Financial Energy Review
The persistent scarcity of petroleum products particularly, premium spirit (petrol) is not only giving the new government sleepless night, Jennifer Dike writes that potential investors are becoming restless over deregulation of the downstream sector.
In his inaugural speech in May this year, President Mohammadu Buhari made a captivating statement saying he is for nobody but for everybody. To most Nigerians the statement was reassuring and gave some Nigerians the confidence that the new administration was among other things, capable of fixing the gray areas of the economy.
However, recalling those reassuring words today, a cross section of the Nigeria business community are wishing and saying that the President should have used the opportunity of this high confidence repose on him then to removal fuel subsidy and evidently Nigerians would have given him the benefits of doubts. Properly, there wouldn’t have been street protest neither a sit at home strike by the Labour union. Most Nigerians would have believed that the man was set to get it right. Alias, the concern now among experts in the oil and gas sector is whether this administration can summon the needed politic will to remove fuel subsidy. More so that most Nigerians are getting impatient at the advise that this administration is still young and needed more time.
In either way, the overwhelming opinion today across the oil and gas industry and among the major stakeholders is that the time has come for the removal of oil subsidy. Mr. Dibu Aderibigbe, National Treasurer, Independent Petroleum Marketers Association said that the Nigerian economy was currently faced with funds paucity with the dwindling crude oil price and wondered why the government would still be paying billions as subsidy. “Government should stop subsidy now. This is because the price of crude oil is low and Nigeria needs funds to implement projects in other sectors of the economy instead of paying billions as subsidy on petrol annually” he said.
The Minister of State for Petroleum, Mr. Ibe Kachukwu, who before and after his appointment as Group Managing Director, Nigeria National Petroleum Corporation (NNPC) had been a strong advocate for the removal of subsidy said recently that subsidy was not sustainable, adding that its retention was due to the President’s magnanimity. A Source close to the Minister said that his hard-line posture on this subsidy is already earning him some disaffection among some people close to the President who are benefitting from the unwholesome subsidy regime. “Frankly, sustaining subsidy based on the rate that we have now is a major problem for the country and is only happening through the magnanimity of the President” kachukwu said.
According to stakeholders the yet to be deregulated downstream sector is another doubt hanging over investment as more and more foreign and local investors have not made up their mind which area to put down their money. Is it in refineries or in pipeline projects?
Apart from the general perception that the subsidy regime is fraught with fraud and controversy and the huge spending on subsidy over the years is capable of crippling the Nigerian economy if not properly handled. For instance a breakdown of the subsidy regime between 2006 and 2013, showed that Nigeria had spent over N5.42 trillion subsidising petrol. This does not include the huge amount expended on kerosene subsidy. For eight years the subsidy regime showed that it was 15.57 per cent higher than the N4.69 trillion 2014 National Budget, and also 10.61 per cent more than the 2013 budget of N4.93 trillion.
For 2014, the Federal Government budgeted N971.1 billion for payments of subsidy, keeping it at the same level in 2013. At the current rate, subsidy payments over the last three years, including payments made in the last eight years, would have amounted to about N10 trillion.
This whooping sum the country is spending on subsidy is almost twice the amount (196.07 per cent) allocated for education in the 2014 budget, which is N495.28 billion; more than three times (369.6 per cent) the N262.74 billion budgeted for health; and 148 per cent more than the N655.47 billion allocated for the Universal Basic Education Commission, UBEC and the Tertiary Education Trust Fund, TETFUND. Subsidy provisions in 2014 can pay the salaries and wages of about half the workforce of Ministries, Departments and Agencies, MDAs, of the federal level given the N1.723 trillion provided for personnel cost in the budget. It is crystal clear that the present administration cannot sustain the huge budget for subsidy.
Last week the federal government approved about N413 billion to pay marketers and this is less than 54 percent of the total money owed the importers of petroleum products. “No marketer is ready to import petroleum products as it stands now when even the N413 billion the government had approved for subsidy the marketers have not received it” Lawal Taofiq, General Manger, Corporate Affair, NIPCO said in a telephone conversation. And this delays on the payment of the approved amount has resulted to scarcity of PMS and long queue at the fuel stations nationwide.
Executive Secretary of Major Oil Marketers Association of Nigeria (MOMAN), Mr. Femi Olawore said that there is the dire need for government to diversify the economy and check the free fall of the naira by reducing the pressure on the demand for dollar
Olawore explained that even if the nation’s refineries are at full capacity and more refineries built but because the industry is not deregulated it will have little or no impact on the reduction of pump price of PMS in Nigeria. He insisted that the sector should be deregulated. “There is no much profit margin in the refining of petroleum products anywhere in the world so Nigeria is not an exception, so more refineries doesn’t necessarily mean cheap petroleum product but it ensures availability of the products” he said.
Industry experts maintained that deregulation of the downstream sector will help to secure the nation’s pipelines through which the petroleum products are distributed. “The individuals owners who invested on them will be go extra mile to secure them as compared with when those facilities are regarded as government property” they said. On self sufficiency in the production of petroleum products in Nigeria this they said is only feasible with the deregulation of the sector and the building of additional refineries. According to them this may not feasible in the nearest future. The nearest may be 2025 about 10 years from now giving that additional refineries will be built by government not only to complement the existing ones but also to support the effort of Dangote group which has planned a 600,000 barrel per day capacity refinery.
The Managing Director of Rainoil, Mr Gabriel Ogbechie said that with the nation’s existing four refineries with combined capacity of 400,000 barrels per day even if those refineries work at hundred percent capacity they can barely meet up to 30 percent of the national demand. “Meanwhile the refineries 2014 average performance was 14 percent so it means that as at today the refineries are not meeting up to 10 percent of our national demand. More so, the outputs of the refineries are not commensurate with the value of crude oil input into the refineries. Therefore not only are they working below capacity they are grossly inefficient” Ogbechie said.
