Page 7 - AfrElec Week 23

AfrElec COMMENTARY AfrElec

lockdowns and international markets recover. analysts at Lagos-based Chapel Hill Denham
Fuel prices are contentious in Nigeria. In the were quoted as saying by Bloomberg in mid-
past, riots have broken out over even mere May. “This will ensure that the subsidy regime
rumours of hikes. The move to liberalise them is abolished by a legislative act, and may require
is therefore politically fraught, and the industry rigorous legislative procedure to appeal.”
fears that the government could backtrack on
reforms at a later stage. Domestic refining
The population is likely to be even more Nigeria would be better placed to liberalise its
incensed by price increases given the recession fuel market while providing its population with
Nigeria is facing – its second in four years. The affordable prices if it produced enough gasoline
country relies on oil exports for two-thirds of domestically to meet demand. But the country’s
government revenue and over 90% of its export four state-owned refineries, built between the
revenues, which have plummeted as Brent has 1960s and 1980s, have fallen into disrepair and
lost over 35% of its value since the start of the can only operate at a fraction of their 445,000
year. barrel per day (bpd) capacity.
The Major Oil Marketers Association of Meanwhile, poverty has led to rampant theft
Nigeria (MONAN) welcomed the reform, but of oil in the Niger Delta region – the country’s
warned that more clarity was needed. main hub for oil production. NNPC recently
“While we welcome the removal of the sub- said it would close down these plants completely
sidy on fuel, we need clarity on the government’s while it searches for financing to upgrade them.
claim that the market has been deregulated,” The search will be all the more difficult under
the group’s chairman, Adetunji Oyebanji, com- current economic conditions.
mented on June 6. “Many of the institutions sup- Nigeria is pinning its hopes on the new
porting the former regime such as the Petroleum 650,000 bpd Dangote refinery, due to come on
Equalisation Fund, the Petroleum Subsidy Fund stream in late 2021. The plant, owned by Africa’s
and the [PPPRA] are still operational. So there is richest man, Aliko Dangote, will not only cover
a bit of confusion whether we have fully dereg- the country’s fuel consumption but even support
ulated the sector or whether the government exports. This will help ease pressure on Nige-
just decided that they won’t pay the subsidy ria’s foreign currency reserves, which are being
anymore.” drained by fuel imports.
Oyebanji urged the government to introduce Nigeria’s fiscal crisis may well ensure that
“a proper legislative framework to guide the the fuel subsidy regime does not return, as the
deregulation of the downstream sector and pro- International Monetary Fund (IMF) and other
tect the interests of private investors.” financiers will insist on austerity measures as a
“The recent reform must be institutionalised,” condition for funding.™

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