Experts and operators in the oil and gas industry argue that a total liberalisation remains the best option to boost the nation’s economy and create jobs
Stakeholders in oil and gas industry on Sunday, January 6, said that total deregulation of the downstream sector of the petroleum industry will unlock the huge private investment potentials in the sector and also stimulates sustainable growth.
They expressed worried over the huge amount of money spent by Federal Government annually of subsidy payment, which they said such sum could be used to develop other sector of the economy.
Ibe Kachikwu, the minister of state, Petroleum Resources, said that subsidy on Premium Motor Spirit, PMS, otherwise known as petrol, currently stands over N1.4 trillion.
The stakeholders said this became imperative for government to embark on total deregulation of the downstream sector to attract investors and to also save the country from the huge amount spent on subsidy.
Muda Yusuf, the director-general, Lagos State Chambers of Commerce and Industry, LCCI, said that perhaps the biggest burden on the economy today is the petroleum 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,’’ he said.
Yusuf added: 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 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.
Muda said that one of the critical elements of the oil and gas sector reform, particularly the downstream sector, 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.”
The DG said that total deregulation of the downstream would enhanced free resources for investment in critical infrastructures such as power, roads, the rail systems, health sector, education sector etc.
He said that deregulation would also unlock the huge private investment potentials in the downstream oil sector especially in petroleum product refining.
He said 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.
He said that deregulation would 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 oil sector 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.
Felix Andrew, an energy expert said that continuous payment of subsidy is not sustainable, while urging government to liberalised market and encourage “free entry, free exit” to attract investors in the sector.
Andrew, who is also the executive director, Blue-Sea Energy Limited, said that currently, Nigeria spends about N1.7trn on fuel subsidy annually whilst its education and health sector can only access a paltry budget of N300million and N400million respectively.
According to him, it is obvious then, 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 sector; 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 the liberalisation of the downstream oil and gas industry which recommends that the deregulation proposition.
“If fully, implemented, will eradicate waste and corruption currently 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.
The expert said that 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.