Page 5 - DMEA Week 23

DMEA COMMENTARY DMEA

Nigeria relies on fuel
imports as its main
refineries are outdated
and have fallen into
disrepair.

Risk of backtracking protect the interests of private investors.”
Initially the deregulation is expected to cause “The recent reform must be institutionalised,”
prices to fall further. But they will rebound as analysts at Lagos-based Chapel Hill Denham
economies are reopened after COVID-19 lock- were quoted as saying by Bloomberg in mid-
downs and international markets recover. Fuel May. “This will ensure that the subsidy regime
prices are contentious in Nigeria. In the past, is abolished by a legislative act, and may require
riots have broken out over even mere rumours rigorous legislative procedure to appeal.”
of hikes. The move to liberalise them is therefore
politically fraught, and the industry fears that Domestic refining
the government could backtrack on reforms at Nigeria would be better placed to liberalise its
a later stage. fuel market while providing its population with
The population is likely to be even more affordable prices if it produced enough gasoline
incensed by price increases given the recession domestically to meet demand. But the country’s
Nigeria is facing – its second in four years. The four state-owned refineries, built between the
country relies on oil exports for two-thirds of 1960s and 1980s, have fallen into disrepair and
government revenue and over 90% of its export can only operate at a fraction of their 445,000
revenues, which have plummeted as Brent has barrel per day (bpd) capacity.
lost over 35% of its value since the start of the Meanwhile, poverty has led to rampant theft
year. of oil in the Niger Delta region – the country’s
The Major Oil Marketers Association of main hub for oil production. NNPC recently
Nigeria (MONAN) welcomed the reform, but said it would close down these plants completely
warned that more clarity was needed. while it searches for financing to upgrade them.
“While we welcome the removal of the sub- The search will be all the more difficult under
sidy on fuel, we need clarity on the government’s current economic conditions.
claim that the market has been deregulated,” Nigeria is pinning its hopes on the new
the group’s chairman, Adetunji Oyebanji, com- 650,000 bpd Dangote refinery, due to come on
mented on June 6. “Many of the institutions sup- stream in late 2021. The plant, owned by Africa’s
porting the former regime such as the Petroleum richest man, Aliko Dangote, will not only cover
Equalisation Fund, the Petroleum Subsidy Fund the country’s fuel consumption but even support
and the [PPPRA] are still operational. So there is exports. This will help ease pressure on Nige-
a bit of confusion whether we have fully dereg- ria’s foreign currency reserves, which are being
ulated the sector or whether the government drained by fuel imports.
just decided that they won’t pay the subsidy Nigeria’s fiscal crisis may well ensure that
anymore.” the fuel subsidy regime does not return, as the
Oyebanji urged the government to intro- International Monetary Fund (IMF) and other
duce “a proper legislative framework to guide financiers will insist on austerity measures as a
the deregulation of the downstream sector and condition for funding. ™

Week 23 11•June•2020 www. NEWSBASE .com P5