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Deregulating the petroleum downstream sector. The state of the industry (Part 6)

  • SOURCE: | qwesa2big
  • petrol-pumpI wish to propose that after having operated under the price deregulation for more than a year now, there is the need to review the two weeks pricing window. This is because it is too restrictive and thus, does not create room for proper inventory management.

    This has the tendency of leading to huge losses attributable to reduction in value of inventory at the station-level, especially under a situation where prices are on a downward trend, as the industry experienced last year.

    Industry Operators

    The industry operators, especially the indigenous ones, also have to appreciate that where the industry is currently and where it is heading does not call for “business as usual” approach to doing things. The industry dynamics have changed and ,therefore, they must also change. This change calls for a number of things to be done.

    Best Practices

    In the first place, the operators must commit themselves to best practices and higher standards of performance. All over the world, serious operators have internal standards higher than the regulatory requirements because the regulatory requirements are most of the time the minimum acceptable level. Therefore, as operators, they must commit themselves to raising their standards, looking at the needs of the consumer who determines the survival of the business.

    Building Synergies/Collaboration

    Additionally, the operators must understand that the days of operating in silos are long gone. The oil and gas industry globally is meant for people who are ready for big ticket transactions. To operate well in the industry, you must operate at a certain minimum scale otherwise you cannot survive or you will end up compromising on quality.

    Therefore, there is the need to consciously identify areas where there could be synergy for collaboration, with the view to eventually consolidating as bigger entities.

    For instance, some of the BDCs or OTCs should consider consciously planning together to order products from one source in significant quantities and collectively negotiating, using the strength of economies of scale to get some discount which could be passed on as competitive prices to the OMC and eventually from the OMC to the consumer. This idea of BDC/OTC trying to bring in its own small parcels will not inure to the larger interest of the industry and the interest of the consumer and should ,therefore, be addressed.

    This collective approach was what OMCs adopted between 2003 and 2005 when operators jointly imported full cargoes to take care of TOR’s production shortfall.

    Again, multi-national operators which are working on complying with the local participation requirements should consider first indigenous operators who have struggled over the years, working hand in hand with them helping to grow the industry locally. In fact, some of the operators trace their roots to these multinationals. Therefore, it is just nice they consider giving them the first option whenever they are to offload some of their shares to local investors. This is how to push indigenous players to become bigger entities.

    After all, whenever these multinationals are coming to invest in the country, one of the promises they usually make is that they will assist in building indigenous capacity. This is the time to demonstrate their commitment to fulfilling such promises in a more tangible manner.

    I will ,therefore, encourage multinational operators to support the government’s effort at implementing local content and participation policies because this is long over-due.

    Instituting Peer Review Mechanism

    The industry operators should own their industry and be interested in working to protect it. Thus, they should be interested in ensuring that each player in the industry does what the regulator and the public expects of it.

    In this regard, the operators, through their associations, should put in place self-regulating measures to encourage compliance among themselves even before the regulator or consumers begin to complain. This will ensure that the industry’s image is protected for all operators.

    The industry operators should develop enforceable code of conducts/ethics and ensure that those who violate them are sanctioned.

    Additionally, the industry operators themselves through their associations, should institute their industry awards programme that recognises best performance so that others will strive to improve. As owners of the industry, they are better placed to come out with performance criteria that will reflect a fair and objective view than external awards organisers who may not have in-depth knowledge of the workings of the industry.

    Capacity Building 

    The industry operators, especially the indigenous ones must prioritise the building of capacity of their teams at all levels. This industry is one that requires having people with the right skills to succeed. Therefore, operators must devote significant budget for training and retraining.

    Leadership is key and ,therefore, training the right persons to handle the business, as well as building the capacity of the business owners to appreciate the need for systems and processes/procedures to be put in place that will allow the businesses to operate far beyond the lifetime of the founders is very important.

    The Public

    The public, as consumers of the products and services of the industry, are encouraged to embrace this deregulation as one of the best things to happen to the industry because it offers them the opportunity to make choices based on which operator provides them the right service.

    But making this choice wisely calls for the consumer being well informed. In this regard, members of the public are encouraged to pay attention to consumer education programmes embarked upon by the regulatory bodies as well as some operators so that they are well informed so as to make the right choices and reap the benefits of deregulation.

    Further, members of the public are encouraged to objectively state their genuine concerns about the operations of petroleum service providers. This industry is made of operators, most of whom are particular about ensuring that their operations are done right and that their activities do not also affect lives and property. They ,therefore, usually spend a lot of money to put in measures to ensure that they have safe operations. They are thus always ready to listen to the concerns of the public so they could address them.

    In this regard, members of the public are encouraged to always channel their concerns to operators first or to the various regulatory agencies, especially the industry regulator, the NPA. It only when such institutions do not respond speedily that one can take other measures such as channeling the concerns through the radio stations.

    The public and the industry should work together to ensure that the industry is preserved by exposing those who, under this deregulation, will like to take advantage of the ignorance of the consumer so such miscreants could be dealt with.

    At the same time, the public should understand that their power of choice gives them the opportunity to move away from operators whose products and services are unacceptable, and rather patronise those that meet their needs. This is the way to reward those who are committed to best practice so they can do more.

    The industry exists for the public(consumers) and ,therefore, there should be close collaboration among the public, the regulators and the operators to ensure its sustenance.

    The future for the industry is bright!


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