***CBN must lend support to ‘stranded’ licensees – Experts
WITH the signing of the Petroleum Industry Act (PIA) 2021 by President Muhammadu Buhari on Monday, analysts have called on the government to ensure enabling policies that promote modular refineries across the country.
Modular refineries, they say, is key to ramping up local production of premium motor spirit (petrol) in the country, amid rising fuel imports and a corruption-ridden subsidy regime.
Nigeria spends an average of N120 billion monthly on fuel subsidy, a situation that has deprived the nation of key funds needed for development projects.
But with the signing of the PIA, energy analysts have said there is a need to ramp up local production, augment Dangote Refinery’s impact and encourage backward integration in order to maintain price stability.
“If we encourage ramping up local production through enabling policies, this shenanigan called fuel subsidy will go in three months. The federation would get more money for federal allocation. The CBN could support this with some form of lending, Professor of Development Economics Ken Ifedi told THE ICIR.
He noted that the Federal Government was afraid of backlash with labour unions, insisting that having enabling business model that encouraged modular refineries in states would ensure fair dynamics in fuel pricing while doing away tactically with fuel subsidy.
“If we don’t have the product determined by market dynamics, we would allow few marketers upsetting the market dynamics. Nigeria with massive fuel imports should focus on having several thousands of modular refineries to open the market to fair competitive pricing.”
Nigeria, which imports almost all of its fuel at a cost of about $7 billion a year, has been trying for years to upgrade its four aging state-owned refineries -decades-old plants that have a production capacity of 445,000 barrels a day but have been posting consecutive losses.
Africa’s richest person Aliko Dangote is also building a 650,000 barrels-a-day plant in the country, though it’s not expected to be in operations until 2022.
The key objectives of the modular refinery initiative include: promoting the availability of petroleum products in the country, conserving foreign exchange utilisation for the importation of petroleum products, and promoting socio-economic development in order to stop restiveness, criminal and illegal refinery activities, thereby sustaining peaceful coexistence in the Niger Delta region. Modular refineries can also mitigate or eliminate environmental degradation associated with illegal refinery activities, crude oil theft and pipelines vandalism, experts say.
The ICIR reports that the government has so far licenced over 40 modular refineries, but some of them are still under construction and are yet to kick off operations.
Chairman of the Major Oil Marketers Association of Nigeria (MOMAN) Adetunji Oyebanji, speaking on modular refineries, said state governments must follow the NLNG business model if they were to set up the modular refineries in their respective states and ensure success.
“If we look at antecedents of where we are coming from, a free-market economy, we must encourage models that drive investments and reduce undue interference by the state.
“Ramping up local production is vital to helping dynamics of fair pricing locally. However, it is not a guarantee that the price will come down. Remember the crude is bought in dollars. The key advantage is halting import, and then competitive fair pricing for the product,” he further said.
Industry experts say petrol could cost as high as N300 following the signing of the PIB into law by President Muhammadu Buhari.
Recall, the PIB was signed into law on Monday, August 16.
With the signing of the PIB, the government is expected to end the fuel subsidy regime, with market dynamics expected to push the price to N300.
Minister of State for Petroleum Resources Timipre Sylva had, earlier in the year, hinted that Nigeria’s subsidy era would end once the President assented to the PIB.
“So far, discussions with stakeholders are still ongoing. But I will also bring it to your attention today that when the president assents the PIB, the subsidy will become a matter of law because it is already in the PIB that petroleum products will be sold at market-determined prices.”
Speaking on the benefits of the bill on Nigeria’s oil and gas sector, Chairman of the International Energy Services Diran Fawibe expressed optimism that the coming of the Petroleum Industry Act would free up in the country and grow the nation’s foreign exchange reserves.
“There have been uncertainties surrounding Nigeria’s fiscal regime for years. This signage would enable the investor confidence in the Nigerian economy,
“It would also open up investments in deep water, with Nigeria having lots of investments in that area.
“If you look at Shell announcements a few weeks back, you could see they want to divest from onshore and shallow water into deep shore. They would concentrate on deep water and the act is more favourable to deep shore.”
Some international oil companies are expecting to ride on this law to make decisions on their divestments into Nigeria’s oil and gas sector, he said.
He noted that the law was coming at a time when the global energy transition was in vogue, a situation he said signposted a new era for Nigeria’s enormous gas resources.
Deputy Director at ActionAid Nigeria Ene Obi, who has experience in advocacy, told The ICIR that the signing of the Petroleum Industry Act was a step in the right direction in ensuring that Nigeria’s oil resources contributed effectively to the growth of the economy.
“We must begin with low-hanging fruits in the Act and ensure it attracts the much-needed investments into the economy,” she said.