Nigerian National Petroleum Corporation (NNPC) Group Managing Director (GMD) Mele Kyari resumes today amid a myriad of challenges facing the nation’s oil and gas industry, reports Group Business Editor, SIMEON EBULU.
Commentaries about the necessity to remove fuel subsidy, or retention of same, have been raging for years. At the turn of every budget year, lawmakers are surprised to learn that Nigeria had spent trillions of naira on subsidy payment to oil marketers.
The sad narrative about Nigeria’s brand of subsidy management is that, huge as the amount regularly expended on subsidy payment is, there appears to be no proof that its intended benefits are realised.
Subsidy represents the cost government incurs, or absorbs so that oil marketers can sell fuel products at a regulated price. This difference is usually paid to the marketers as subsidy, a hedge against any loss to the dealers, be they independent, or major oil marketers.
Fuel subsidy removal
Those pushing for subsidy removal are wont to say that it has become a drain pipe on the government’s revenue, and a festering corruption syndrome enriching the pockets and bank accounts of the oil magnates. However, there are those who say that removing fuel subsidy will push fuel pump prices to the sky and consequently lead to a spiral increase in transportation cost and its concomitant multiplier effect on cost of foodstuffs. They said it will cause hardship and increase poverty across the land.
The argument as to what becomes of Nigeria’s fuel subsidy has even gone beyond the shores of country. The global financial institution, the International Monetary Fund (IMF) has an opinion on how it thinks the issue should be addressed.
IMF’s outgoing Managing Director, Ms. Christine Lagarde, said with the low revenue mobilisation in Nigeria in terms of tax-to-Gross Domestic Product, it was important for the country to remove fuel subsidies and move available funds into improving healthcare, education and other developmental projects.
The IMF noted in its 2019 Article IV Consultation on Nigeria, that phasing out implicit fuel subsidies, while strengthening social safety nets to mitigate the impact on the most vulnerable, would help reduce the poverty gap and free up additional fiscal space in the country.
Ms. Lagarde, who spoke in Washington DC, at the Spring Meetings of the IMF and the World Bank Group in the US in April, said: “We believe that removing fossil fuel subsidies is the right way to go,” pointing out that the global spend on fuel subsidy had risen to well over $5.2trillion
On Nigeria, she had this to say: “I would add as a footnote, as far as Nigeria is concerned that with the low revenue mobilisation that exists in the country in terms of tax to GDP, Nigeria is amongst the lowest. A real effort has to be done in order to maintain a good public finance situation for the country and direct investment towards health, education, and infrastructure.”
The push for a resolution of the fuel subsidy imbroglio is again finding its way to the front burner given that a new Group Managing Director (GMD), Mele Kyari, is billed to resume today at the Nigerian National Petroleum Corporation (NNPC) Towers, Abuja.
Since his appointment about two weeks ago by President Muhammadu Buhari, Kyari has received appreciable positive reviews, with many saying he is fit for the post. But as he takes over, many will expect that the subsidy matter will be uppermost in his mind.
Although the government is not averse to removing fuel subsidy, its argument has been that subsidy cannot be pulled out in one fell swoop, but rather that it should undergo a phased withdrawal. The former Minister of Finance, Mrs. Zainab Ahmed, who spoke on the issue in Washington DC in response to Ms. Lagarde’s call for fuel subsidy removal, said: “We are not in a situation where we will wake up one day and just remove subsidy. We have to educate the people and show Nigerians what the replacement for those subsidies will be,” adding that government would make the process of removing fuel subsidy gradual.
As she put it: “The advice from the IMF on fuel subsidy removal was a good one, which will be implemented in a manner that is both successful and sustainable. We are not in a situation where we will wake up one day and just remove subsidy. We have to educate the people, we have to show Nigerians what the replacement for those subsidies will be.
“So, we have a lot of work to do. We also need to understand that you don’t remove large amounts of subsidy in one go. It has to be gradual and the public has to be well informed on what you are trying to do.”
Given Kyari’s background as a reformer, going forward, there is high expectation that addressing fuel subsidy, would be one issue he will pay attention to as he settles down as the new NNPChelmsman. Many industry operators are of the view that the overall development and growth of the oil and gas sector will have so much to do with how petroleum products, including gas, are priced, saying appropriate pricing of petrol, and gas have a role to play in determining the investment appetite of oil and gas operators.
Beside the determination of appropriate pricing, industry operators are expectedly waiting to know Kyari’s positio on how to revamp, or diret investments into the gas infrastructure of the energy segment. Its been said that Nigeria has more gas reserves that crude oil. Infact, experts see Nigeria more as a gas prone country than crude oil. According to the NNPC, Nigeria has an estimated petroleum reserves of 28.2 billion barrels of crude oil and 165 trillion standard cubic feet (scf) of gas (including 75.4 trillion scf of non-associated gas). Natural gas is the cleanest burning fossil fuel and is abundantly available in this country. Nigeria is known to have the largest reserves of gas in Africa and the ninth largest in the world.
The petroleum industry, no doubt, is bedevilled with problems such as shortage of gas, low crude output, poor refineries’ output, inability of the Federal Government, to speed up the process of signing the Petroleum Governance Industry Bill (PIGB) into law, disruption in fuel supply and its attendant effects on the economy.
Others are slow pace of activities of modular refineries approved by the Federal Government, absence of good regulatory framework for operators, among others.
Oil reserves
Stakeholders said the time had come for Kyari to bring his wealth of experience to bear on the industry, to improve the country’s oil reserves. Energy expert, Bank-Anthony Okoroafor, urged Kyari to work towards exceeding the country’s oil reserves put at about 40 billion barrels.
He said the reserves had fluctuated over the years, with the result that the government’s earnings and implementation of critical projects are being affected.
Okorafor said this scenario could change if Kyari would direct his attention to growing the nation’s oil reserves.
He advised Kyari to also focus on increasing the daily oil production to four million barrels per day. He said the two million barrels per day production was inadequate, saying development was not good enough for Nigeria aspires to be one of the largest producer of crude oil.
According to him, this is the right time for the government to improve its production by increasing daily crude production to 2.5 million barrels.
Gas shortage
The Chief Executive, Century Power Generation Limited, Chukwueloka Umeh, said the perennial gas shortage in the country would come to end once the new GMD and other stakeholders could work together to provide infrastructure for the industry.
He said Nigeria remains one of the largest producers of gas globally, with 187 trillion proven gas reserves and 600 trillion unproven gas reserves.
The figure, Umeh said, is huge enough for the country to accelerate the growth of the power sector, which largely depends on gas to generate electricity.
He advised NNPC to revive oil wells that are in comatose, to explore more gas for improved economic activities.
Umeh said: ” Once the government is able to compliment gas production with good infrastructural facilities, the issue of transporting gas to the turbines would be a thing of the past. This shows that the leadership of the NNPC can achieve two things with one strategy. The Corporation would be able to improve on gas exportation and power supply.
Fuel supply
This is a perennial problem that Kyari can proffer solutions to. The Executive Director, Depots and Petroleum Products Association of Nigeria (DAPPMAN), Femi Adewole, advised the NNPC to help improve fuel to marketers, irrespective of their leanings.
He said NNPC should leverage its capacity to supply fuel to members of DAPPMAN, Independent Petroleum Marketers Association of Nigeria (IPMAN) and the Major Oil Marketers Association of Nigeria(MOMAN), stressing that by so doing, the country would not experience fuel scarcity again.
Oil Mining Lease(OML 118)
Okoroafor advised the new GMD to work with the Ministry of Petroleum Resources (DPR) to accelerate the renewal of soon-to- expire licenses for oil blocks, adding that the GMD should help facilitate the creation of new concessions for the unallocated 53 deepwater blocks, since the last bid was 12 years ago.
Passage of PFB, others
He advised Kyari and his team to lobby Buhari to sign the Petroleum Industry Governance Bill (PIGB), Petroleum Industry Administrative Bill (PIAB), Petroleum Fiscal Bill (PFB) and the Petroleum Host and Impacted Community Development Bill (PHICDB), adding that the industry would be able to resolve issues relating to crises between oil operators among others, when those bills are passed and assented to by Buhari.