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Petrol Subsidy Discouraging Investment in Private Refineries –FG

Many private investors are not motivated to establish refineries in Nigeria because of the continued subsidy on Premium Motor Spirit, popularly known as petrol, the Federal Government has said.

Speaking through its Petroleum Products Pricing Regulatory Agency, it explained that investors were not keen to construct refineries despite being issued licences to do so 10 years ago.

The government agency disclosed this is a document on ‘Fighting economic sabotage through the deregulation of the downstream sector’, which was obtained by our correspondent in Abuja on Friday.

In the document, the PPPRA said, “In the last decade, Nigeria has issued refinery licences to private companies with the hope that the new refineries will help boost local production and supply of petroleum products.

“However, not many have utilised this opportunity because investors could not possibly recoup their investment under an artificially low price structure.”

It added, “This is why deregulating the downstream sector is a sound economic decision that will correct the shortcomings of the previous subsidy policy by invigorating the petroleum sector, making it more attractive for private investment to succeed.

“Most importantly, it will free up funds for more socially beneficial investments that will improve the quality of life of the masses and put the country back on track to meet its development goals.”

Nigeria has been subsidising petrol through the Nigerian National Petroleum Corporation, as the firm recently declared that the huge subsidy on petrol would hinder it from making remittances to the Federation Account in May and June this year.

Taking the huge benefits of deregulating the downstream sector into account, the PPPRA argued that only economic saboteurs who were adverse to the country’s socio-economic development would be against such a full deregulation policy.

It said in debating the merits of the country’s fuel subsidy, it was important to understand who gained the most from the programme.

According to the agency, those who consume the most fuel benefit disproportionately from subsidy, as these persons are mostly the rich, rather than the masses.

It said, “Oil smugglers also benefit significantly from the fuel subsidy by enriching themselves through smuggling of products to neighbouring countries to the detriment of the Nigerian economy.

“There is no doubt that if the present administration succeeds in removing fuel subsidy, Nigerians in the mid and long term, will see additional private investments in the entire downstream value chain.

“A deregulated oil sector is in line with best practices the world over for several reasons, which includes improved efficiency, uninterrupted product availability and proper functioning of the entire value chain.

“A downstream sector where refining, supply, and distribution of petroleum products are self-sustaining and self-financing is only possible in a liberalised market and that is why the PPPRA fully supports the deregulation of the sector.”

The Director-General, Lagos Chamber of Commerce and Industry, Dr Muda Yusuf, told our correspondent that while deregulation and subsidy removal was good, it must be done cautiously.

“It is a tricky situation that demands tactful handling. It has profound social dimension, there is a strong economic argument, there is significant investment effect and there is a potential substantial political cost,” he said.

On his part, the President, Abuja Chamber of Commerce and Industry, Dr Al-Mujtaba Abubakar, said, “The subsidy removal can be staggered.

“They (government) can stagger it by either removing about 25 per cent in the first three months, another 25 per cent next, and so on. They can stagger it.”

Meanwhile, the PPPRA said to ensure the sustainability of the deregulation policy, the agency would continue to serve as watchdog to the entire downstream sector and ensure strict compliance to extant regulations.

According to the agency, based on records, Nigeria loses almost N1tn annually subsidising PMS, a product used mainly for consumption rather than production, which had led to no real economic benefits for the country.

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