Realwan Okpanachi
Crude oil is undoubtedly the most important commodity in today’s world. This is particularly so having regards to its production value and its importance to the global economy. It is also unarguably the most traded nonfinancial global commodity. It supplies not less than 40 percent of the world’s total energy needs.
Despite the unending calls and efforts to shift energy consumption from crude (fossil fuel) to more renewable, clean and eco-friendly energy sources such as solar, hydro, wind, tidal, geothermal and biomass, the importance of crude oil has continued to grow and tower.
Crude oil is a very rich commodity with many by-products, chief among which are gasoline/Premium Motor Spirit (PMS), distillates such as diesel fuel and heating oil, jet fuel, petrochemical feedstocks, waxes, lubricating oils, and asphalt.
Nigeria, a gas nation with around 202 trillion cubic feet (TCF) of proven gas reserves plus about 600 trillion cubic feet (TCF) unproven gas reserves, is blessed with tremendous deposit of crude oil estimated to be about 37.2 billion barrels of proven oil reserves. Nigeria is not only ranked as the largest oil producer in Africa, the 11th largest in the world but a respected membr of the oil cartel, Organisation of Petroleum Exporting Countries (OPEC).
Nigeria has a variety of grades of crude oil which are either light or comparatively heavy crude. These include Bonny Light crude oil, Qua Iboe crude oil, Brass River crude oil, and Forcados crude oil. Bonny Light oil is the best of Nigeria’s grades of crude oil with high API gravity and it is produced in the Niger Delta basin. Bonny Light which is a light-sweet crude is in high demand specifically by American and European refineries because it is sweet, light and low in sulfur.
It must be noted, that despite Nigeria’s proven oil and gas reserves and over forty years of consistent oil mining and crude oil sales which has raked in billions of dollars in revenue for the Country, Nigeria remains undeveloped with high level of poverty, primarily because of high level of corruption and maladministration.
This ugly situation, I must say, has forced Nigerians into aligning with the proponents of the “theory of natural resources (oil and gas) being a curse rather than a blessing”, particularly that the nation’s economy as well as the standard of living of the citizens was at its best before commercial exploration of oil started in the Country.
Ironically, to an average Nigerian, crude oil is all about gasoline or Premium Motor Spirit (PMS) because, it is the primary and most widely used source of energy to millions of homes aside the epileptic power from the Energy Distribution Companies. Also, almost all the cars in Nigeria are powered with PMS, hence, the interest of every Nigerian in the affordability and availability of gasoline/PMS, becomes paramount and sacrosanct.
It’s no longer news, particularly, to the stakeholders in the Nigerian oil and gas sector, including the Nigerian Government that, the price of crude oil is declining at a ridiculous rate as a result of weak demand and oversupply or flooding of the market with cheap oil primarily caused by the COVID19 pandemic and the oil price war between Saudi Arabia and Russia which inevitably has forced down the price of gasoline/ Premium Motor Spirit (PMS) across the globe.
The worrisome declining of price of crude oil in the international market has forced the Expected Open Market Price (that is, the sum of the landing cost plus the total distribution margin) of Premium Motor Spirit in Nigeria to drop to below the approved pump price of N145 per litre as the landing cost of the product plunged from N182 to N123.88 per litre lately thereby temporarily eliminating payment of subsidy by the Government and at the same time forcing the government to reduce the pump price from N145 to N125.00 and later N123.50 per litre. It’s pertinent to state that, Nigerians are not satisfied with pump price pegged at 123.50 as they expect the pump price to fall below N100 in days to come, if market forces is indeed allowed to determine the pump price.
With the present situation, Nigerians are now, not only in the position to appreciate what they stand to gain if fuel subsidy is removed and the downstream sector is completely liberalized but will not in the interim, feel the negative impact (if any) of the removal of subsidy thereby eliminating any possibility of protests or resentment.
In view of the above developments and the fact that, Dangote Refinery due to come on stream between 2021 and 2022 has the capacity to take care of our local consumption which is estimated to be around 40 Million liters per day, I’m of the opinion that, there is no better time for Nigeria to remove fuel subsidy and/or deregulate petroleum pump price and liberalize downstream sector than now.
It must be stated that our recent experience with border closure, which caused price of PMS in the neighbouring countries to jump from N395/litre to N600/litre, has in no small means confirmed the position that, the Nigerian government is not only subsidising PMS in Nigeria but also for neighbouring countries. This fact was alluded to by the Comptroller-General of Customs, Col. Hameed Ali (Rtd.) as reported in several national dailies on 13th November, 2019 and also by the Group Managing Director of Nigeria National Petroleum Corporation, Mele Kolo Kyari in his interview on Channels TV flagship programme, Sunrise Daily aired on 8th April, 2020.
It’s time for the Nigerian Government to demonstrate strong leadership and political will in the Petroleum sector by removing fuel subsidy and selling off our refineries in a transparent manner and at the right price to competent hands with proven record of success in the oil and gas sector. If the refineries are completely or substantially privatised, the endless rituals of spending billions of Naira on frequent maintenance without corresponding or desired results will be a thing of the past and our refining capacity will be greatly enhanced.
Government should, through the CBN extend its Anchor Borrowers Programme to persons and corporate bodies who have shown the necessary zeal and seriousness to build Modular Refineries.
We must also leverage on the present challenges created by the low oil prices to consolidate on our local content drive. To this extent, Government should activate all necessary measures for the full implementation of the local content legislations in the oil and gas sector (Local Content Act) and the maritime industry (Cabotage Act ).
It was very cheering to hear the Group Managing Director of NNPC, Mele Kolo Kyari remarks during his interview with African Independent Television (AIT) on 6th April, 2020 that, “As of today, subsidy/under-recovery is zero. Going forward, there will be no resort to either subsidy or under-recovery of any nature. The NNPC will just be another player in the market space. But we will be there for the country to sustain security of supply, at the cost of the market. And during his interview with Channels TV on 8th April, 2020, that, “We decided that fuel subsidy/under recovery has to be stopped. In any case, subsidy is an elitist thing because it is the elites that benefit. They are the ones that have SUVs, four, five cars in their houses. The masses should be the ones to benefit”, he said
However, I must state that, the decision on whether to remove fuel subsidy or not is not that of NNPC but a ministerial or even Presidential one. Consequently, in the absence of any pronouncement from President Mohammedu Buhari either in his capacity as the Minister of Petroleum or as the President of the Federal Republic of Nigeria, fuel subsidy is deemed not have been removed. Also, while I’m in complete agreement with Mele Kyari on the need to remove subsidy, I beg to disagree with his position that, subsidy is elitist thing because it is the elites that benefit. Subsidy is real and beneficial to every Nigerian regardless of status because of the essential nature of PMS. However, it has become a burden too heavy for government alone to bear and it is very inimical to the principle of free market.
It must be stated unequivocally that, it’s time for us to run and treat the country like a business entity by prioritising our expenditures and eliminating or reducing wastages and corruption in the oil and gas sector.
The call for government to demonstrate strong leadership and political will in the sector is necessitated by the fact that, the sector still remains the soul of our economy as over 70% of our foreign exchange is from the oil and gas sector and in the same token, import of PMS into the Country has continued to put so much pressure on our forex demand and ultimately the exchange rate of the Naira to a US Dollar
Realwan Okpanachi, Esq., is
Energy Law Practitioner based in
Abuja.