Subsidy payment hurting oil industry, economy – Operators

NNPC Towers
NNPC Towers

The government’s continued payment of subsidy on petroleum products is hurting the growth of the oil industry and the well-being of the country’s economy, operators said on Tuesday.

Various operators, who spoke at the opening session of the 2019 Nigeria Oil & Gas conference in Abuja called on the industry ”to speak up with one voice against the continued payment of subsidy on petroleum products.”

The strategic conference & international exhibition, which began on Monday, has as its theme: “Promoting Investment & Collaboration in Nigeria’s Oil & Gas Industry.”

The embattled Group Chief Executive, Oando PLC, Wale Tinubu, set the tone when he urged the incoming Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Melee Kyari, to ensure that he gives the industry the required leadership.

“Government has chosen to effectively subsidise the price of petroleum products as a social palliative. The debate about subsidy is one that needs to be made.

“The oil industry absolutely needs to challenge and champion the debate on subsidy removal. Politicians want to win votes at all costs. But, there is long-term damage to our country’s economy and the oil and gas industry with the continuous payment of petroleum subsidy. We need to ensure the subsidies are halted,” Mr Tinubu said.

N10 trillion spent on subsidy in 12 years

A recent research report by BudgIT, a public finance focused non-governmental organisation, published last April, said about N10 trillion may have been spent by government to subsidise the pump price on petroleum products between 2006 and 2018.
Fuel subsidy is the price differential between landing cost and retail pump price fixed by government in the annual budget to enable petrol be sold to consumers at the control ceiling price of N145 per litre.

The federal government proposed to spend N305 billion on subsidy payment in the 2019 budget.

Mr Tinubu said removing the subsidy on petroleum products will help the development of the downstream industry, which he said needs to be commercialised.

He said ”the country’s moribund refineries need to be made to function and the pipelines infrastructure needs to be made to work.”

“There is no need for us to continue transporting petroleum products by road at an extremely expensive rate. We must strive to build and have a vibrant oil and gas industry.

“The industry must have a voice on this matter, rather than accept what the politicians are saying. The industry has a voice that needs to be heard,” he said.

He urged the government to embrace partnership with the private sector in the development of the oil and gas industry, particularly in the area of revamping the refineries where government intervention in over 10 to 15 years failed to work.

The arrangement, he said, will give the private sector the opportunity to deploy their expertise and huge indigenous capacity available, which ”if pooled together, can provide the needed funding to get the refineries working”.

“If the refineries work, it will enhance the indigenous refining capacity and create a lot of employment,” he said.

Earlier, the representative of the President/Chief Executive Officer, Nestoil PLC, Ernest Azudialu-Obiejesi, urged the industry to refocus its attention on the utilisation of the huge gas resources in the country.

Meanwhile, the Norwegian Ambassador to Nigeria, Jens-Petter Kjemprud, and the British High Commissioner to Nigeria, Catriona Laing, also spoke on the experiences in their countries’ petroleum industries.

Both envoys emphasised on the need to sustain the reforms in the industry, to make it work and earn value for the people.

“How can President Muhammadu Buhari realise his aspiration to pull over 100 million Nigerians out of poverty in the next ten years without making the oil industry work? That’s the reality everyone – operators and government –have to deal with,” the Norwegian envoy said.

Baru speaks

When the outgoing Group Managing Director of the NNPC, Maikanti Baru, presented his address at the event, he did not directly address the fuel subsidy issue.

Mr Baru, who declared the conference open, acknowledged the challenges in the industry, and said “the balance of objectives between challenges and opportunities in oil demand growth requires a paradigm shift in business model.”

The GMD, who will be retiring from the corporation formally on Monday, said huge opportunities exist in oil demand growth, particularly as a crude oil exporter experiencing a surge in local demand for petroleum products.

“The balance of objectives requires that we undertake a paradigm shift in our business model to ensure we attract capital and sustain the flow of investment. This will be with a special emphasis on local refining,” he said.

He said the recent fiscal challenge experienced by the country increased the demand for change. He said the NNPC had broadened the base of investment sources outside traditional government funding.

Mr Baru said, in spite of the challenges, the Nigerian oil and gas industry was still a major investment destination in Africa, grossing over 24.8 per cent of foreign direct investments coming to the African continent.

Of about $194 billion capital investment flow into Africa for the period 2018 to 2025, $48.04 billion will be expected to come to the Nigerian oil and gas sector for various development projects.

“Nigeria holds about 2.2 per cent of global oil reserves. Our crude oil reserves have grown steadily from about 22 billion barrels in 1999 to 37.5 billion barrels in 2018.

“Nigeria is home to the second largest crude oil reserves in Africa after Libya. Our crude oil production currently hovers around 2.2 to 2.3 million barrels of oil per day (bopd). This was bolstered by the coming on stream of the Egina Field in December 2018 and which has currently ramped up to 200,000bopd,” Mr Baru stated.


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