Petrol: Subsidy Removal Extension Provides New Investment Opportunities- Stakeholders

For marketers and potential investors in the midstream and downstream oil and gas sectors, the decision to tarry a little with the removal of the petrol subsidy shows some sensitivity on the part of Government which may have considered proposals forwarded by key marketers which included proposals for intended investments in the industry.

From indications Nigeria may extend the costly fuel subsidy beyond June but the Government will work with president-elect Bola Tinubu’s representatives to decide when exactly it will be scrapped, Finance Minister Zainab Ahmed said on Thursday.

Tinubu, who won the disputed February presidential election, is due to be sworn into office on May 29.

He has made ending the petrol subsidy, which cost $10 billion last year, one of his priorities.

In the 2023 budget, the subsidy was to end in June, but Ahmed said the Petroleum Industry Act could be amended to allow it to continue during the transition to a new government.

“It is not going to be removed now. It won’t be removed before the transition is completed,” Ahmed told reporters.

“We are going to work with the representatives of the incoming government to have a clear defined time plan that will take us towards the removal.”

The fuel subsidy is a politically sensitive issue for Africa’s biggest crude producer. Nigeria imports most of its refined petroleum products but has been trying to revive its moribund refineries.

According to Dr. Muda Yusuf, Chief Executive Officer, of the Center For The Promotion Of Private Enterprise, CPPE, All matters relating to petrol subsidy removal should be left for the incoming administration to handle.

According to Yusuf, This should be the default position since the current government has announced a budgetary provision for fuel subsidy up till June 2023. This is also the position of the Petroleum industry Act as amended. Rather than stir another round of controversy and confusion, the matter ought to be left for the new administration. The NEC announcement was really unnecessary.

He said, “My expectation is that the new administration should have its strategy of managing the policy transition. This should not be preempted by the current administration. The National Economic Council should avoid making policy pronouncement that may create problems for the new administration.

“I also expect that some level of informal consultation should have commenced between the transition team of the incoming administration and key stakeholders on the matter.

“The APC had categorically stated that it would remove petrol subsidy on assumption of office. Although it had not unveiled its strategy of doing so.”

The National President of the Independent Petroleum Marketers Association of Nigeria (IPMAN), Elder Chinedu Okoronkwo told Oriental News Nigeria that the Association has reasoned that hasty removal of the subsidy will bring more hardship to Nigerians.

Okoronkwo said that IPMAN’s position seeking investment in the Compressed Natural Gas, CNG, space to provide alternative to petrol in the event of subsidy withdrawal.

The IPMAN had written to the Federal Government seeking for access to the N250 billion intervention fund for the National Gas Expansion Programme.

IPMAN, in a letter dated April 3, 2023, requested that the government should urge the Central Bank of Nigeria (CBN) to release the N250 billion as loans to vehicle owners.

The oil marketers said the N250 billion can be used by car, tricycle and truck owners to convert to gas due to the projected hike in Premium Motor Spirit (PMS) after the proposed subsidy removal.

Okoronkwo noted that the proposed removal of subsidy has been projected to raise the cost of petrol, significantly above the current pump price.

Okoronkwo, said that aside from the N250 billion intervention fund request to help cushion the impact of removing the subsidy, the IPMAN, has entered into partnership with Gas Analytics & Solutions Ltd to locate natural gas dispensers at over 30,000 filling stations in Nigeria.

He said, “Our partners, Gas Analytics & Solutions Ltd, have an agreement with the independent Petroleum Marketers Association of Nigeria to co-locate natural gas dispensers on our network of over 30,000 filling stations in Nigeria.

“This collaboration with IPMAN presents the most economic and expedient platform to deploy the necessary infrastructure to support a fast national roll-out of CNG (Compressed Natural Gas) for vehicles,”

“What is left is the support of the Central Bank of Nigeria to provide access to the Gas Expansion Fund for vehicles, Keke, and truck owners to access loans to finance the acquisition of natural gas conversion kits.” Okoronkwo said.

The conversion to gas will increase demands that will enable oil marketers to set up more Compressed Natural Gas across filling stations.

He explained that: “Without a large pool of CNG customers, IPMAN will not be able to raise the funds required to set up CNG filling stations.

“We believe that with the support of the Ministry of Finance, IPMAN’s partnership with Gas Analytics will provide a platform that can in a matter of a few months cushion the impact of petrol subsidy removal and significantly reduce the need for foreign exchange to import petrol” he added.

Speaking to Oriental News Nigeria, also the National President of thenOutlets Owners Association of Nigeria, PETROAN, Billy Gillis-Harry, explained that stakeholders have called for all engaging meetings to exchange ideas and make positive projections on investment opportunities, share data on gaps before actions are taken.

He said moreover, there is no Minister of state to further hold conversations with industry operators at this critical stage as president Muhammadu Buhari who holds the substantive ministerial portfolio is busy presently.

“I think this is quite encouraging because we as stakeholders have made recommendations as to how we can create investment opportunities in the sector and ensure implementation of the Petroleum Industry Act.

“We should be able to create a clement environment for businesses and also protect consumers interest in all we are doing. I think this decision is based on various submissions made recently and we need to provide informations that will guide in-coming administration to adopt an articulated phased action and we should do this with all stakeholders including the labour unions’ he said.

Already, many companies in the downstream sector are targeting investment that will deliver more Liquified Petroleum Gas, LPG that serves dual purpose as automotive and cooking fuel and Compressed Natural Gas, CNG, that will serve as alternative to petrol.

At the moment the Nigerian Independent Petroleum Company Plc (NIPCO), has invested over $100 million on gas infrastructure across the country.

Spokesman of the firm Taofeek Lawal, confirmed that the firm is deepening its investment in the gas sector in line with its aspiration to play a pivotal role therein.

Lawal, said though the key challenge here remains dearth of infrastructure, the company sees huge revenue potential in the CNG investment as petrol subsidy withdrawal may push the product price up to about N400 per liter.

On the other hand he said CNG presently costs about N120 a liter for vehicles while industrial users pay just about N130 a liter.

“Aside constraints with regard to conversion kit of about N200,000-N250,000 for cars the cost of using CNG is very economical and should be encouraged” he said.

He, said the company also considers the huge investment in order to support the Federal Government’s ambitious ‘Decade of Gas’ initiative.

The company has also increased market leadership in the country, adding that Compressed Natural Gas and Auto Compressed Natural Gas are bound to be a preferred fuel of choice due to safety, environment, economic and abundant availability reasons in Nigeria, as the country gears up to do away with fuel subsidy.

According to him, the number of vehicles running on Compressed Natural Gas (CNG) in Nigeria has grown to 7,000,adding that the company will not rest in multiplying this number in no distant future.

The company started the CNG operations in 2009 in Benin City by providing natural gas to Industries by way of Piped Natural Gas and Compressed Natural Gas to automobiles by way of AutoGas (AutoCNG). NIPCO Gas is the pioneer company in CNG distribution in Nigeria.

Presently, NIPCO Gas operates 12 CNG stations in Edo, Kogi, Delta, Ogun state, and Abuja. Four CNG stations are under various stages of construction and approval in Oyo, Lagos, Akwa Ibom state, and Abuja FCT, Lawal said.

He said these CNG stations cater for Auto Gas requirement of vehicles, providing a cleaner, safer, economical, proven and indigenous fuel.

He added; “NIPCO Gas operates approximately. 40 kilometres of pipeline network in Benin city and approximately 50 km pipeline network on Lagos lbadan expressway and energies industries for their power requirements by way of providing piped natural gas (PNG).

Also, Hyde Energy Limited, and indigenous oil and gas company, is equally making fresh investment in the midstream sub-sector of the industrial specifically targeting expansion in the Liquified Natural Gas, chain.

The company revealed it has made significant achievements in the LPG market and is keying into federal government’s decade of gas initiative.

The Chief Executive of Hyde Energy, Olademeji Edwards while providing information on the intended investment, said the firm has made reasonable contributions to the country by assisting local businesses to convert from charcoal to LPG.

Hyde Energy is also expanding its LPG operations to capitalise on massive potentials in the Nigerian market. It has built trusted reputation in the global, regional and national wholesale LPG markets.

Hyde Energy operates across the value chain of the energy industry. The company deals with the importation of petroleum products including Premium Motor Spirit, PMS, Gasoil, Dual Purpose Kerosene, DPK, Jet Fuel, Liquified Petroleum Gas, LPG, automotive lubricants and Naphtha.

Oladimeji said, “In our Nigerian home market, we have established Hyde retail stations, launched a comprehensive range of Hyde Energy branded lubricants and developed an end-to-end Liquefied Petroleum Gas (LPG) distribution system. Through excellence – our guiding light – the Hyde Energy management team, is building a truly global oil and commodities business. In doing so, we are helping balance global supply and demand with the needs of the developed and emerging economies we serve.

“Bear in mind that that is one of the challenges of LPG in the market today because 50 to 55 per cent of LPG consumed in the country today is still being imported. So there is a foreign exchange component in that mix. Those are the things the incoming government has to manage especially as far as the economy is concerned. If they are able to reduce the cost of the dollar, you will see that it will reflect on the pump price.

He said the company is poised to penetrate the Lagos and south West markets with its quality products and brands, having made inroads in some other zones of the country.

He also spoke on subsidy removal.

He said, “Subsidy removal has been a 20-year-old conversation and there are no ifs but or maybe on the removal of subsidy. Unfortunately, we missed several opportunities in which subsidies would have been removed and where the cushion on the increased price would have been easy on Nigerians. That has come and come especially during the pandemic when the crude oil prices were low and we would have enjoyed a period of low petrol prices. It is inevitable.

“The challenges the country has are the absolute price of oil and the exchange rate. As long as you have high oil prices and a weak naira, the price of petrol pump price will be relatively high. But as investments are happening in the country and there is an increase in the Naira, we expect the value of the naira to go up and ultimately, that should ultimately affect the price.

(c) Oriental News

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