A Good Petroleum Sector Deregulation Policy In Nigeria Could Lead To A New Breed Of Tech Startups

Nigeria is a major oil producing nation with average outputs of about 2 million barrels per day barring external threats from pipeline vandals. Since oil was drilled the first time in Oloibiri in 1959, Nigerians have always felt as though much of the benefits of the oil wealth haven’t affected much of the population positively considering that many Nigerians still live below the poverty line. This then led successive governments to introduce the fuel subsidy era which means that no matter the shocks that may arise from the economics of demand and supply, Nigerians would  be able to buy PMS (premium motor spirit) at affordable rates. But since crude oil prices started crashing in the international market last year, Nigeria has seen a sudden crash in revenue since oil is the major source of revenue and foreign exchange. As foreign exchange continued to depreciate, the entire burden was now placed on the state run oil company NNPC (Nigerian National Petroleum Corporation) to supply the entire petrol needs of the country as private dealers had no way of importing the products which have resulted in perpetual long queues. Well at least this explanation is from the government and for the sake of this article, we’ll  adopt this view. To solve this problem, the government had to take away the subsidy which has now resulted in a hike of prices to N145/Litre. This is supposed to allow private people source for money locally to import petroleum products and eventually the queues would disappear. As expected this has pitted the government against organised labour which had intended to begin a three day nationwide strike urging the government to revert the pump price to N86/Litre.

But what if  out of all these, a new kind of tech start ups could arise? The kind of tech start up that brings the Uber model into petrol distribution. We already have local start ups like FillYaTank who operate in the petrol sector. They use crowd sourcing methods to inform drivers of petrol stations who are selling the products at the official rates while blacklisting stations who do otherwise. This means that the service depends on the information drivers enter for overall decision making. They are not the first of  crowd sourcing services in Nigeria. Gidi Traffic and Traffic Butter are traffic reporting services that rely on inputs of contributors who are either drivers or commuters for real time data on traffic conditions in the area where they find themselves at the time.

A Filld operator , source: Bloomberg

When it comes to mobile distribution of petroleum products, we have a number of mobile diesel suppliers with no known company engaging in mobile distribution of petrol probably because of its highly inflammable nature. But this hasn’t stopped some California startups from allowing you enjoy the rare luxury of having petrol brought to you wherever you are. Just like Uber, you hit  a button within an app and before you know it, they are there with petrol. This could come in handy if  your car suddenly runs out of fuel. As expected, the fire department has come out to say this is not legal but they didn’t just stop there as they are now drafting a new policy around this to eventually accommodate this kind of business. According to Bloomberg, Filld, an 18-month-old startup with thousands of customers in Silicon Valley, plans to start service in San Francisco on Monday, deploying three delivery trucks at 1 p.m. “You can never ask for permission because no one will give it,” said Chris Aubuchon, the chief executive officer at Filld.

The Los Angeles Fire Department said it’s drafting a policy around gasoline delivery. “Our current fire code does not allow this process; however, we are exploring a way this could be allowed with some restrictions,” said Capt. Daniel Curry, a spokesman for the city’s fire department. “It’s just one of these things that nobody has really thought about before—kind of like how Uber popped up out of nowhere.” But he said it’s not a gray area: “All I can tell you at this time is it’s no Bruno Uzzan, the CEO of Los Angeles-based Purple, said his company is in discussions with the fire department. “I don’t know that guy,” he said of Curry. When asked if Purple would stop delivering gas, he replied, “No. Why should we?” Later, Bruno said, “The way we currently operate is permitted by the code.”

Now that it looks like Nigeria will be stuck with a deregulated downstream sector for the foreseeable future, it means that a lot of private players will now be involved than ever in the importation and refining of petrol. For a country that’s still largely dependent on petrol for nearly everything including domestic power generation, a new set of  start ups could spring up and probably dominate big time. According to the NNPC, Nigeria has a need of  about 33 million litres of petrol per day to function and much of this petrol finds its way to just one dispensing source; the filling stations. At new rates of 145 Naira/Litre, it means that Nigerians spend about 4.8b Naira/ $24m daily on petrol as against a 2014 figure in the United States which says that 10,545 petrol stations in the US  collectively sold $534.7 billion but what goes to them probably after paying the main suppliers was put at  $66.6. This is a huge industry for a tech startup to ignore and for you to get petrol today in Nigeria  no matter what condition you’re in, it has to come from the petrol station if you want  fuel at official rates. There’s currently no way to get a good estimate of the number of cars that ply Nigerian roads daily, while some say it’s about 10 million today, others think the figures are more or less. In any case, we’ll assume 10 million for now.

A new disruptive business maybe?

Using the example of the startups in the United States who are in the business of making the service of petrol sales smarter, they believe that they have two things going for them; One, owning a truck is cheaper than owning a gas station, and two, the more fuel they sell, the less they’ll have to pay per gallon for their gas. Aubuchon, a former venture capitalist, said the company can buy and equip a truck for $50,000, compared with $2.25 million for a gas station. Filld charges a delivery fee of up to $5 and then asks the same price per gallon for gas as the least expensive nearby gas station. In Nigeria, it’s not that different because the cost of building a filling station  in a good urban location could be as high as 150m Naira as well and we’re not even talking mega station status. While it costs far less for a startup to acquire a truck which is built with safety features for mobile fuel delivery, it’s also efficient as you only drive to where you’re needed at a given time with the help of a simple tech system.

This set of startups may be out for an Uber kind of disruption in the area of petrol delivery. That’s how it was when Uber came up with the “crazy” scheme and today we see that the story is different. It’s getting to a point where authorities even in the US just think they have to come up with safety policies for this burgeoning startup category and Nigeria shouldn’t be an exemption being the biggest economy by GDP on the African continent. It is not rare to see cars run out of fuel  in  some of the remote areas and this is where startups like this could be of great use. As stated earlier, it’s common sight to see diesel trucks driving around Abuja and other major cities supplying diesel to big client and it’s not just diesel trucks, mobile cooking gas top up vans are not left out. These even in mostly unregulated terrains have gone ahead to ease the pains of Nigerians who would have had to otherwise drive away from their homes to get these services in the first place and how do they operate by the way? You call them and before you know it, they are at your house or where ever you want them. This is no different from having a more organised system in which an app is used for such services like Uber.

Instead of the authorities running from startups of this nature, they should develop policies that could eventually create a new line of business with the potential of employing thousand of direct and indirect labour. A good start would be to provide an enabling environment for startups who have demonstrated capacity in this area by including relevant agencies of government like the Federal Fire Service and the Department of Petroleum Products who can easily provide oversight for how these startups should go about their daily business. Overall this could create thousands of jobs as well in a deregulated petroleum sector.