Page 6 - DMEA Week 42 2021

DMEA POLICY & SECURITY DMEA

Nigerian government facing

growing fuel subsidy budget crisis

AFRICA NIGERIA’S government is facing a growing year – Nigeria’s downstream sector is supposed
budget crisis, as a subsidy policy designed to to become market-driven and free of subsidies.
protect the population from growing oil prices However, the government has committed to
is putting increasing pressure on the federal maintaining the fuel subsidy until August 2022.
budget. This position could force the government to
The policy affects Nigerian National Petro- pay out NGN1.2 trillion over the next 10 months.
leum Co. Ltd (NNPC Ltd), which was recently Timipre Sylva, Nigeria’s minister of state for
incorporated to replace its predecessor Nigerian petroleum resources, recently reiterated Abuja’s
National Petroleum Corp. (NNPC). The state- determination to eliminate the price supports.
owned company is responsible for importing “The government is in the process of fully dereg-
gasoline, known locally as premium motor spirit ulating the downstream petroleum sector, which
(PMS), and is paying an average monthly sub- will end subsidies and free up funds for national
sidy of NGN120bn ($29mn) to keep retail prices development – including investment in renew-
affordable. ables, which will be part of the energy mix that
The government currently sets gasoline prices ultimately powers our economy,” he said at the
through a process that involves the exchange of recent Seplat Energy conference.
crude oil cargoes for refined fuels at pre-agreed In the run-up to the proposed end date, the
price margins under 12-month contracts. In 650,000 bpd Dangote refinery could serve as a
the past, NNPC made these arrangements on a buffer against the problem of the country’s fuel
yearly basis with third-party refiners, mostly in security. The plant is still under construction, but
Europe. analysts believe that it may eventually be able to
However, after Nigeria’s production levels meet all of Nigeria’s domestic fuel demand.
output declined because of disruptions at oil- Over the last 15 years, successive govern-
fields, the amount of revenue accruing to the ments have tried and failed to revamp the four
government from crude sales fell, even as its debt existing refineries owned by NNPC, which have
exposure increased. This put pressure on Abuja, a combined throughput capacity of 445,000 bpd.
which funds federal budget expenditures mostly At the moment, though, there is some hope that
from oil revenues. Moreover, the pressure is even the 210,000 bpd Port Harcourt refinery, now
higher now that the country’s crude oil produc- slated for rehabilitation by the Italian contractor
tion is now about 200,000 barrels per day (bpd) Tecnimont, will come on stream by the tail end
below its OPEC quota of 1.5mn bpd, creating a of next year.
gap that constricts revenues even further. The rehabilitation programme is expected to
Under the country’s new oil and gas law – the carry a price tag of $1.5bn and will be funded
Petroleum Industry Act (PIA), passed earlier this through debt financing.™

P6 www. NEWSBASE .com Week 42 21•October•2021