywhere. Everywhere in the world, the government continues to direct and advise prices. Even in the U.K, the government advises prices, so that at least, you will give an idea and say look in that process how do you determine the price? The price is determined by everybody; by the marketers’ representatives, by the consumers’ representatives and by the government representatives. All parties sit down and analyse the landing cost of the product to Nigeria, what interest rates are being charged by the banks today and how much is Foreign Exchange this week. We look at all these and say if this is the landing cost, then this will be a reasonable margin for the market and when that price is determined, everybody is expected to be within that band. It is a band, so it is not just a figure. If within that band a marketer wants to sell at the higher limit, he sells at the higher limit, if he has his own customers. If somebody wants to sell at the lower limit, he sells at the lower limit. But anybody who says that there will be no role for the government in a deregulated environment, then the person probably does not understand deregulation. Deregulation does not mean chaos and that is why the government has now decided to retreat to its usual and normal position of regulating the market.
In terms of advising pricing, are you planning to ask the PPPRA to raise a committee that will oversee that?
No. On the PPPRA board, you have Labour represented, you have the Marketers represented, and you have everybody represented. They have a pricing committee which comprises of all these representatives on the board. Even now, that is how prices are arrived at. It is the pricing committee that sits down and agrees on the price band, and after that, the PPPRA will announce it. That is how it is done.
This is not the first time the government has taken a decision to deregulate the downstream sector. But the past attempts have failed because of their rejection by the organized Labour and Nigerians. This time round, do you have the buy-in of the organized Labour?
I believe that at this point, there is already a consensus around deregulation. I believe that Labour too has agreed that the time for it has come. Nobody can stop the idea that its time has come and I think that the time for deregulation has come. But in addition to this, what we are also doing is to ensure that deregulation as a programme stands. One of the ways we want to ensure that, is to give some kind of alternatives to Nigerians. The problem now is most cars use PMS to run. Transport vehicles are running on diesel, PMS and so on, but we want to introduce the use of gas as an alternative. In fact, in a few weeks from now, we will be rolling out our gas plan. So what we want to do is to encourage Nigerian motorists to convert their vehicles to dual fuel and we will also have this installed in filling stations. So you will go to filling stations and you will now have the option of buying gas and gas is cheaper; LPG, CNG and LNG all these options will be available to the Nigerian motorists. So if you drive into a filling station and you find that the PMS price for that week or that month is too high for you, you just buy LPG or CNG or LNG depending on what you have converted your car to, so that you have the option and I assure you that the price of gas will continue to be competitive compared to PMS. So now we are giving the consumer the ultimate choice to choose whether he wants to continue to run on the expensive PMS or to run on gas. So, because of these options that we are giving, we believe that the Nigerian motorist will now have the ultimate choice to decide whether he wants to continue with PMS or whether he wants to continue with gas or so. It is like doing a toll gate somewhere and we are now giving you an alternate route so that if you say the toll gate here is too expensive, you do not want to pay the toll gate fee, you are free, go and use the alternate route. So we are now giving you the alternative of using PMS or using gas and that is why we are really working very assiduously to ensure that we roll out the gas master plan and that master plan will ensure that people will now have access to gas to run their cars.
There seems to be a focus on gas lately; the NLNG just took the FID for the NLNG Train 7 in December and your Ministry is driving the Nigerian gas flare commercialization programme. What does the future hold for the Nigerian gas industry?
I will say that gas is the future. There is no doubt in my mind, that for Nigeria, gas is the future. Already, we are seeing the end of the oil economy. All the forecasts are saying that in 2040, oil will no longer become the dominant fuel in the world because of course; you know that there is a commitment to the development of renewables. Unfortunately, as a country, we have not joined that renewable race; we are still more or less an oil and gas economy. Nigeria, as you know, is very rich in gas. In fact, some people say that Nigeria is more of a gas territory with some oil in it. That means that we have the option of at least transiting to the renewable energy world through the instrumentality of gas. So that now becomes the option– our route to getting into the renewable economy. So, gas is now the focus. We want to see how we can grow gas utilisation in Nigeria. So you have the gas flare commercialisation programme which is very advanced now. We are actually also ensuring that gas penetration, the use of LPG, is really deepened. In Nigeria, we are also ensuring that gas is utilised for the driving of cars. Therefore, we are driving the development of gas-based industries. The president has even recently approved the creation of a gas hub where we will pipe all the gas to so that gas-based industries can spring up. We are focused on the development of gas as a government and I believe that at the end of this tenure, Nigeria would have seen a very clear path to the development of the gas subsector.
The NNPC has just released its 2018 audited results, what is your view on the publication?
I am not surprised at all because the GMD is a very transparent person. I have known him on a personal level, and then NNPC before now has always operated opaquely. From what everybody says, nobody knows what was happening in NNPC; it was like a dark hole, but at least, we are coming out of those perceptions. Today, NNPC has put the cards on the table which is a new beginning. I must say, we have put the cards on the table. With the PIB and commercialisation of the NNPC, I want to assure you that we are going to see a lot more transparency, especially with Mele Kyari as Group Managing Director of the NNPC.
There has been peace in the Niger Delta under this administration. How has the government been able to achieve stability in the area?
I have always believed that the Niger Delta problem must involve the engagement of the host communities. You cannot operate in an area in the exclusivity of the communities. What we are doing is to actually engage the communities and to carry them along. We will carry them and continue to carry them along and we believe that we will have this peace throughout our tenure.
Crude oil theft is still a serious problem in the Niger Delta, what is the government doing to curb this menace?
I have told everybody that the solution to crude oil theft is not the highfalutin technological solutions. You only need three elements; the communities, the oil companies and law enforcement agencies working together and we will be able to secure the pipelines. Before now, I think that synergy between the communities and the oil companies and law enforcement agencies was really not there, but that is ultimately the solution to the theft. Of course, you know that there will always be thieves. But you see, these thieves are from communities, they are known by people; they are not ghosts. If we are able to involve the community, people around the communities know what is happening around them. If you think that people around those pipelines do not know what is happening, then you are mistaken. The people around the pipelines will know. So the solution to it is to make sure that those people around the pipeline communities must be involved in the process of resolving this problem. That way, even if you don’t catch them red-handed while destroying the pipes and stealing the crude, at least you can catch them after they have done it. The thief takes all the precautions to steal while he is doing it but after he has done it and he has safely succeeded to go home; he doesn’t take precautions while he is enjoying the money. My suggestion is that we will work with the communities, we will work with law enforcement agencies and the companies so that we can identify those thieves, because those thieves when they get the money, they always want to enjoy the money. So, if we can follow the thieves to the point where they enjoy their money and we make an arrest at that point, we will still achieve the result. That is why I have continued to advocate that the solution is not all this technological thing that people are bringing because our terrain is different. You have pipelines crisscrossing mangrove forests. If you bring a drone, for instance, to fly over a mangrove forest, what are you going to see? I believe that the first thing before we go to the highfalutin technological solutions is to exhaust the solution of working with the communities, the oil companies and law enforcement agencies altogether. If we can exhaust that solution, I believe that we probably may not have this problem anymore and I believe in it.
When will Nigeria achieve self-sufficiency in crude refining and product supply?
Well I cannot give you a date, but I believe that we are actually on track now, if I look at it from the policy perspective. I believe that deregulation is definitely on track to achieving self-sufficiency. Before now, you know that nobody will invest in an economy that is on subsidy, where you refine your product and sell at a loss. So, we had all these problems impeding investments in the sector. But today with deregulation, we are beginning to see interests already. With the Dangote Refinery, (650, 000 barrels per day), Port Harcourt Refinery, Kaduna Refinery and Warri Refinery, if we are able to really get these refineries up and I believe it will be easier for us now with deregulation to get these refineries functioning, then you can see that we would have gone very far into satisfying our requirements and with of course additional investments in the refining sector with all the modular refineries also coming up, I believe that it won’t be too distant in the future before we achieve self-sufficiency in refining.
What are the measures being put in place to avoid situations in future where Nigeria’s crude oil would be sold at unprofitable prices when crises like COVID-19 happen? Some people have suggested building storage facilities?
You see when you look at it, it depends on the strategy of the country. People can decide to say instead of paying money for storage, let me just order the things that I require just in time. It might be because you want to save money or do not want to bear the cost of storage. If you have this kind of national security storage of crude oil, you know it will come with some costs as well, because you are going to secure that crude, of course for safety issues and so on. So it has a lot of issues. Some countries also decide to say let our security storage be in the ground, the crude is there, and we can always produce it. Why do you want to produce the crude and then put it in storage? It depends on the national strategy. So for us as a country, we do not really have this storage, but we have the oil in the ground. What happens is that when you do not produce, you keep the oil in the ground and the oil is not lost. So, who says that that is not storage? You have stored the crude in the reservoir instead of creating artificial storage. You can decide as a country to keep your storage in the reservoir, shut it in, keep it there, so that any time you want it, you pump it back. People like to talk about it because they saw it somewhere, so it must also be in Nigeria. Because there are national Strategic Reserves in the U.K and America, so you must have strategic reserves here. Does everything apply to us? I do not think so. We have strategic reserves for PMS, we have MOSIMI, we have ATLAS COVE, we have some reserves in the country, but for crude oil, I personally do not see the need for strategic crude oil reserves. What we can do is pump it back into the reservoirs and keep it there, it is still a way of keeping our crude oil.
Why did we not look at that option of shutting in crude oil before our oil cargoes were said to have been stranded on the high sea?
No, this thing is highly exaggerated and also misrepresented. It was not as if our vessels were out there floating looking for buyers, it was not like that. First, COVID-19 is a very unprecedented situation, nobody in the world planned for it. For example, if you have shipped a cargo of crude to a refinery and midway the refinery has shut down, because there is lockdown and they have hit tank top, so the refinery cannot evacuate fuel because nobody is buying and since all their tanks are full, they shut down. They said they cannot take the cargo that is already on its way anymore, what would you have done in that situation even if you had national strategic reserves? The arrow had left the bow, so it was already midway. That was the kind of situation that we had and those were initial problems which most countries had because COVID-19 just happened on all of us. So, these were problems that we couldn’t have avoided. How could you have sent out a ship and the ship would just be hanging on the high sea if the ship did not have an initial destination? A lot of things changed when the ships have already sailed and so with COVID- 19 everything changed. Some countries are even saying the ships cannot come in, because everybody has to be quarantined. You know the chaos that COVID-19 came with. So, this is why you saw that there were initially the discussions on stranded cargoes, but we have been able to surmount that over the period.
When will we stop selling our crude grades at discounts to Brent?
Right now, the prices are appreciating and we are hoping that the worst is over. We are expecting that the market will continue to open up and demand will grow. At this point, we can only expect countries to open up from their lockdowns and as they begin to open up, demands will grow gradually. Of course, all these things will no longer happen.
A new petroleum industry law is crucial to growing the oil reserves and attracting investments. When will Nigeria have a new petroleum industry law?
Well, I was cautioned by the National Assembly not to give a date because I won’t be the one to debate it but on our part, I want to assure you that in a few weeks from now, the PIB will be set and ready before the National Assembly.