Contaminated PMS scandal: Regulatory capture, stupid?

By Abubakar A. Nuhu-Koko

Abubakar A. Nuhu-Koko, a researcher in petroleum policy and economics, is founder and pioneer executive director, The Shehu Shagari World Institute for Leadership and Good Governance, Sokoto, Nigeria. He can be reached on +234 706 330 6887 or aanuhukoko4000@gmail.com

The Gini eventually got out of the bottle with the acceptance by both the sole importer of Premium Motor Spirit (PMS), also known as petrol, into the country – the Nigerian National Petroleum Corporation Limited (NNPC Ltd) – and the petroleum industry’s regulator, Nigerian Midstream and Downstream Regulatory Authority (NMDPRA), that four ship loads of contaminated PMS landed on Nigerian shores and ended in the fuel tanks of innocent Nigerian motorists.

The negative consequences arising from this sordid affair are being felt not only by those unlucky motorists whose vehicles’ engines have already been damaged; arising from purchasing the adulterated PMS but also, the spill-over socio-economic pains being afflicted across all the socio-economic fabrics of the country with disastrous direct and indirect consequences.

The reason why I would not label the imported PMS as “off-Specifications” or “Off-Specs”, in the short form of the industry lingo, but rather label it contaminated, is largely because the NNPC Ltd, NMDPRA and their legal advisors are cleverly shielding the sordid scandal by stating that the imported consignments met the “Nigerian specifications” (and not international standard specifications), which does not require testing for the presence of methanol in any quantity of PMS brought into the country.

Hence, the presence of methanol contamination in the imported PMS consignments can be justified legally as par the “Nigerian Specifications” template on the one hand, and at the same time, on the other hand, unacceptable businesswise. This is an unusual scenario of eating your cake and having it at the same, indeed!

The first fundamental and basic question to be asked regarding this scandal is:  Why is it that after experiencing this type of scandal twice in the past 20 years; first, in 1998 and second, in 2008, Nigeria is once again, repeating the same mistake in 2022, less than a year into the implementation of the long awaited new Petroleum Industry Act (2021)?

The second equally very crucial question is: Why should Nigeria operate below or outside the international best practices and or standards in the consumption of petroleum products; particularly PMS? The third highly important question is: Why is it that, more often than not, all those involved in malfeasances in the petroleum industry in the past were never sanctioned by the sanctioning authorities even if investigations conducted found them culpable? The fourth and the last, but by no means the least, important question is: Will there be legal consequences upon anyone found to be culpable in this current scandal if investigation found anyone or any corporate entity culpable?

The right answers to the above questions should be what Nigerians must focus upon and must extract from the Nigerian constituted authorities, from both the executive and legislative arms of the federation. 

Beyond these pertinent questions is the issue of the relationship between the upstream, midstream and downstream operators in the Nigerian petroleum and gas industries and the respective independent regulatory players of the industries. In the past, since the inception of Nigerian government direct participation in the petroleum and gas industries in all ramifications (Upstream, Midstream, and Downstream and Services) in 1971, this relationship had been very murky; ill-defined and ill-delineated and until the enactment and coming into force of the new Petroleum Industry Act (2021) that replaced the 53-year old 1969 Petroleum Act.

However, what is fundamentally disturbing following the recent restructuring and organisational changes in the industry based upon the relevant clauses of the PIA (2021), which clearly defined the various roles and responsibilities of each of the key players and participants in the industry, is that it is still business as usual in the industry. For instance, instead of allowing the appropriate fiscal and regulatory authorities to speak on the issue of subsidy removal and or increase in the price of PMS, the management of the NNPC Ltd became the spokesperson on an issue that is within the remit of the fiscal policy authorities – the executive and legislative arms of the government at the national level.

Once again, when this issue of contaminated PMS came into public limelight, instead of allowing the regulatory authority and other relevant investigative agencies to wade into it, the management of the NNPC Ltd has been competing for media space with the management of the NMDPRA, Ministry of Petroleum Resources and the Presidency in providing explanations and necessary actions being put in place to deal with the situation. It is, therefore, not surprising to see different conflicting explanations on this issue from the NNPC Ltd, the NMDPRA and other named suspected companies.

Thus, the NNPC Ltd cannot be the judge in a case in which it is likely to be the sole suspect and or one of the suspects to be investigated. This a clear violation of the arms-length relationship that has been clearly established, unambiguously defined and unmistakably delineated between the operators and the regulators in the petroleum industry as contained in the PIA (2021). This type of murky relationship between the operator (the regulated) and the regulator (the policing and compliance agency or authority) is better known as ‘regulatory capture’ (also agency capture and client politics) in the political economy literature – “Regulatory capture is an economic theory that says regulatory agencies may come to be dominated by the industries or interests they are charged with regulating. The result is that an agency, charged with acting in the public interest, instead acts in ways that benefit incumbent firms in the industry it is supposed to be regulating.”

Thus, regulatory capture has been the bane of the management and regulation of state-owned enterprises not only in developing and emerging economies but also in some advanced industrialised economies across the globe (and in many cases, privately owned corporate enterprises too). However, in Nigeria, this phenomenon has been in place across all the sectors of the Nigerian economy; especially in the petroleum and banking sectors, respectively. Why this phenomenon is showing its ugly head very early into the coming into effect of the PIA (2021) can simply and easily be explained by the way and manner the new regulatory entities created and established under the PIA (2021) were constituted.

For instance, the merger of the erstwhile Department of Petroleum Resources (DPR), with the Petroleum Equalization Fund (PEF) and the Petroleum Products Pricing Regulatory Agency (PPPRA) to give birth to an amalgam known as the Nigerian Midstream and Downstream Regulatory Authority (NMDPRA) is like a game of musical chairs and or revolving doors where the regulators themselves come from the pool of industry experts and employees, in part due to the complex and specialised knowledge needed to regulate an industry, and may also then return to work in the industry, after their government service, in the case of the private sector! For instance, the staffers retained and or brought back from retirement from these former industry regulators to head the newly established regulatory bodies still consider themselves as one and same family with the newly incorporated NNPC Ltd that dominated them for decades. For example, the NNPC Ltd continues to devote its large financial resources, thus influencing them (the regulators) because of their limited resources to stand on their own statutory rights!

According to the regulatory theory literature, regulatory agencies that come to be controlled by the industries they are charged with regulating are known as captured agencies, and agency capture occurs when that governmental body operates essentially as an advocate for the industries it regulates and or the regulators simply begin thinking like the industries they regulate. This seems to be what is happening between the regulator (NMDPRA) and the regulated entity (NNPC Ltd). We need to get the PIA (2021) working right for the purposes it was enacted!

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