Nigeria failure to meet local refined petroleum needs after 21 years of democratic rule has been attributed to the Federal Government’s policy of fixing pump price of fuel.
Immediate past President of the Society of Petroleum Engineers, Mr. Joe Nwakwue, gave the indication during an interactive with oil and gas stakeholders organised by leading online news portal, Platforms Africa in Lagos at the weekend.
Nwakwue, while admitting that crude oil prices have remained low due to the impact of COVID-19, said the current pump price reflects reality but noted that the template has a lot of ‘fat’.
He hinted that equalisation otherwise referred to as bridging cost is more than N7.50 per litre, adding that market forces will ultimately drive efficiencies even on the logistics chain.
The petroleum engineer lamented that the impact of fuel imports has not been salutary as a huge proportion of our scarce foreign reserves are used up in importing fuel, putting significant pressure on the exchange rate, exporting jobs to oil refining countries and zero value capture in refining and competency development.
‘‘It is so wasteful that it can be viewed as an economic sabotage. I have always asked for the economic basis for the subsidy regime but no one has been able to explain it well. It is the presence of this poorly designed subsidy regime that has ensured that we remained a net importer of products with devastating implications for the economy.’’
On fuel price liberalisation, he said “It’s a good development which has been long in coming and hopefully one that will enable Nigeria to attract much needed investments in refining, domesticate refining to capture the margins, employ more Nigerians in the midstream, allow the midstream to develop and expand, result in appropriate product pricing in the long run and also allow the government to better allocate its resources to key infrastructure and social spending.
Nwakwue was equally hopeful that the country should see growth of the midstream with multiple supply sources away from the current single source situation.
‘‘It is also important to do this properly. Ministerial pronouncements are good but not enough. There are four legal instruments that need to be repealed for that to sustainably happen. Section six of the Petroleum Act 1969 (as amended), section four of the Price control act 1977, the PPPRA Act and the Petroleum Equalization Act.’’The former SPE boss stated that there was the need to allow private sector led growth of the sector because government footprint is presently too large with too much inefficiency and crowding out effect.
He maintained that the low contribution of oil and gas to the country’s Gross Domestic Product(GDP) is due to the way the industry was built which is essentially in a renter, extractive mode, adding that the country failed to diversify the sector for value capture.
‘’I am hoping the PIB will help address that problem by incentivizing the development of our midstream and downstream.
We hope that the passage of the PIB will usher in a new and positive phase in the development and growth of our industry that is built on transparency, value addition and inclusiveness. We can do that. He added that crude oil should be a blessing because an endowment is a positive thing but it is up to us as a nation how we use it.
‘‘A resource endowment is not and cannot be a curse. It’s probably those who misuse it that can be said to be cursed. We have seen how sustainable and viable economies can be built on the back of natural resource endowment. Examples are all over the place, including Norway, Saudi Arabia and Australia.’’
Nwakwue argued that the discovery of oil and gas in some African countries would have a positive effect on their economies if only they take deliberate steps to manage these resources responsibly for development.
He disclosed that experience has shown that these resources inject crisis and rent seeking behaviours where efforts are not made to manage these resources for development.
‘‘I hope that will not be the case. So, it is a good thing for those countries economically and also remember that resource rich countries also enjoy some geopolitical advantages.’’