On FUEL SCARCITY AND SUBSIDY REMOVAL
By Abdulyekeen Rilwan
Nigeria is known to be the largest oil and gas producing country in Africa. Nigeria's economy and budget has been largely supported from income and revenues generated from the petroleum industry since 1960.The country is the major exporter of crude oil to united State of America and a member of oil exporting countries since 1979.
There are currently five (5) refineries in Nigeria; of which four (4) plants are owned by the Nigerian Government through the Nigerian National Petroleum Corporation (NNPC), while the fifth is owned and operated by Niger Delta Petroleum Resources (NDPR).
The four refineries owned by the government can process 445,000 barrels of crude oil daily. However, they operated for years at less than half of their capacity before the NNPC shut them down, saying this was no longer sustainable. This lead to total importation of petroleum products to the country and so also the refineries are running on deficit.
Nigeria is the only member country of the Organization of Petroleum Exporting Countries (OPEC) that imports 90 to 95 per cent of refined petroleum products to meet its domestic consumption. This make the importation of refined petroleum the largest with almost 17% of import value. The country spent a total of N4.56 trillion on the importation of PMS in 2021 about 128% higher than the N2 trillion spent on fuel importation in 2020. And so also N6.3 trillion was spent on Fuels and Lubricants imports in 2021.
The country is currently experiencing one of the worst fuel crises in recent years and fuel queues remain sticky due to protracted clear out of adulterated fuel and the challenges with the importation of fuel. Diesel prices have also recently shot up to over N800 per litre. Fuel prices averaged N165 recently in early 2022. However, this average rises to more than N180 due to the fuel shortages experienced in the country and also landing cost of PMS.
N4.56 trillion Nigeria’s spending on PMS is slightly higher than the N4.5 trillion earned by the Federal Government between January and November 2021.
With the recent Petroleum Industry Act PIA, bringing to a close a 20-year effort to reform Nigeria’s oil and gas sector, with the aim of creating an environment more conducive for growth of the sector and addressing legitimate grievances of communities most impacted by extractive industries.
My recommendations
As a Nigerian who is market oriented, I believe solely on the forces of the Market.
I am in total support of full liberalization of the oil sector. Liberalization of the oil sector will enable the federal government regulate policies in order to check the excesses of capitalism in the oil sector with a view to providing a “safety net” against poverty and misery in the land.
The country domestic Production of refined products is at zero level. This lead to almost 98% of importation of the refined products for our domestic consumption, this seriously need to be checked as it leads to rise in our import value which also affect our demand for foreign currency i.e $. The higher the inport value of a country the lesser the currency value of that country. Today Dollar is super rocketing against our Naira which is due to our overdependence on importation with the importation of refined petroleum products taking the largest share of our import value. This is a country regarded as the largest exporter of crude oil in Africa.
I suggest if the government through PPP Public-Private Partnership revive our refineries, avoiding the deficit in the cost of managing the refineries. The public–private partnership is a long-term arrangement between a government and private sector institutions. Typically, it involves private capital financing government projects and services up-front, and then drawing revenues from taxpayers and/or users over the course of the PPP contract.
This will increase the production of refined petroleum products in the country and also lesser our Import value which in return will reduce the demand for foreign currency say Dollar and in turn our Naira will appreciate.
Secondly, with our refineries working producing millions of barrels per day we'll be able to meet up with our demand for the products which in turn will bridge the shortage of PMS in the country.
Thirdly, with the refineries working efficiently and effectively the government can lesser it expenditure by removing the large sum of money paid as Fuel Subsidy. subsidy is a form of financial aid or support extended to an economic sector generally with the aim of promoting economic and social policy in other word government incentives.
With the refineries working efficiently and effectively, the unemployment rate in the country would relatively reduce, so also poverty and hunger. Jobs will be created and the environment will be business friendly attracting more investment from the private Sector.
To be continued....
#atikupolicydialogue
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