Downstream petroleum sector reforms: NLC misses the point

Expectedly, Dr. Ozo-Esan spoke against the government’s reform effort in the downstream petroleum sector, but what concerns this writer was his attempt to disguise an ideological stance as fundamentally sound economics. Dr. Mailafia had pointed out that despite the fact that the government had given licences to private operators to establish refineries for a number […]

Expectedly, Dr. Ozo-Esan spoke against the government’s reform effort in the downstream petroleum sector, but what concerns this writer was his attempt to disguise an ideological stance as fundamentally sound economics.

Dr. Mailafia had pointed out that despite the fact that the government had given licences to private operators to establish refineries for a number of years, no serious progress had been made in this regard due to fixed price regime in the country, and its attendant inefficiencies and corruption. Major inefficiencies in this regard include the guaranteed profit from the subsidy regime, and the ease with which products can be diverted (and imported quantities inflated). As such reform is necessary since no serious investor will set up refineries where he is unsure of investment recovery and where process are determined by regulatory fiat.

Dr Ozo-Esan in responding to the points above, not only attacked the soundness of this empirical truth, but tried to defend his ideological positions on shaky economic principles. According to Dr. Ozo-Esan, since the petroleum market is oligopolistic, any attempt to reform the sector would only lead to exploitation of customers and price increases. He also added that the planned policy initiatives would not lead to increased local refining, since oligopolists will keep importing to make maximum profits.

The faults in Dr. Ozo-Esan’s logic are obvious, but before addressing these gaps, it is important to understand that the major objective of the government’s reform efforts in the downstream sector is to ensure the emergence of a healthy and well functioning local refining industry, while ensuring that there is no disruption in the supply of products to the market. To this extent, the government is liberalizing the process of issuing importation licences, and also easing the conditions for establishing refineries in the country.

By confirming that operators will seek to maximise profits, the NLC Chief Economist is confirming that operators will seek to be low cost suppliers. The policy thrust of liberalising importation licenses will ensure a competitive operating and pricing environment. The quest for lower costs among operators will encourage investment in local refining, to undercut the costs associated with importation.

There are several other reasons why there is an urgent need to reform the downstream sector. I have found the online information at http://nigeriadownstreamreform.info very rich in content and would encourage Nigerians interested in the facts of the matter to access the website. Let us dispense with sentiments and all join hands in the crucial task of reforming one of the most important sectors of our economy.

Babajide Olateju, Central Business District, Abuja. Email: [email protected]