Dike Onwuamaeze and Nume Ekeghe
The full deregulation of Nigeria’s downstream oil and gas sector will attract the required investments need to boost the country’s local refining capacity and make it possible for Nigerians to enjoy cheaper petroleum products.
This view was expressed by Ms. Aderonke Onadeko, on Tuesday, during a virtual conference organised by the Facility for Oil Sector Transformation (FOSTER) in partnership with the Finance Correspondents Association of Nigeria (FICAN) in Lagos, with the theme: “Financial Impact of the Crashing Oil Price on Nigeria.”
Onadeko, argued that investments in the local refining capacity would eliminate costs that accrue from the export of crude and the importation of refined petroleum products back to Nigeria with attendant associate costs like demurrages, taxes, shipping, among others. She said it would also lessen the pressure on the forex market as well preserve the external reserves and create more jobs in the country.
She said the time has come for Nigeria to terminate the increasingly unsustainable petroleum subsidy, especially now that the crude oil revenue is at its lowest ebb and the country is reeling under the crushing impact of COVID-19 on the economy.
She said: “Nigeria spent more than N462 billion on subsidies and under-recovery of petroleum product in 2019 with a projection to spend N417 billion in 2020. However, the ongoing COVID-19 pandemic has had an adverse effect on crude oil prices, which account for 90 per cent of the country’s source of foreign exchange and 60 per cent of government revenue.
“Nigeria’s crude value is benchmarked against the Brent crude. Presently, a barrel of Brent crude is $25 while Nigeria’s Bonny light grade is selling between $13 and $15 per barrel. This makes it significantly impossible to fund the 2020 budget without borrowing.”
She also posited that a fully deregulated downstream segment would trigger competitiveness as well as merger and acquisitions in the oil and gas industry.
Other benefits that would come out of the deregulation, according to her, include the passage of the overdue Petroleum Industry Bill (PIB), improved policy and governance in the oil and gas sector as well as enunciation of better policies that would enthrone transparency in the industry.
“The downstream segment is going to become more competitive and more liquid. We are going to see more deepening in its value chain. We will see international and local companies coming together to invest in refineries. If we had had adequate local refining capacity in Nigeria, now that the price of crude oil has dropped internationally, Nigeria will switch to refining more petroleum products locally and supplying them to the rest of West Africa sub-region and Africa at large,” she added.
Onadeko, pointed out that the implication of the government’s announcement that the downstream segment would be deregulated is that it should hands off the importation and the pricing of the sale of petroleum products in the country.
She, however, noted that in spite of the announcement, the Petroleum Products Pricing Regulatory Agency (PPPRA) is still the one setting at the beginning of every month what the price the petroleum products would be.
“My view is that we are going towards a deregulation but what we have right now is a liberalisation that has relaxed the rules. So, we expect the government to tell us when it will quit completely within the next 12 months,” Onadeko said.
She also debunked the fear that a full deregulation would force a cartel on Nigerians that would come together to increase prices on Nigeria.
She recommended the strengthening of the petroleum pipeline networks in the country for cheaper and faster transportation of products rather than relying on trucks.