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Ending Fuel Subsidy Controversy



The Senate last week announced that it would investigate the diversion of $1.5 billion from the ‎Nigerian Liquefied Natural Gas (NLNG) dividend to build up the shortfalls between the landing cost and pump price of Premium Motor Spirit (petrol).

Raising a Point of Order during one of its Legislative proceedings, the chairman of the Committee on Gas, Senator Bassey Akpan, asked the upper chamber to give approval for the committee to investigate the withdrawal and payments.

Noting that the funds belong to the three arms of government, he described NNPC’s withdrawal of the funds as illegal. Senate President, Bukola Saraki in his ruling, mandated the committee to proceed with the probe.

The investigation will run concurrently with another probe by a Senate Ad-hoc committee on the use of $3.5 billion by NNPC for subsidy.

Operators in the downstream sector of the Nigerian oil and gas industry have also called on the federal government to pay them their outstanding N130.7 billion fuel subsidy owed them since four years ago, saying the delay in making the payment is adversely affecting effective operation of their business.

Reliance on importation of petroleum product in a regulated market, which has given rise to subsidising the product in order not to further aggravate the pains of poor Nigerians, has led to controversies in the sector. There were scandals on subsidy payment on petrol for major marketers during the administration of former President Goodluck Jonathan. However, the current administration of President Muhammadu Buhari promised to address the issue.

As part of these efforts, the federal government increased the pump price of petrol from N85 to N145. With the official price at N145 per litre, most of the marketers could no longer cope with importation of the product, as the landing cost was said to be N135. This made the NNPC the sole importer of the product.

Recent findings indicate that the landing cost of the petrol being imported into the country has risen to at least N205 per litre, a bounce off from the increase in global oil prices, putting more pressure on Nigeria.

The NNPC has been the sole importer of petrol into the country for more than a year. Private oil marketers have stopped importation due to shortage of foreign exchange and increase in crude prices, which have reportedly made it unprofitable for the marketers to import the product and sell at the official pump price of N145 per litre.

As of March 20, 2018, when the international benchmark price for oil (Brent) was around $66 per barrel, the expected open market price of petrol, according to data obtained from the Petroleum Products Pricing Regulatory Agency (PPPRA), was N189 per litre. The agency has not released any data since then.

Officials of the Budget Office had alerted Nigerians to the existence of a N53 subsidy on every litre of petrol consumed by Nigerians, which at the current petrol consumption level of 45 million litres comes to a princely N2.38 billion in daily under-recovery. The controversies on under recovery or subsidy of PMS will know no end except something urgent is done  about the moribund refineries or there is an effective implementation of the private sector participation in the downstream sector. Until this is done, the nation will continue to rely on importation of refined PMS.

We urge the federal government to urgently revamp the nation’s refineries and create an enabling environment for private investment in refineries to curb the rising importation of petroleum products.

The federal government could privatise the refineries since past maintenance and overhauling of the refineries have not had the desired effect.

The volume of imported petroleum products and the amount the country spends importing them will continue to increase because as the economy grows, so will its demand for energy. The high import volumes of petroleum products had made it imperative for the Federal Government to either revamp the existing refineries or provide the enabling environment for private sector participation.

However, we could privatise them, concession them, sell them off totally or government could hold a non-controlling share in them.

The proposed completion of Dangote refinery in 2020 will render the existing refineries moribund by the time it comes on stream. The Dangote refinery is a 650, 000 barrel refinery, which is more than what Nigeria needs as a country. This is a refinery that will produce enough to sell to all our neighbouring countries.

What is the need for the government to hold a refinery that cannot function at optimum level or match Dangote refinery in efficiency and technology?

We believe that the government should relinquish the control of the refineries to the private sector to ensure optimum performance and efficiency. Also the speedy passage of the Petroleum Industry Bill (PIB) would boost the growth of the sector.



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