PRESENTATION FOR

THE LAGOS CHAMBER OF COMMERCE & INDUSTRY ON THE NEED FOR COMPLETE DEREGULATION IN THE NIGERIAN PETROLEUM INDUSTRY
BY

DR DIRAN FAWIBE
CHAIRMAN/CEO INTERNATIONAL ENERGY SERVICES LIMITED , OCTOBER 21, 2009

WHAT IS DEREGULATION

Removal of government control Withdrawal of state interference Encouraging free market operation Simplification of governments rules and governments regulation for greater market forces

GAINS OF DEREGULATION

Healthy competition Higher productivity Lower prices Increased investment Availability of products

PROBLEMS OF DEREGULATION

Unstable (and sometimes predatory) prices due to market forces Cartelization of players Little allowance for low-key players Increase in consumers complaints I i l i t Reduced quality of service delivery, especially when government regulation i at i ll h t l ti is t minimum

DEREGULATED SERVICES IN NIGERIA

Telecommunication Aviation Banking and Finance Transportation (except Railways) Agriculture Electronic Media and the Press Petroleum (Diesel)

History of Deregulation In Nigeria y g g

Nigeria operated a deregulated oil price regime from 1960-1973 AGO-Diesel oil price was fully deregulated in 2007 Many private refineries licensed to operate over 8 years ago but none has fully taken off but high promises on one or two within the next one year. All regimes/administration in Nigeria has attempted oil sector deregulation

PROBLEMS OF DEREGULATION ATTEMPTS IN NIGERIA

Lack of public support: citizens see domestically produced oil as an abundant national resource which should be cheaply available Perceived as IMF/World Bank programme which lack local source. Satisfaction with status quo (cynical disinterest) Expectation of increase in prices: deregulation is associated with price increase

REASONS WHY GOVERNMENT WANT TO DEREGULATE

Burden of subsidy on national treasury Strain of financing Nigerians state-owned p petroleum businesses Intra & trans ECOWAS smuggling of Nigerian oil products Relative market prices of oil in the ECOWAS sub-region Inability to attract investment in midstream while licensed refineries could not operate. High Hi h cost of maintaining th refineries t f i t i i the fi i

POSSIBLE OPTIONS

Maintain the status quo Phased deregulation Complete deregulation

PRE-DEREGULATION SCENARIO

Changes in world oil prices are not immediately reflected in the domestic prices. Oil companies experience delays in margin recoveries since price adjustments would require public hearing/government ratifications Entry of new investors was discouraged, thereby minimizing competition Significant shift in the use of engines using oil with lower prices p

POST-DEREGULATION SCENARIOS

Increase foreign investment Increase competition Availability of products Predictable prices of products End of Price-fixing Regime Appropriate accounting of the oil revenue Reduced corruption in the sector

FOR A SUCCESSFUL DEREGULATION

Existing refineries must work at optimal levels Supply must be stable Power supply must be stable for business to thrive Local industries must be encouraged to grow Stakeholders must be involved in all negotiation New refineries must be established and running i

FOR A SUCCESSFUL DEREGULATION O SUCC SS U GU O

Mitigating the immediate effects of deregulation - Constructive engagement with Labour Unions, Transport Unions, Civil Society Organizations and those likely to be adversely affected in the implementation process - Incentives/penalties for stakeholders to prevent price escalation and profiteering

FOR A SUCCESSFUL DEREGULATION

The President and/or Ministers must g g g engage Nigerians on this fundamental Policy Undertake measures that will alleviate suffering of Nigerians y g gy product mix to Diversifying the energy p encourage substitution of energy alternatives to petroleum products

THANK YOU