Nigeria is Africa’s most populous country with 221 million people. Aside its demographic advantage, the country produces 1.258 million barrels of petroleum daily, which is the largest by an African country, according to the Organization of Petroleum Exporting Countries (OPEC)+’s latest report.
It has proven crude oil reserves of 36 billion barrels, making it one of the the top 10 countries with the largest proven oil reserves in the world, according to the OPEC+ reports.
Despite its production, Nigeria seems to have largely failed to reach its potential in crude oil production.
Its challenges have not just been limited to production. The dwindling revenue from the oil sector, fuelled by a controversial subsidy regime and oil theft, has constantly divided opinions. The quest for profit has raised questions about scrapping fuel subsidies in the country, with the government severally failing to implement its announced plans on subsidy removal.
The problems of the oil sector have led to policy reforms, notably the incorporation of the Nigerian National Petroleum Commission (NNPC) as a limited liability company, with the principal aim of turning the national oil company into a commercial enterprise..
By May 2023, Chief Bola Tinubu is expected to be sworn in, having been announced as the president-elect by the Independent National Electoral Commission, after a contentious February 25 election.
Before his emergence, he had shown a strong interest in the oil sector, making clear-cut statements during his campaign. Notably, he promised to remove subsidies and deregulate the oil and gas industry.
His record of protesting against subsidy removal in 2012 has raised questions on his sincerity and ability to execute oil sector reforms, but his work is cut out for him as president-elect.
Unproductive refineries and lack of transparency
In 2021, based on official budget performance documents of the NNPC Limited, N37.802 billion was spent on repairs and maintenance of Nigeria’s refineries.
According to the NNPC FAAC reports, the sum of N54.663 billion was spent on refinery rehabilitation as of the half-year 2022.
In March 2021, the government approved $1.5 billion for the upgrade of the Port-Harcourt refinery. In August of the same year, another $1.5 billion was approved for rehabilitating of Kaduna and Warri refineries.
Nigerian refineries have failed to produce petroleum products.
Pot Harcourt refinery paid N80.57 billion in salaries between 2017 and 2019, but its total revenues for the period stood at N6.27 billion. The Warri refinery generated revenue of N4.429 billion in three years but spent N144. 140 billion within the same period – with a cumulative loss of N178 billion. Similarly. Kaduna refinery reported a revenue of N2.278 billion between 2017 and 2019 but incurred a loss of N241.527 billion.
Source: OEC, CBN
Different reports by Dataphyte revealed how the NNPC spent the sum of N393 billion frivolously between 2020 and 2021. The money could have been used for the development of the country’s critical infrastructures.
Kaduna refinery doled out an N2.171 billion in loan to its employees between 2020 and 2021.
Despite making zero-naira revenue, N1.180 billion was given out in 2020, and another N991 million in 2021.
Port Harcourt Refinery Company spent N1.547 billion on a canteen and a guest house, staff loans, and compassionate and car loans between the 2020 and 2021 financial year.
The NNPCL spent N13.4 billion on entertainment between 2020 and 2021. In 2021, entertainment expenses gulped N11.831 billion, while N1.636 billion was spent in 2020.
The National Petroleum Investment Management Services, an NNPCL subsidiary, spent N110.623 billion on public relations between 2020 and 2021.
In 2021, N89.928 billion was spent on public relations, while another sum of N20.695 billion was spent on the same item in 2020
If the NNPCL’s four refineries worked to their total capacity, they could produce 62.805 million refined petroleum based on their potential 395,000 barrels of refining capacity. This is as a barrel of crude oil is expected to have 159 litres of refined petrol.
The PricewaterhouseCoopers (PwC) has advised the government to handover refineries to the private sector.
Tinubu must decide whether to privatise these refineries or continue to hold onto them while spending scarce public resources. He must also decide whether to keep the current management of these refineries, as there is no evidence that they have administered them efficiently, experts say.
Petrol imports
According to data, between 2018 and half-year 2022, Nigeria spent N13.5 trillion on petroleum importation.
The money could have built 9840 primary health centres (PHCs), 3936 hospitals, or 49,200 boreholes.
Refined petroleum took an average of 14.98 percent of Nigeria’s import bill between 2016 and 2020, according to the OEC, which takes records of imports and exports.
With Nigeria importing its refined petroleum, there have been reports credited to the Central Bank of Nigeria (CBN)’s governor, Godwin Emefiele, that about 40 percent of Nigeria’s foreign exchange goes to the importation of petroleum products.
Opaque subsidy regime
Between 2005 and 2021, Nigeria spent N13.697 trillion on fuel subsidies. Based on the details of the NNPC FAAC report, the country spent N1.593 trillion on fuel subsidy between January and June 2022.
This would mean that between 2005 and half year of 2022 the country spent N15.29 trillion on fuel subsidies.
This is driven by the country’s over-reliance on petroleum importation. The country’s attempts to remove fuel subsidies have been resisted by labour unions and several other groups over the years, The Muhammadu Buhari’s administration has promised to remove fuel subsidies by June 2023 when it will no longer be in power – a promise the president-elect, Tinubu, wants to keep.
However, he will be resisted by labour unions whose position is simple: fix local refineries and stop petrol subsidies.
Nigeria’s subsidy payments have been tainted with corruption and lack of accountability. Earlier this year, the issue of actual daily fuel consumption in the country became a subject of public debate.
While the NNPC Limited stated that the daily petroleum consumption rate of the country stood at 68 million litres, the Nigerian Customs Service claimed that the consumption stood at 60 million litres.
More recently, the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) put the figure at 66.8 million litres of petroleum, raising key questions on data management around Nigeria’s fuel consumption.
The subsidy has also been blamed for the NNPCL’s inability to remit money to the federation account (before the final incorporation of the NNPC), and dwindling revenue available for development.
Checks on the NNPC Limited’s FAAC report show that the company needs to remit money to the federation account between January and June 2022.
The subsidy also affects how much the NNPC declares as profit. Unlike its counterparts in Saudi Arabia (Aramco) and Brazil (Petrobras), NNPC Limited recorded zero naira as profit between Q1 and Q2, 2022.
The major issue is whether Tinubu will remove the petrol subsidy completely or implement its removal in phases.
Petrol subsidies and labour unions
There have been protests against the removal of fuel subsidy, with claims that such removal would impact the Nigerian people and lead to further poverty in the country.
Notably, the Nigerian Labour Congress (NLC) threatened to protest against the removal, noting that it would impact the people, worsening the country’s inflation and poverty.
Policy analysts, Akintunde Babatunde and Ronke Onadeko, told Dataphyte that the government should remove subsidies and re-invest the money into critical infrastructures and sectors in the country.
An oil and gas policy expert, Henry Adigun, told Dataphyte that scrapping subsidy was the only way forward to ensure that Nigerians bought fuel at the market price.
The International Monetary Fund (IMF) independently advised the country to remove the subsidy by June 2023 to reduce its negative impact on the economy..
Cash call concerns
The issue of cash call to joint venture partners has also been a concern despite that the NNPCL has met some obligations in recent times. A most recently published financial report for May 2022 put the cash call obligation to three companies at $873.348 million.
A former finance manager of NAPIMS was quoted as saying that the inability of the NNPC to pay cash calls and the situation around debt owed by the NNPC is a result of financial recklessness within the organisation.
The need for accountability may be the main reason President Muhammadu Buhari tasked the oil company to adhere to the tenets of accountability and transparency.
Hence payment of the outstanding obigation may restore confidence among Nigeria’s joint venture partners, and attract investment.
Host communities development
The Niger Delta Development Commission (NDDC) was created to ensure better developments for oil-producing communities. It is domiciled in the Ministry of Niger Delta Affairs which has been enmeshed in corruption, scandals and allegations of embezzlement.
Tinubu must also ensure the full implementation of the Petroleum Industry Act. The issue of defeating oil theft is seen as critical as experts expect a sustained efforts to annihiliate oil thieves.
Fuel scarcity problem
There has been a fuel scarcity problem, especially in the Federal Capital Territory, Abuja, since early 2022. In 2022, the country was also thrown into fuel scarcity, with Lagos and Abuja bearing the biggest brunt. Experts say that the deregulation of the petrol downstream industry will automatically end petrol scarcity problem as prices will be determined by market forces.
The Lagos Chamber of Commerce and Industry (LCCI) shares this view, urging the government to deregulate the sector to cut losses. But will Tinubu have the courage to deregulate the downstream sector? The answer will be known, perhaps, in early June 2023.
Experts speak
The Chief Executive Officer of Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, said the president-elect must demonstrate unmistakable commitment to the implementation of the Petroleum Industry Act, noting that this would attract more investment into the oil and gas sector.
“He must remove petrol subsidy with minimum shocks to the economy and the citizens,” he said.
“A substantive Minister of Petroleum Resources should be appointed to promote professionalism and transparency in the sector. The practice of the President assuming the role of Minister of Petroleum should be discontinued,” he suggested.
“The current impressive momentum to tackle oil theft should be sustained in order to boost oil production,” Yusuf added.
The Director-General, Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, urged Tinubu to take a definite stand by ordering the removal of fuel subsidy. “The decision should be outright and immediate steps should be taken to commence removal,” he noted.