Nigeria’s downstream petroleum sector is ripe for transformation, and increased competition is the key.
A recent presentation by Taiwo Adebola Ogunleye, legal advisor for International Law at the Organization of the Petroleum Exporting Countries (OPEC), and Israel Aye, non-executive director at Aspen Energy have highlighted four critical ways that fostering a more competitive landscape can revolutionize the industry, ultimately benefiting consumers and the nation’s economy.
Currently, the Nigerian downstream sector faces several challenges that hinder its efficiency and effectiveness. These include artificial fuel scarcity, inflated pump prices across different regions, limited new market entrants, collusion among dominant players, hoarding during policy transitions, and laws/regulations that lag behind global best practices.
These issues create an environment where consumers often pay more for lower-quality service, and the sector’s growth potential remains untapped.
However, by strategically introducing competition, the sector can overcome these obstacles and unlock significant advantages.
Ogunleye and Aye cautioned that monopolies in Nigeria’s downstream and midstream energy sectors could jeopardise national energy security, stifle competition, and deprive consumers of choice and value.
They advocated for a competitive market structure, defined by open entry for multiple players, transparent pricing, minimal state interference, and robust infrastructure access.
Read also: How NNPC monopoly is killing the downstream oil sector
Here are four key ways competition can jolt the Nigerian energy sector:
Lower and Fairer Prices at the Pump
Ogunleye, who is also a member of the Institute for Energy and Extractive Industry Law, said that a competitive market structure in the midstream and downstream sectors of the petroleum industry exists when multiple market players can freely enter, compete, and operate under fair and transparent conditions.
According to Aye, competition among fuel retailers naturally drives prices down. When multiple companies are vying for customers, they are incentivised to offer the most competitive prices possible.
“This benefits consumers directly, reducing their fuel expenses and increasing their purchasing power,” Aye said.
Improved service delivery
In a competitive market, Aye said filling stations are compelled to enhance their services to attract and retain customers.
“This could translate to cleaner facilities, faster service, more accurate dispensing, and additional amenities. Consumers would enjoy a more pleasant and efficient experience when purchasing fuel,” Aye said
Product Innovation and Transparency
Experts said competition encourages companies to differentiate themselves by offering innovative products and services.
They said this could include premium fuel options, loyalty programs, or digital payment solutions. Furthermore, competition fosters transparency in pricing, empowering consumers to make informed decisions.
Incentivizes Modular Refineries and New Entrants
Aye said a competitive market makes it more attractive for new players, including modular refinery operators, to enter the sector.
“This diversification of supply sources reduces the risk of monopolies and ensures a more stable and reliable fuel supply for the country,” he said.
To achieve these benefits, experts said Nigeria can draw lessons from global best practices in managing anti-competition in the downstream petroleum sector.
Examples include the United States’ antitrust enforcement, the European Union’s unbundling policies, and Brazil’s asset divestment initiatives.
Ogunleye outlined essential features of a competitive market, including fair access to critical infrastructure, transparent and market-based pricing, the removal of regulatory bottlenecks, and strong enforcement mechanisms to maintain healthy competition that benefits consumers and stakeholders alike.
Highlighting the dangers of anti-competitive behaviour, he said such actions in the petroleum sector undermine market efficiency, distort pricing, and reduce consumer options. These practices include price-fixing, collusion, predatory pricing, abuse of market dominance, and unfair contractual restrictions.
He warned that these activities disrupt the market, create artificial entry barriers for smaller businesses, compromise pricing transparency, hurt consumer interests, and limit innovation and service quality improvements.
Ogunleye said, “Anti-competitive practices and behaviors in the midstream and downstream petroleum industry refer to strategies employed by petroleum companies or market participants to unfairly restrict competition and gain undue advantage, typically at the expense of consumers and rivals.
“These practices limit market efficiency, distort pricing mechanisms, prevent new businesses from entering, and negatively impact overall economic welfare.”
“The impacts of anti-competitive behaviours are especially severe in countries with developing regulatory institutions or in transitioning markets. Strict regulatory oversight and enforcement, transparent market access rules, and competitive pressure are essential to minimize these serious consequences.”
He continued: “The benefits of competition for consumers include lower and fairer prices at the pump, improved service delivery at filling stations, product innovation, transparency, and incentives for modular refineries and new entrants.”
