The bold step by the Federal Government to fully de-regulate the downstream sector is seen to address the recurrent petrol shortages that have plagued Africa’s biggest economy for decades.
Deregulation has been the subject of debate between economic intellectuals on all sides of the political aisle. On one side of the spectrum, an argument can be made that deregulation of the downstream sector increases competition but gives too much control to the private sector, especially when it comes to product prices.
However, experts said the move to full deregulation is described as bowing to common sense for a country that has witnessed everything wrong about regulating petroleum products’ supply and pricing regimes for decades.
Marketers can now negotiate petrol prices directly with the Dangote Refinery under a “willing buyer, willing seller” arrangement, aligning with practices for other deregulated products such as diesel and kerosene.
The new development is expected to accommodate marketers’ independent sourcing of petroleum products and fluctuations that may be encountered as experts expect increased competition and improved efficiency in the sector.
Boosting fuel supply and reducing scarcity
Full deregulation of the downstream sector could eliminate government-controlled pricing and supply restrictions, enabling market forces to dictate prices and encourage increased production.
This would likely lead to improved fuel availability and reduced scarcity, which has plagued consumers and businesses alike. A more stable fuel supply can enhance productivity across various sectors, from transportation to manufacturing.
Attracting investment in infrastructure
Deregulation can create a more attractive environment for both local and foreign investors.
Deregulation of the downstream oil industry will attract more foreign investors, eliminate the shortage of refined petroleum products, and combat refined petroleum commodities’ smuggling around the country’s boundaries,” it said in the study titled “Deregulation of the Downstream Petroleum Industry: An Overview of the Legal Quandaries and Proposal for Improvement in Nigeria” by Olusola Joshua Olujobi from Elizade University’s Faculty of Law.
Encouraging market competition
By removing price controls and licensing requirements, deregulation can foster a competitive marketplace.
Increased competition among fuel suppliers and distributors can lead to better pricing for consumers, enhanced service delivery, and innovation in products and services. This competitive environment can also stimulate local entrepreneurship, as new companies seek to enter the market.
End of subsidies
Taking a resource-rich country such as Nigeria as an example, deregulation can play an effective role in eradicating supply issues with effective implementation.
“Total deregulation of downstream petroleum has the potential to shape the price increases of petroleum commodities. It will end huge revenues spent on fuel subsidies. It will enhance petroleum commodities availability in Nigeria and eradicate endless queues at filling stations for non-existent petroleum products in some parts of the country. Full price deregulation is the bedrock of any long-term reform within the downstream petroleum for transparency in the sector,” Olujobi’s study said.
President Bola Tinubu in his inauguration speech on May 29, 2023, said petrol subsidy was gone. However, it has grown bigger than the amount being paid before he came to power.
Tinubu spent N15.096 trillion on petrol subsidies in the last 14 months, according to BusinessDay’s calculations.
Nigeria’s former President Muhammadu Buhari spent N10.7 trillion on petrol subsidies between 2016 and the first six months of 2023.