Deregulation of the petroleum downstream sector has commenced in earnest. JOSEPH INOKOTONG writes that Nigerians should remain patient and vigilant while anticipating positive outcomes such as increased infrastructure development and energy stability. In addition, commercial transporters who have received free FG CNG conversion kits through PCNGI must pass on these savings to their customers.
THE removal of regulations or restrictions, especially in a particular industry means the sector has been deregulated. When the government removes or reduces the restrictions in specific industries to improve business operations and increase competition, economic deregulation occurs. The government can decide to remove regulations when businesses complain about how the regulation impedes their ability to compete.
A typical instance is the deregulation of the telecoms industry by former President Olusegun Obasanjo in the early 2000s, which revolutionized the industry that has been flourishing to date. At the initial stage, when the exercise commenced, many Nigerians could hardly afford telecommunication services and devices due to the costs. However, the entry of many players in the market engendered stiff competition that forced prices to moderate, making it easier for many to own mobile phones and subscribe to its services.
Judging from the successes recorded in the telecommunication industry, one can conveniently conclude that deregulation is not a bad economic policy. That notwithstanding, other variables like the manner of implementation, timing, sensitisation, etcnd so on, have enormous roles to play in ensuring the achievement of desired results with minimal unintended consequences.
Over the years, successive governments in the country have increasingly intensified efforts to deregulate the downstream petroleum sector with various degrees of success. At every turn, the move by the government to remove restrictions in the sector, paving the way for market forces to determine the price, especially, of Premium Motor Spirit (PMS) had deepened concerns among a broad spectrum of the citizenry with occasional protests against the programme. Yet despite vehement opposition by many Nigerians, chiefly, the Nigeria Labour Congress (NLC) and the Trade Union Congress (TUC), the administration of President Bola Tinubu has gone ahead to begin the process of final removal of PMS subsidy.
The consequences of the government’s action are dire for the entire economy and have started manifesting as exemplified by galloping inflation, high costs of transportation, and rising prices of food items, goods and services. Experts blame the sad development on the fluctuating high exchange rate of the Naira to the Dollar and other foreign currencies, coupled with the fact that the country depends largely on a single commodity for its foreign exchange earnings. Besides, they argue that the country does not export much rather it is more or less import-dependent.
In the near term, the prevailing situation is likely to persist, culminating in increased domestic pressure on the government to provide some form of palliatives to cushion the effects of the policy on the citizens.
In its pursuit of appropriate pricing of PMS, the government rationalizes that petrol prices remain high despite local refining and production because global market forces determine petrol prices. Despite local refining at Dangote and the soon-to-be-licensed Nigerian National Petroleum Company Limited (NNPC), Port Harcourt Phase one currently undergoing final testing of completely and partially rehabilitated sections, the cost of crude oil and other production factors remain aligned with global benchmarks. In addition, removing subsidies means that the prices Nigerians pay at the pump reflect the actual cost of refining, logistics, and distribution. This shift ensures long-term sustainability for the sector after decades of inefficiency and subsidy abuse.
The government noted that beyond these immediate benefits, the full deregulation and local refining will also open the door to increased investment in the downstream sector, which will create thousands of jobs and catalyse industrialisation. No longer reliant on importing refined petroleum products as Nigeria will produce and refine locally, thereby keeping the jobs and economic benefits within the country.
It argues that the subsidy regime, which cost Nigeria billions of dollars and drained resources from critical infrastructure projects, is no longer sustainable, stressing that removing it has allowed the market to operate freely. Prices may initially rise, but global oil prices, exchange rates, and local refining costs influence them. It is the belief that if crude oil prices fall or refining becomes more efficient, pump prices will adjust accordingly. Removing subsidies also curtails petrol smuggling, which had been rampant under the subsidised regime.
Furthermore, the removal of subsidies opens up opportunities for local refineries to thrive. As investments increase in the refining sector, the downstream market will become more competitive, attracting investors and creating jobs that Nigerians need.
Under the deregulated system, independent marketers are free to purchase fuel directly from Dangote Refinery and other local or international refineries. This ensures a more competitive market and broader distribution, helping stabilise prices and improve access across the country. NNPCL no longer holds a monopoly over fuel procurement. Independent retail stations and NNPCL are free to buy PMS (from wherever it is available and more affordable) and sell it to Nigerians within a margin as stated in the PIA and regulated by the NMOPRA and other relevant agencies. It is a willing buyer-willing seller market now.
To underscore this, the Federal Government last Friday finally announced the opening up of the PMS market for direct purchase by independent marketers from local refineries. The government’s decision to allow independent marketers to buy petroleum products directly from local refineries effectively aborts the NNPCL’s monopoly as the off-taker for petrol from the Dangote Refinery.
Mr. Wale Edun, Minister of Finance and Coordinating Minister of the Economy, said in a press statement he signed that the committee recognized questions and discussions regarding the change in the market structure, and pledged the commitment to providing clarity on the development, and continuous engagement with stakeholders to ensure a seamless transition process.
He stated: “Following the directive of the Federal Executive Council (FEC) and the implementation of the new Naira-based sales mechanism, the Implementation Committee on the Sales of Crude Oil and Refined Products in Naira, held its review meeting. The meeting focused on assessing the transition towards a deregulated market structure for Premium Motor Spirit (PMS) and addressing the change in the purchasing model for petroleum product marketers. Key Update: New Direct Purchase Model: The most significant change under the new regime is that petroleum product marketers can now purchase PMS directly from local refineries”.
He further stated: “This direct purchasing mechanism allows marketers to negotiate commercial terms directly with the refineries, fostering a more competitive market environment and enabling a smoother supply chain for petroleum products. Local Production of PMS: With the commencement of local PMS production, the market is better equipped to support these direct transactions. This transition is expected to enhance efficiency in product availability and stabilise market conditions for the benefit of all Nigerians”.
This decision marks a departure from the previous arrangement where the NNPCL served as the sole purchaser and distributor of PMS from the refineries.
The latest development effectively means that NNPCL is no longer a regulator of fuel prices. Following the reforms under the Petroleum Industry Act (PIA), NNPCL now operates as a commercial entity and a limited liability company, competing with other players in various aspects of the petroleum and fuel market upstream, midstream, and downstream. It purchases fuel based on agreed commercial terms from local or international refiners or suppliers and distributes it like other marketers to their retail stations or others who want to buy from them.
As stated earlier, under the new dispensation, the price of petrol, whether from NNPCL or any independent marketer, is decided by market forces, as well as the cost of products they receive from local refineries or global suppliers. For instance, the latest batches of products obtained from the private local refinery in Nigeria were sold to NNPCL by the refiners at around N990 per litre, the company explained.
If properly managed, removing subsidies will free up billions of dollars that can be channelled into critical sectors like healthcare, education, infrastructure, and job creation. This will reduce the government’s borrowing needs, stabilise the Naira and create a more competitive market for domestic refining. It will also incentivise local refineries to expand their capacity, reducing the dependence on imported fuel and increasing Nigeria’s energy security.
By significantly boosting investment in the downstream sector, Nigeria can generate thousands of jobs, drive industrialization, and liberate Nigeria from its reliance on imported refined petroleum products. Through local refining, the country can bring home jobs once sent abroad, empowering the economy and nurturing local talent.
In a deregulated sector like this, global market dynamics will drive the prices of petrol, but prices are expected to stabilise as local production increases and competition between independent marketers grows. Moreover, as more refineries come online, the reliance on expensive imported fuel will decrease, further stabilising the market and potentially driving down prices. Global oil price declines will also directly impact pump prices in Nigeria. As investments continue to flow into the local refining sector, the country is expected to see a reduction in fuel imports. This will drive long-term price stability and foster job creation in the refining, logistics and retail sectors.
The government has announced its promotion of the adoption of Compressed Natural Gas (CNG), a cheaper and cleaner alternative to petrol through the Presidential ONG Initiative. It stated that CNG is currently priced significantly lower at N230 per litre, offering immediate relief to consumers. It is also encouraging investment in infrastructure to support CNG adoption in the transport sector and has also started a convert-now-pay-later scheme to help vehicle owners convert their cars easily. Experts say a full tank of CNG will provide the same service as four to six full petrol tanks for a car and it is safer and cheaper.
The Nigerian government said it has adopted a fully deregulated approach under the PIA, which ensures transparency and competition. All players, including NNPCL and private marketers, are subject to market rules and must operate transparently. The removal of subsidies prevents manipulation, ensuring that consumers pay for the actual cost of fuel production and distribution. The government added that it is keen to ensure that the funds saved from subsidy removal are used to develop critical infrastructure. The access to fuel from Dangote Refinery for independent marketers will promote fair pricing and healthy competition.
With the declaration, the citizens should be encouraged to hold the government accountable for how the savings from subsidy removal are spent, ensuring they are invested in key sectors that directly improve their quality of life. Additionally, citizens may reconsider supporting the reforms by being patient and understanding the broader benefits of a fully deregulated market. Experts say while there may be temporary pain, the long-term gains – such as more jobs, improved infrastructure, and reduced smuggling – will benefit the entire economy if properly managed.
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