Vanguard (Lagos)

16 November 2012

Nigeria: Oil Subsidy Must Go - Jonathan

Photo: Vanguard
A cartoonist depicts slow progress on resolving the issues surrounding Nigeria's subsidy on fuel.

Abuja — President Goodluck Jonathan declared, yesterday, that fuel subsidy must be removed, arguing that this was the only way to encourage private investment in the nation's refineries.

The president made the declaration just as the report of a study commissioned by the government indicated that unless fuel subsidy is scrapped, the government will not be able to attract the investment it needs to get the refineries work.

The president spoke in Abuja when he met participants of the 2012 Senior Executive Course, 34 of the National Institute for Policy and Strategic Studies, NIPSS. He said looking at what obtains in other countries, Nigeria stands to gain more if she allows market forces to determine the cost of petrol.

Citing the example of Canada, President Jonathan said the North American country has 16 functional refineries that are performing at optimal capacity because all the refineries in Canada are privately-owned.

He challenged participants at NIPSS to come up with policies that would advance good governance in all sectors of the economy.

"Why is it that people are not building refineries in Nigeria, yet it is a big business? It is because of the policy of subsidy and that is why we want to get out of it", Jonathan said.

He predicted that if allowed to operate, the removal of subsidy could engender a turn-around within 10 years with the commitment of government and strong political will once the right policies are put in place.

"I believe that you do not need a lifetime to change a nation. Under 10 years, Nigeria can change and people will not even believe that this is Nigeria again. Immediately you come up with strong policies in key sectors of the economy and keep it for 10 years, the change will be astronomical," he said.

Fuel subsidy must be scrapped - study

Meanwhile, the Federal Government will struggle to attract the investment it needs to get its refineries working unless it scraps a fuel subsidy that keeps domestic fuel prices artificially low, a government commissioned report said.

The Minister of Petroleum Resources, Diezani Alison-Madueke ordered the report earlier this year in a bid to find solutions to fix Nigeria's three refineries, which operate at only 20 percent capacity.

The unpublished report leaked to Reuters said current plans to repair dilapidated refineries will most likely fail, because the government will struggle to mobilise funds and vested interests will try to thwart its efforts.

It proposes that the Federal government privatises its refineries, as it is doing with the also moribund power sector, but warned that getting investment will be a tall order while motor fuel prices remain controlled.

"The regulated pricing policy of the Federal Government for petroleum products is the most widely adduced single reason by prospective investors for the lack of investment in new refineries in Nigeria in recent years," the report said.

It was presented to President Goodluck Jonathan earlier this month but never published.

President Jonathan attempted to remove the popular fuel import subsidy in January, but a week of strikes and protests forced him to partially reinstate them.

The report was among a raft of committees set up in the wake of January's protests. They include a probe into oil and gas production leaked to Reuters last month that showed Nigeria lost billions of dollars in cut price deals with oil majors.

The latest one said Nigerian refineries were the worst in Africa at using their capacity, which is officially 445,000 barrels per day. Alison-Madueke said in October that Nigeria would spend $1.6 billion on turnaround maintenance to get the refineries operating at 90 percent capacity by 2014.

"Laudable as the plans may be, they are not likely to deliver the necessary solution," the report said, adding it was doubtful the government would be able to raise that money.

"In the event that the work gets going, it will be very difficult to steer it clear of obstructive political and bureaucratic influences," it said.

Several contracts worth hundreds of millions of dollars have been given to companies doing maintenance on Nigeria's refineries over the last 15 years but with little impact on output.

"They have not operated as performance-oriented businesses and are plagued with severe plant integrity issues," the report said. A parliamentary probe in April found that graft in the fuel subsidy scheme cost Nigeria $6.8 billion in three years.

The report said in order for the refineries to work, government should sell at least 51 per cent of its share in the operations to competent private partners, which, it said, could restore them to 90 per cent capacity by 2016.

It also said the government must "rise up to its responsibility" to protect pipelines from rampant oil thieves, which by some estimates drain a fifth of its output.

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InFocus

Nigerian President Insists Fuel Subsidy Must Go

A cartoonist depicts slow progress on resolving the issues surrounding Nigeria's subsidy on fuel.

President Goodluck Jonathan believes removing the fuel subsidy is the only way to encourage private investment in the nation's refineries, despite months of protests and a costly ... Read more »