July 21, 2024

Downstream cartelisation threat with NNPC/OVH’s acquisition: Experts allege breach of antitrust segment of PIA

Samuel Agbelusi

The Nigeria National Petroleum Corporation Limited (NNPCL),  has been cautioned against cartelisation of the downstream(retail) sector of the oil and gas industry, in what many have observed is an attempt to stretch its immunity beyond the anti-trust(anti-competitive) provisions of the Petroleum Industry Acts.

This was the position held by experts and analysts in a conversation with EnergyDay on the backdrop of the NNPCL’s recent acquisition of Oando’s OVH Energy.

Recently, the Nigerian National Petroleum Company Limited (NNPC), announced the acquisition of OVH Energy, owner and operator of the Oando branded retail service stations across Nigeria,  aimed at attaining 1,500 stations and growing its portfolio under Accelerated Network Expansion (ANEX) Initiative.

The acquisition is expected to bring over 380 additional filling stations under the NNPC Retail brand in Nigeria and Togo, bringing the national oil company’s outlets to 1,500 stations.

Industry experts including economists in a conversation with EnergyDay referred the NNPC to the provision of Section 211 of the Petroleum Industry Act(PIA) which stipulates a penalty of a maximum of 5% of the revenue of such any operator culpable of abusing the anti-trust regulations.

According to them the foray of NNPC into the retail sub-sector of the downstream industry will reduce the competition in the industry and discourage the efforts of the private sector.

They however warned the national oil company that there may be room for litigation if any aspect of its actions affect the PIA and also drive away the private sector.

Dr. Boniface Chizea,  Chief Executive Officer · BIC Consultancy Services, in his reaction told EnergyDay that the foray of NNPC to the retail end of the downstream sector is obviously altering the competitive profile of the market.

According to him, this development will certainly have the effect of discouraging private sector interest and investments. He added that it is certain that the national oil company by this move wants to dominate the market space.

He said, “But there is the need for caution. If what has happened now offends any aspect of the PIA, it must be ready for a spate of litigation in due course which might result in costly reversals.

“As the oil companies prepare to play in the market, it must wean itself from the protective shield it has enjoyed as a public sector entity.

Dr. Boniface charged the NNPCL to guide its downstream business portfolio in compliance with the provisions and letters of the PIA.

He also noted that there are lingering issues regarding what really has happened in reality with the celebration with glamour, panache, and fanfare that the National oil company was going to offer its shares on the Stock Market.

He disclosed that contrary to NNPCL’s claim, the national oil company remains a public sector, adding that all the shares of NNPCL are equitably held between the National Oil Company and the Federal Ministry of Finance.

He said, “The national oil company’s structure that will deliver desired performance and results must have government as a minority shareholder. What comes readily to mind is the current LNG arrangement.

“That company has held its own because the government remains a subordinate shareholder albeit a marginal one with a 51/49% shareholding structure,”

Dr. Boniface, therefore, urged NNPCL to work towards full deregulation of the downstream sector of the oil and gas market by joining in the subsidy debate, but not to expand its shell as a sole competitor.

Professor Wumi Iledare, Professor of Petroleum Economics and Policy Research, and the Director of Energy Information and Data Division of the Center for Energy Studies, Louisiana State University, on his part warned the Nigerian Midstream and Downstream Petroleum Regulatory Authority(NMDPRA) guide against the attempt by any player in the downstream sector of the oil and gas industry possible breach of the anticompetitive regulations in the PIA.

Professor Iledare however noted that it is not unusual for companies with cash surplus to acquire new businesses to grow their portfolio of assets. He noted that such a company must operate within the context of PIA downstream regulation.

He said, “I have argued for the need for accelerated and proper manpower development in the Authority and the Ministry of Petroleum for the tools needed in times like this.”

Professor Iledare however noted that NNPC Ltd needs a new manpower development and deployment strategy that is completely different from the old practice to achieve its business target.

He noted that professional competence in the handling of NNPCL devoid of political expediency is required to maximise stakeholders’ value.

Lanre Afuye, Manager in the Oil, Gas, and Power Practice at Andersen Nigeria, disclosed that the recent acquisition by NNPC Limited could possibly be a major issue when the entire downstream sector of the oil and gas industry is fully deregulated later in the year.
According to him, the market dominance of the NNPCL at that time would have a potential impact on the competitiveness of the retail sub-sector.

He said, “Of course, the conversation will be different when and if the government eventually decided to fully deregulate the sector and retail stations begin to charge whatever price they want for petroleum products.

Afuye further revealed that oil companies like NNPCL should be encouraged to focus on investments in the refining sub-sector and other aspects of the downstream including the manufacturing of lubricants.

These areas, according to him, are where dominant investors are needed to play competitive roles but not the retail end.