Despite deregulation, Pinnacle Oil and Gas Limited, an indigenous oil and gas company active across the entire downstream value chain, has disclosed that Nigeria is currently paying about N1 trillion monthly as petrol subsidy.
The Managing Director/CEO of the company, Mr. Robert Dickerman, disclosed this while speaking during a panel session six, on Nigeria’s Downstream Forum at the just-concluded Nigeria International Energy Summit (NIES) in Abuja.
He said there is still a massive subsidy, which explains why the product remains cheap, thus encouraging smuggling to neighbouring countries.
He said: “Nigeria has a long history of allocating resources to oil and gas production at the expense of most other economic and social programs. To balance this, there has been a long-standing policy to mitigate consumer costs via palliatives such as fuel and food subsidies.
“But one of the net effects of oil money is underinvestment in local production, manufacturing and other value-added activities that could generate foreign currency through exports.
There has also been a large under investment in the maintenance and upgrade of existing infrastructure including electricity, roads, health care, water, waste, education and financial infrastructure such as consumer credit.
“As a result, we have a huge negative trade deficit, except for crude oil and LNG, and our banks are not sufficiently capitalized to support significant new capital programs.
“With legacy monetary policymaking currency exchange difficult, we desperately need Foreign Investment. This is a reality. So the best policy during this time of crisis is a national policy to transform our economy/regulations/laws to accommodate and encourage FDI.
“Foreign investors, foreign lenders and government-run DFIs have been very clear about what they want to see: Conservative fiscal policy, tackling corruption, enabling competitive markets, and enforcement of fairness in markets through policy, regulation and the ability to enforce contracts.
Keeping that context in mind, I want to point out that there is still a massive subsidy in PMS, albeit in the FX portion of PMS Price, not the global price in dollars.
“The consequences of this subsidy are: The cost of gasoline in Nigeria is the lowest in Africa by far, which encourages smuggling out, further depriving Nigeria of value.
Smuggling causes Nigeria to subsidize neighboring countries even while our economy struggles.
The cost is hurting the entire budget, Federal and State, as critical programs cannot be funded to pay this subsidy. It is currently calculated to be about 1 trillion Naira/month.
“Also, with this subsidy in place, ceasing subsidy payments would result in no petrol supply, if there are no refineries producing gasoline. All supplies come from the international market which will only sell at market prices.
There is no competition in bulk supply, as only the national champion owned by the government can import. Wholesale and retail prices are set based on their subsidized cost and they determine who gets supply. Without a competitive market, foreign investors are discouraged from investing in this sector in Nigeria.
“The solution to this problem seems obvious, even acknowledging the daily struggles most citizens and companies have today with reduced purchasing power, high inflation, high-interest costs and high unemployment that exists today. Short-term palliatives have never resolved long-term issues in any nation at any time in history. We need long-term solutions.”