According to an official, in 2022, the Nigerian government expended more than N4 trillion on PMS subsidy.
The Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) on Tuesday said Nigeria imported a total of about 23.5 billion litres of Premium Motor Spirit (PMS), also known as petrol, in 2022.
The NMDPRA's Chief Executive Officer, Farouk Ahmed, disclosed this at the ongoing Energy Labour Summit organised by the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) in Abuja.
Speaking at the event on Tuesday, Mr Ahmed said "Last year alone, Nigeria imported a total of about 23.5 billion litres of PMS. Our average daily truck out over 8 years stood at over 55 million litres per day, with a peak of 66.7 million litres recorded for the year 2022."
According to him, in 2022, the Nigerian government expended more than N4 trillion on PMS subsidy.
This, he said, amounted to about 20 per cent of the budget for the year, caused a strain on the fiscal viability of the government, and became a major obstacle to inclusive participation in the downstream petroleum sector.
Mr Ahmed, represented by Bashir Sadiq, executive director of corporate services and administration of the agency, said while Nigeria is greatly endowed with abundant reserves of over 37 billion barrels of crude oil and over 206 TCF of gas, the produced resources are largely exported.
"The country needs a very robust mid and downstream sector to maximise the inherent values that can be derived from these resources. The mid and downstream sector is where the most value derivable from the nation's hydrocarbon resources can be obtained through the creation of employment, accelerated industrialization of Nigeria, security of energy and generation of revenue to list just a few," Mr Ahmed said.
He said a transparent mid and downstream market attracts investments, promotes efficiency, competition and sustainable development of the sector.
He explained that achieving transparency requires some key components such as effective laws, clear sectoral policies and strategic objectives, sound regulatory frameworks, optimal enforcement and compliance of all regulatory requirements.
Mr Ahmed said the Petroleum Industry Act (PIA) 2021, which is the governing legislative instrument that defines the key regulatory frameworks of the mid and downstream industry has made substantial provisions that will guarantee optimal transparency in the operations of the sector.
He noted that the NMDPRA is working with all its stakeholders to effectively develop a transparent midstream and downstream sector in line with the mandates defined in the PIA.
"I am glad to inform you that we have achieved remarkable progress in this regard through our extensive stakeholder consultation during the formulation and rollout of our regulations," he added.
Fuel Subsidy
Speaking on the fuel subsidy removal, he said Nigeria's changing energy landscape requires clear and stable policy frameworks, appropriate governance structures, secured operating environment, availability of in-country competences, access to long term affordable financing and purposeful leadership at all levels.
"This is necessary to encourage and promote sustainable investment across the value chain and guarantee predictability for mid and long term business planning and ease of doing business.
"To entrench the above, on 16th August 2021, the long-awaited Petroleum Industry Bill was signed into law and it became the "Petroleum Industry Act 2021".
"This important milestone ushered in a new dawn in the history of the growth and prosperity of the Nigerian oil and gas industry through key industry reforms which include the removal of fuel subsidy and migration to a full market-based pricing for petroleum products which is the only way to attain a transparent mid and downstream value chain for petroleum products supply," he said.
While acknowledging the social benefits of petrol subsidy in Nigeria, Mr Ahmed said the fiscal burden associated with its sustenance constituted a significant challenge for government's ability to fund national budgets over the years.
"The escalating burden was largely driven by upward trajectory in global crude oil and products prices, freight rate and other associated cost on one hand and the year-on-year increase in average daily evacuation from depots on the other hand. The operation of subsidy regime in Nigeria also impacted the pace of development of the midstream sector by limiting refinery design/construction to only products that have been fully deregulated.
"The immense midstream and downstream investment opportunity that Nigeria holds can only be optimised in a fully operationalized market-based pricing environment for all petroleum products."
He further explained that the subsidy regime in Nigeria created a situation where a substantial regional petrol retail pricing differential incentivized increasing cross-border smuggling.
"The financial implication of PMS subsidy rose to over N400 billion monthly which translates to over N4.8 trillion (US$6bn) annually making it unsustainable in the short to medium term.
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"Subsidy on PMS hugely impacted Government revenues available to all tiers of government leading to inability of the government to meet their obligations," he said.
In the same vein, he said perennial challenge of the fuel subsidy which has over the years encouraged inefficiency, waste and environmental pollution, has been a major bottleneck to aligning to Sustainable Development Goals (SDGs) of providing cleaner energy.
"Hence, on 29 May 2023, payment of subsidy on PMS was ended by the new administration of President Bola Ahmed Tinubu.
"This policy decision will facilitate the development of healthy competitive markets and operational efficiency that will promote transparency, private sector investment in the downstream value chain of the Nigeria's oil and gas sector," he noted.
He added that the complete deregulation of the downstream sector is a regulatory and policy framework that is being implemented across all arms of relevant government organisations in strong collaboration with the private sector.
"Transparency across the entire supply chain of the downstream sector has been greatly enhance and the expected impact of improved midstream sector will be created in the near term through increased domestic refining capacity in Nigeria," he said.
