LEADERSHIP
•Deregulation, solution to fuel scarcity —Independent marketers
Written by:
Muhamad Sabiu, Chima Nwokoj And Olatunde Dodondawa-Lagos
The Minister of State for Petroleum,Dr Ibe Kachikwu has said that the Federal Government is not thinking of fuel subsidy as its main priority is to ensure that the refineries are back on stream.
The minister dropped the hint in Kaduna on Sunday while on a familiarisation visit to Kaduna Refining and Petrolchemicals Company (KRPC).
He said the president’s main objective is to fix the refineries to be producing to optimum production.
Kachikwu affirmed that the processes in fixing the refineries were on and Nigerians had started seeing the results and so the government was not contemplating subsidy.
“We have reduced the prices of petroleum products, our refineries have started working. Portharcourt refinery is back and Kaduna refining has started production. By earlier next year, Warri refinery will be back.
“So hopeful at the end of January, all our refineries would have been fixed and they would be producing about 10 million litres of petrol daily,” he stressed.
Commenting further, the minister also dispelled the idea that the refineries would be sold, saying that, “it is not the president’s idea to sell the plants.
“His main priority is to fix our refineries and not to sell them. We can even start thinking of selling them in this state. If you want to sell something you sell a good product.”
On his assessment of Kaduna refinery, he said, he was satisfied with what he saw and he could see the commitment of the management and staff to sustain the current level attained.
When the subsidy on petrol is removed, the price of petrol may be lower than what it is today, finance and economic analysts have said.
For Wale Abe, Chief Executive Officer of the Financial Market Dealers Association of Nigeria (FMDA), the government should subsidise areas that are critical to the economy and stop subsidising fuel.
In an interview with the Nigerian Tribune, he said finding ways of subsidising such areas as infrastructure would add value to people’s life, rather than subsidising petrol for a few individuals.
The FMDA executive officer noted that about a year or two ago, he had spoken against subsidy removal but now, “I am fully in support of it because whether it is removed or not, the poor and low income earners are not benefiting.”
Abe, who said he bought petrol on Sunday at N120 per liter in Ibadan, added that this was at a time when the subsidy could be said to still be in place.
The minister dropped the hint in Kaduna on Sunday while on a familiarisation visit to Kaduna Refining and Petrolchemicals Company (KRPC).
He said the president’s main objective is to fix the refineries to be producing to optimum production.
Kachikwu affirmed that the processes in fixing the refineries were on and Nigerians had started seeing the results and so the government was not contemplating subsidy.
“We have reduced the prices of petroleum products, our refineries have started working. Portharcourt refinery is back and Kaduna refining has started production. By earlier next year, Warri refinery will be back.
“So hopeful at the end of January, all our refineries would have been fixed and they would be producing about 10 million litres of petrol daily,” he stressed.
Commenting further, the minister also dispelled the idea that the refineries would be sold, saying that, “it is not the president’s idea to sell the plants.
“His main priority is to fix our refineries and not to sell them. We can even start thinking of selling them in this state. If you want to sell something you sell a good product.”
On his assessment of Kaduna refinery, he said, he was satisfied with what he saw and he could see the commitment of the management and staff to sustain the current level attained.
When the subsidy on petrol is removed, the price of petrol may be lower than what it is today, finance and economic analysts have said.
For Wale Abe, Chief Executive Officer of the Financial Market Dealers Association of Nigeria (FMDA), the government should subsidise areas that are critical to the economy and stop subsidising fuel.
In an interview with the Nigerian Tribune, he said finding ways of subsidising such areas as infrastructure would add value to people’s life, rather than subsidising petrol for a few individuals.
The FMDA executive officer noted that about a year or two ago, he had spoken against subsidy removal but now, “I am fully in support of it because whether it is removed or not, the poor and low income earners are not benefiting.”
Abe, who said he bought petrol on Sunday at N120 per liter in Ibadan, added that this was at a time when the subsidy could be said to still be in place.
“Looking at the cost of crude oil in the international market, the cost of petrol per litter should be less than N85,” he said.
On how importers would be affected, Abe said in a deregulated environment, risk would be less. Banks, he believed, would be more interested in funding importation of petroleum products because they knew how to structure petroleum import finance once the government removed its hands from regulating the sector.
According to him, petroleum importers would not have to wait too long to have the subsidy paid, which has been one of the risks that banks shy away from.
“So, it is a good thing that the sector is being deregulated because, among other things, it will be more profitable to build refineries and for players to operate and ensure that the product is available,” he emphasised.
Bismarck Rewane, Managing Director of Financial Derivatives Company Limited (FDC) also said that fuel subsidy removal would have a positive effect on the country’s external reserves.
He maintained that subsidies are distortional and breed corruption in the system, adding that undue pressure on the local currency would disappear with fuel subsidy removal.
“Subsidies are distortional: first of all, get rid of the system so it doesn’t breed corruption and if there are no subsidies, with the price of oil today at $38 per barrel, this means that you might actually find that the price of petrol may be lower than what it is today,” Rewane stated.
Nevertheless, he said not removing fuel subsidies would only make the policy adjustment more painful, as fuel subsidy alone account for 30 per cent of the country’s import bill and form major sources of leakages in the system.
In an earlier interview, Rewane stated: “The truth is that refineries were producing before subsidies were introduced. Subsidies are a gap between the price and the cost. Even if you produce at the refineries and you are selling at below the cost of production, then you create a subsidy.
“The subsidy is a number; the subsidy system is a system that breeds corruption. Get rid of the subsidy system and then the number will be an efficient number,” he said.
Other analysts believe that as the price of crude oil goes down, the need to remove fuel subsidy becomes imperative.
“What we are being told is market forces do not work in Nigeria. No other time is ripe for fuel subsidy removal and cancellation of petroleum equalization fund than now, so that petroleum product pricing could reflect carrying cost,” stated Damian Ugo, an economist and former banker with defunct Oceanic Bank Plc.
Opeyemi Agbaje, Senior Consultant/Chief Executive Officer, RTC Advisory Services Limited, in a paper, ‘Nigeria in an Era of Forced Economic Restructuring’, recently presented at the Financial Correspondents Association of Nigeria (FICAN) forum in Lagos, said, “The falling prices of crude oil in the international market has placed Nigeria in a situation where policy makers must restructure the economy. And one way of doing so is subsidy removal.”
Meanwhile, following failure of the Federal Government to curb the lingering fuel scarcity which commenced over two months ago across the country, marketers are again calling for the deregulation of the downstream sector.
Speaking with the Nigerian Tribune on Sunday, the National Operation Controller, Independent Petroleum Marketers Association of Nigeria (IPMAN), Mr. Mike Osatuyi, FCA, stated that the only solution to the problem of perennial scarcity is for the Federal Government to deregulate.
According to him, “The ultimate is to deregulate the downstream sector. Let the Federal Government deregulate. We are the stakeholders, we are the players.”
On how importers would be affected, Abe said in a deregulated environment, risk would be less. Banks, he believed, would be more interested in funding importation of petroleum products because they knew how to structure petroleum import finance once the government removed its hands from regulating the sector.
According to him, petroleum importers would not have to wait too long to have the subsidy paid, which has been one of the risks that banks shy away from.
“So, it is a good thing that the sector is being deregulated because, among other things, it will be more profitable to build refineries and for players to operate and ensure that the product is available,” he emphasised.
Bismarck Rewane, Managing Director of Financial Derivatives Company Limited (FDC) also said that fuel subsidy removal would have a positive effect on the country’s external reserves.
He maintained that subsidies are distortional and breed corruption in the system, adding that undue pressure on the local currency would disappear with fuel subsidy removal.
“Subsidies are distortional: first of all, get rid of the system so it doesn’t breed corruption and if there are no subsidies, with the price of oil today at $38 per barrel, this means that you might actually find that the price of petrol may be lower than what it is today,” Rewane stated.
Nevertheless, he said not removing fuel subsidies would only make the policy adjustment more painful, as fuel subsidy alone account for 30 per cent of the country’s import bill and form major sources of leakages in the system.
In an earlier interview, Rewane stated: “The truth is that refineries were producing before subsidies were introduced. Subsidies are a gap between the price and the cost. Even if you produce at the refineries and you are selling at below the cost of production, then you create a subsidy.
“The subsidy is a number; the subsidy system is a system that breeds corruption. Get rid of the subsidy system and then the number will be an efficient number,” he said.
Other analysts believe that as the price of crude oil goes down, the need to remove fuel subsidy becomes imperative.
“What we are being told is market forces do not work in Nigeria. No other time is ripe for fuel subsidy removal and cancellation of petroleum equalization fund than now, so that petroleum product pricing could reflect carrying cost,” stated Damian Ugo, an economist and former banker with defunct Oceanic Bank Plc.
Opeyemi Agbaje, Senior Consultant/Chief Executive Officer, RTC Advisory Services Limited, in a paper, ‘Nigeria in an Era of Forced Economic Restructuring’, recently presented at the Financial Correspondents Association of Nigeria (FICAN) forum in Lagos, said, “The falling prices of crude oil in the international market has placed Nigeria in a situation where policy makers must restructure the economy. And one way of doing so is subsidy removal.”
Meanwhile, following failure of the Federal Government to curb the lingering fuel scarcity which commenced over two months ago across the country, marketers are again calling for the deregulation of the downstream sector.
Speaking with the Nigerian Tribune on Sunday, the National Operation Controller, Independent Petroleum Marketers Association of Nigeria (IPMAN), Mr. Mike Osatuyi, FCA, stated that the only solution to the problem of perennial scarcity is for the Federal Government to deregulate.
According to him, “The ultimate is to deregulate the downstream sector. Let the Federal Government deregulate. We are the stakeholders, we are the players.”
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