How to attract IOCs to Nigeria’s downstream sector
The Petroleum and Natural Gas Senior Association of Nigeria (PENGASSAN), recently, urged the Federal Government to put in place policies that will compel International Oil Companies (IOCs) to refine crude oil in the country.
In a communiqué issued at the end of its last National Executive Council meeting in Warri, Delta State, PENGASSAN said putting in place such legal framework would eventually lead the IOCs into building new refineries in Nigeria.
The policies expected to cause this shift include implementation of the national oil and gas policies and a quick presidential assent to the Petroleum Industry Governance Bill (PIGB) which should contain certain specific quota of IOCs’ production that must be refined in the country.
PENGASSAN also called on the government to declare a state of emergency in the nation’s refining sub-sector, insisting that it was the only solution to Nigeria’s unending fuel importation, supply, and distribution crises. Nigeria is the only OPEC member nation that imports petrol.
It is easy to see why the labour body would make this call. Subsidies on petrol continue to eat into funds that should be used for developmental purpose. With landing cost of petrol put at N171 per litre, the Nigerian National Petroleum Corporation (NNPC) incurs N37 on each litre of fuel at a depot price of N133.80, leading to a daily subsidy of N2.046 billion for 55 million litres.
The landing cost of petrol has been higher than N145, after crude oil prices rose to $45 per barrel in January 2017. This puts total subsidy spend since February 2017 to date atN746.79 billion.
This figure is higher than budgetary allocation to the Ministry of Power, Works and Housing (N555.88bn), Transportation (N263.1bn), Agriculture and Rural Development (N118.98), Universal Basic Education (N109.6bn), and combined capital expenditures for Defence (N145bn), Health (N71.11bn) and Education (N61.7bn). There is no better manual on how to self-destruct an economy.
Nigeria’s refining sector fell by -46.24% in the fourth quarter of 2017, from -45.4% in third quarter 2017, and -0.97% in the fourth quarter of 2016, beating every other sector to achieve notoriety as the worst performing sector of the economy last year.
While policies are important to attract IOCs to the downstream sector, what is really lacking is the political will to implement them. Everywhere else in the world, market-based economy fosters competition and drives growth, but Nigeria’s socialist-leaning government views competition with suspicion. The favourite argument is the protection of the poor, who are often the casualties of the corrupt-ridden system.
ISAAC ANYAOGU
The writer can be reached via isaac.anyaogu@ businessdayonline.com or +2347037817378