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Nigeria: Now Is Time to End Subsidy, Withdraw From OPEC – Kunle

Nigeria: Now Is Time to End Subsidy, Withdraw From OPEC – Kunle

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Dan Kunle, who is a global energy business expert and one-time adviser to the Nigerian government, in this interview says a full deregulation of the country’s downstream petroleum sector will be the most logical economic decision for the country to take now. He equally argues that staying in the Organisation of Petroleum Exporting Countries (OPEC) was no longer beneficial to the country and that Nigeria should cut off from the group of oil producers. Chineme Okafor brings the excerpts:

Last week, the government made an announcement that suggested a deregulation of the downstream petroleum sector, what do you make of that announcement?

This policy decision is long awaited because its absence has created so much damage to the federal government’s revenue and private investors in the downstream oil sector. In the last five years, it appeared like the NNPC and PPMC have made a U-turn against the gradual deregulated downstream oil and gas sector. The private sector had in the last 15 years been very dominant in the sector but suddenly, everything changed and major investments therein got stiffened and tied to the whims and caprices of the NNPC.

On the other hand, the NNPC and PPMC embarked on their under-recovery/subsidy regime as the single entity importing petroleum products into Nigeria, while the four refineries of the corporation went moribund. The NNPC and PPMC export all the crude oil and import white products as a monopolist.

So, the federal government and NNPC have been sitting on an estimated $9 to $10 billion a year trade volume under this monopolistic regime. A total deregulation which is now imperative will free this money for the federal treasury, while the private sector operators in the downstream will now assume the responsibility of this trade volume. If the federal government saves $9 to $10 billion dollars a year, by exiting from this moment from the under-recovery/subsidy regime, there will be less pressure to borrow money from abroad at least by 50 to 60 per cent. To do this, the government and NNPC will have to stop their involvement in petroleum import business and allow private investments in the downstream to bounce back.

You’ve consistently asked for this – full deregulation – but how’s this going to play out now, where will the investments come from?

Yes, and it is because I am very sure that the downstream sector private operators have invested so much money in tank farms and petrol stations across the country. The volume of investment in storage capacity in Nigeria by the private sector is so enormous but not optimised because of the disruption created by the NNPC and PPMC monopoly. The investment on ground by the private sector operators will just require some upgrades and re-alignment. But they are still better positioned to service the petroleum product requirements of Nigerians. NNPC should concentrate on upstream exploration and production of oil and gas, especially gas.

I wait to be faulted by anybody as I’m speaking from experience and as an industry insider. Nigeria has lost so much resources to state-owned enterprises due to inefficiency and lack of resource optimisation. For example, four refineries are moribund, and they are all owned by the government and NNPC. As at this hour, they are all technically insolvent and financially bankrupt. They are all qualified for outright liquidation in other for the government to cut its continued losses from them.

I may at this point borrow the statement of Mallam El-Rufai, Governor of Kaduna, and who once said that, “if we don’t kill NNPC, NNPC will kill Nigeria.” This coronavirus will come and go, and Nigeria will settle down to sort out this monster called NNPC. NITEL and NEPA were once the big monsters in Nigeria, but today they have all been privatised for efficiency and resource optimisation.

I get the feeling that the downstream sector has suffered for so long from government’s ineptitude, how long do you think it will take to get it back up if full deregulation does happen?

The downstream sector will promptly adjust to the market realities if the government and NNPC decide to withdraw from their monopolistic role in the petroleum product import business. We have all lived in Nigeria and have seen how all government-owned enterprises could not deliver dividend to herself needless to mention the dividend or the common good to the Nigerian people.

A typical case in point is the NLNG project which is 51 per cent controlled by the IOCs and 49 per cent owned by Nigeria. The IOCs operates and manages NLNG and have consistently tried to deliver dividends. The same can be said of Eleme /Indorama petro-chemical complex in Port Harcourt; they have consistently delivered dividend as a privately owned and managed company.

The government through the NNPC hold between 10 and 15 per cent equity in the petro-chemical complex, but with handsome dividends every year, which they never got when Eleme was owned and managed by the NNPC.

This desperate and challenging period of Nigeria’s political and economic life must be used to take some drastic decisions that will set the country on a new path. The federal government must encourage the private sector to take lead in all spheres and field of the economy. The role of government is to make sure there is economic growth by providing fiscal incentives and deliberate concessions to catapult the private sector to a level that will allow them to return huge tax and dividend to the economy. That is the conventional economic cycle.

The refineries are still in mess. What should happen to them now that full deregulation is likely?

All the refineries should be returned to the National Council on Privatisation (NCP) and the Bureau of Public Enterprises (BPE) for privatisation by liquidation. That will put a stop to all the wastages in the last 25 years. It is time to cut that ‘cancer’.

Give me an idea of Nigeria’s situation in the global oil market now that the market is facing a double whammy from COVID-19 and seeming instability in OPEC?

This is a bad period for the whole world economy. We are faced with existential challenges and therefore oil and gas as a commodity becomes very unattractive and this is the reality. After the COVID-19 crisis, Nigeria along with other countries of the world, have to reset her developmental agenda which must focus on human capacity development – education, health, water, roads, electricity, deep seaports and railways.

Nigeria must embrace Public-Private Partnership (PPP) agenda, in order to fast track her growth. Nigeria must also, political y and constitutionally restructure to allow the local government and the state function as a true federal system. OPEC becomes more irrelevant by the day because every nation must try to chart her own new roadmap post Convid-19.

You’ve previously advocated that Nigeria should leave OPEC, do you still hold this view and why is it germane now?

Yes, I have. The realities have dawned more on Nigeria because the two major actors in OPEC – Saudi Arabia and Russia have no consideration for the Nigerian plight in this current crisis. From every indication, Saudi Arabia has 30 to 35 million people to cater for, with over 10 million barrels of crude oil supplied per day, while Nigeria, is struggling with 1.6 to two million barrels per day to cater for her 200 million people. Russia with about 82 to 85 million people, produces over 11 million barrels per day and has no any regret for crashing the price of oil.

So, in this case, Nigeria is now the ‘sandwich’, as the two elephants have trampled on us. I insist that as oil has become a commodity that is fading away like coal, Nigeria must re-examine her membership of OPEC in true economic sense. Even politically, what relevance do we enjoy in the OPEC; since America can deal with Saudi Arabia directly? With this new digital economy, Nigeria must restructure and re-align some of her old order institutions when the command era and big government was in vogue. Information superhighway has flattened out all those command era regimes.

For the NLNG, are there any serious impacts on its businesses from the current situation and by extension its Train-7 expansion plans?

Yes, there are. All projects world over are encumbered by this phenomenal act of God called COVID-19. You can today simply declare that there is a global force majeure because producers, suppliers, vendors and consumers are all open to the risk of the epidemic.

So, the NLNG project is just one out of many hundreds of such projects across the world and therefore it is unfortunate the Train-7 may again suffer a setback depending on how fast the world could get out of this pandemic. Again, the demand for natural gas today is almost stagnant as the world economy is on standstill.

Apart from the government’s latest announcements – the deregulation, what should Nigeria be doing now to minimise the pains that this virus will bring on her oil industry?

The federal government of Nigeria must as a matter of national urgency which is derived from the global urgency, set-up some think-tank to assist in managing the looming crisis from the COVID-19 pandemic. The think-tank is to work out prevention mechanisms and curative measures the country would adopt.

This I may imagine could involve the government inviting the Chinese to come and share their challenges and experiences as well as solutions used in the last two and a half months in their country to halt the spread of the virus. Because it is only China that has succeeded in working through the hell of the COVID-19 outbreak in Wuhan and today came out with minimal infection rates, Nigeria will need a group to get this engagement right in motion; even if we have to give our oil and gas in barter to get the best in terms of healthcare facilities and delivery from the Chinese.

Another thinking team that the government will need, to the best of my knowledge, is a team that will build the restructuring framework politically and economically because the current institutional framework in Nigeria cannot carry any rapid development. This may imply bringing back to the table, the 2014 CONFAB report for review and implementation.

I am praying fervently that the COVID-19 outbreak will not be widespread in Nigeria because we have no capacity in terms of hospital infrastructure, health workers and medicaments to contain such an outbreak. The government will have no choice in the next foreseeable future but to embrace all the private hospitals in Nigeria for this type of emergency management.

Since we did not build firefighting facility, when there is a fire as in this case of COVID-19 outbreak, it is difficult to build a firefighting station but instead, you go to those who have the facilities and use it to survive.

According to General Muhammed Buhari, in his 1983 military coup broadcast, “Nigerian hospitals were mere consulting clinics.” They haven’t changed and today President Muhammed Buhari, has seen those same hospitals in the last five years as mere mortuaries. This calls for a grave concern and the hard truth is that we have been doing somethings wrongly in Nigeria. It is time we embrace the best global practices in health sector development.

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