‘Deregulation will unlock oil sector’s potential’
Stakeholders in the economy, especially the oil and gas sector, have renewed the push for total deregulation of the downstream oil industry. Their worry is that the huge foreign exchange (forex) spent on fuel importation through subsidy has become outrageous as it depletes the national treasury, denies critical sectors and infrastructure of funds and, most importantly, fuels jobs exportation – Report
Stakeholders in oil and gas industry are of the opinion that total deregulation of the downstream sector of the petroleum industry will unlock the huge investment potential in the sector. They beleive it will stimulate sustainable growth as private investors will come in.
They expressed worry over the huge money spent by the Federal Government on subsidy payment annually, which they said could be used to develop other sectors of the economy.
According Minster of State, Petroleum Resources, Dr Ibe Kachikwu, the subsidy on premium motor spirit (PMS), popularly called petrol, stands at over N1.4 trillion.
The stakeholders said with the huge money spent on subsidising petrol, it has become imperative for the government to embark on total deregulation of the downstream oil sector to attract investors and save the country from the huge amount spent on subsidy.
The Director-General, Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf, said perhaps the biggest burden on the economy today is the petrol subsidy regime.
Yusuf said the government should encourage private sector players to take over the downstream sector of the petroleum business.
He said: “When this is done, most of the challenges we see as regards subsidy, refineries and others will be adequately addressed. The government should only play a regulatory and not an operational role.
“Government has no business refining petroleum products, retailing or distributing fuel as well as the marketing of these products. We cannot continue to carry that kind of burden in the oil sector.
“It is a big hole in the finances of government. It puts tremendous pressure on the foreign exchange market and foreign reserves, just as it exerts immense stress on the nation’s treasury.
“It remains a cause for concern that the subsidy regime had subsisted, especially at a time when the economy is facing unprecedented fiscal challenges; at a time when productivity in the economy is constrained by acute infrastructure deficit; at a time when public institutions are finding it hard to pay salaries. There cannot be a better example of resource misapplication.
“There are two components of this; the first is the genuine subsidy, which is the differential between the pump price and the landing and other costs of fuel. The second and more disturbing component is the transparency problems inherent in the fuel subsidy administration, including the petroleum equalisation policy. For several years, the economy suffered severe bleeding from this phenomenon.”
The LCCI chief said one of the critical elements of the oil and gas sector reform, particularly the downstream, is the complete deregulation of the sector. “This is the spirit of the Petroleum Industry Bill (PIB) which, regrettably, has again got stuck in the legislative process. The reform of the oil and gas sector would create a number of advantages for the economy,” he said.
Total deregulation of the downstream, he said, would free resources for investment in critical infrastructure such as power, roads, the rail systems, health, and education sectors, among others.
He said deregulation will also unlock the huge private investment potentials in the downstream oil sector, especially in petroleum product refining, adding that this will ultimately reduce importation of petroleum products and ease the pressure on the foreign exchange market as well as the burden on our foreign reserves.
To him, deregulation will eliminate the patronage, rent seeking activities and corruption that currently characterise the downstream oil sector. “Full deregulation will create more jobs for the teeming youths of the country in the downstream as investment in the sector improves. It will permanently eliminate the fuel queues. The subsidy regime has done incalculable damage to the economy over the years.
“The citizens have in the past suffered untold hardships resulting from scarcity of petrol and in many instances buying the product far above the regulated price. The nation’s treasury and foreign exchange market has been under severe pressure from the funding of petroleum product importation. This should not continue if the Nigerian economy must make progress.
“Understandably, it may be difficult to undertake this reform at this time because of the elections; it should be top on the agenda of government post-elections. The current management model of the oil and gas sector is surely not sustainable,” he added.
An energy expert, Mr. Felix Andrew, said continuous payment of subsidy is not sustainable, and urged the government to liberalise the downstream and encourage free entry, free exit system to attract investors in the sector.
Andrew, who is also the Executive Director, Blue-Sea Energy Limited, said Nigeria spends about N1.7 trillion on fuel subsidy annually, while its education and health sector can only access a paltry part of budget. According to him, it is obvious, that the fuel subsidy programme is placing a huge financial burden on the nation’s resources.
“Hence, there is no better time to deregulate as this initiative is an enabler in freeing up scarce resources to address the concerns clearly expressed by the citizens for which political leadership is unable to find the resources to satisfy such as providing adequate funding to support the health and education sectors; improved infrastructure and better working conditions for the average Nigerian worker.
“One of the proposed reforms in the petroleum industry bill is the deregulation and liberalisation of the downstream oil and gas industry, which recommends total deregulation proposition. If fully implemented, will eradicate waste and corruption ravaging the country as a result of the tightly regulated economy; and that monies saved from fuel subsidy can be optimised for development projects that will be beneficial to the people.”
He said fuel subsidy in Nigeria has brought about industry degradation such as poor maintenance of, and inadequate investment in facilities (jetties, depots & stations), infrastructure (roads, bridges, rail & pipelines), human resources, transportation (vessels & trucks), existing refineries and poorer implementation of health, safety, environment & quality matters.
Subsidy spending in the sector, he said, amounts to a disproportionally high percentage of the country’s budget, adding that funds that would have yielded better returns on investment in education, health services and agriculture, among others, are gobbled up in the subsidy of petroleum products.
“The opportunity cost of the present regime of petroleum subsidy includes inability of government to achieve human development, which enables every Nigerian reach his or her full potential.
“The current labour demand for wage increase at all levels could also be directly addressed through the savings that would be made from elimination of the subsidy, which will lead to a more efficient use of resources to address the diverse individual concerns in the country,” he said.
Chairman, Independent Petroleum Marketers Association of Nigeria (IPMAN), Western Zone, Alhaji Debo Ahmed, urged the government to liberalise and enforce total deregulation of the downstream sector to boost the country’s economic growth.
Ahmed said deregulation remained the best option to move the economy forward, adding that full deregulation would bring in investments into the sector, adding that only deregulation will encourage the establishment of private refineries in the country.
According to him, the government should summon the courage to fully deregulate and remove subsidy totally to open the market for investors. “If the government likes, it can introduce gradual removal of subsidy, but it should not go beyond six to 18 months. If fully deregulated with rules, you will have serious investors coming to invest adequately.
“Deregulation is the answer and the government must talk to the people and let them understand the advantages. The government must also show that where there is deregulation, people gain because the funds used in subsidy will be used for the benefit of the people,” he said.
Ahmed said the passage of the Petroleum Industry Bill (PIB) remained the best options that would usher in deregulation, adding that even if it is not perfect, it could be amended after the passage.
“Once you deregulate, these refineries will be coming up. So, we will plead that we get the National Assembly to expedite action on the passage of the PIB.
“We believe that the PIB will go a long way in encouraging deregulation, but if we want a PIB that will be faultless before it will be passed, we are thinking that we are not human beings. Why do we have the word amendment? How many amendments have they done on the American Constitution?
Also, President of the National Association of Liquefied Petroleum Gas Marketers, Mr. Nosa Ogieva-Okunbor, has said only full deregulation can bring the much needed investment to the sector.
Ogieva-Okunbor said full deregulation remained the best option to attract investors for sector development against the backdrop of huge amount spent on subsidy. He said full liberalisation and deregulation of Nigeria’s downstream oil sector will remove all hindrances and bottlenecks that have been discouraging improvement of private investment and market competition.
According to him, the government should fully deregulate the downstream sector to attract investors. “We need full deregulation of the downstream sector to boost the economy,” he said. He lauded government’s commitment to reposition the Liquefied Petroleum Gas (LPG) sector, especially as Nigeria is one of the lowest LPG consuming countries in Africa, which he said, is pathetic.
Nigeria spent N2.582 trillion on fuel importation in nine months, from January to September 2018, rising by 12.9 per cent from N2.289 trillion recorded in the first three quarters of 2017. The amount spent on fuel import in the nine-month period is 28.3 per cent of Nigeria’s N9.12 trillion budget for the 2018 fiscal year and 36 per cent of the N7.17 trillion proposed expenditure in the budget.
This came as the Nigerian National Petroleum Corporation, (NNPC), said the government has paid petroleum products marketers N236 billion, being first tranche of the outstanding fuel subsidy claims owed marketers.
According to data obtained from the National Bureau of Statistics (NBS), foreign trade statistics for the third quarter of 2018, Nigeria’s fuel import stood at N845.12 billion, N720.4 billion for the first and second quarters of 2018 respectively. However, in the third quarter of 2018, the report noted that fuel importation rose sharply by 41.03 per cent from N720.4 billion recorded in the second quarter to N1.016 trillion in the third quarter of 2018.
This, according to report, was in comparison to fuel importation of N802.4 billion, N744.28 billion and N742.82 billion recorded in the first, second and third quarters of 2018 respectively.
In its month-on-month analysis of the nation’s fuel importation, the report showed that in January, February, March, April, May and June 2018, Nigeria imported fuel valued at N384.59 billion, N357.45 billion, N103.08 billion, N190.26 billion, N380.7 billion and N149.44 billion respectively.
For July, August and September 2018, the NBS report said N343.25 billion, N378 billion and N295.03 billion worth of fuel were imported respectively.
The report further pointed out that fuel importation in the third quarter of 2018, accounted for 24.4 per cent of Nigeria’s total imports in the period under review.
Specifically, the report stated that total imports into Nigeria in the third quarter of 2018 stood at N4.172 trillion, rising by 73.8 per cent from N2.4 trillion in the second quarter of 2018. The report further attributed the sharp rise in the third quarter to the importation of an oil rig.
Particularly, the report said the floating or submersible drilling or production platforms worth N1.159 trillion was imported from South Korea in August 2018. In the same way, there was a rise of 67.7 per cent when compared with the importation value of the corresponding quarter in 2017.
The huge increase in import value during the quarter resulted into a decrease in the country’s trade balance from N2.103 trillion in the second quarter to N681.3 billion in third quarter representing a decrease of 67.6 per cent.
SOURCE: Thenationonline.net