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Fuel Subsidy Removal Will Reduce Fiscal Burden by 8%

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Petrol
  • Fuel Subsidy Removal Will Reduce Fiscal Burden by 8%

As the debate over fuel subsidy removal rages on, the latest economic bulletin of Financial Derivatives Limited has revealed that the country’s fiscal burden will reduce by eight per cent if it stops subsidising petrol.

The federal government had Thursday said it was yet to devise a workable formula for the removal of fuel subsidy.

Minister of Finance, Mrs. Zainab Ahmed, who said this, added that the removal of subsidy would have negative effect on vulnerable Nigerians.

She said this few days after the International Monetary Fund (IMF) had advised Nigeria to remove fuel subsidy and channel the funds spent on subsidy to the health and education sectors.

The Minister of State for Petroleum, Dr. Ibe Kachikwu, recently disclosed that the landing cost of petrol was N180 per litre and the amount spent on subsidy daily was put at N1.86 billion.

But the Lagos-based financial advisory and investment firm in the report stressed that although subsidy removal was not without its costs, the potential benefit far outweighs its cost.

It stated that subsidy savings could be utilised in the provision of essential social needs such as access to free education and quality healthcare services.

These services, according to the report, are crucial to the improvement of living standard and the quality of life of the average Nigerian.

It stated: “More importantly is the reduction in the fiscal burden by at least eight per cent. Economic prudence, which emphasises the need to be discerning and forward-looking, has been the clamour for pro-subsidy advocates like the IMF.

“The fund is now sounding like a broken record on the call for the removal of subsidies. In the last three decades, it has become a vicious cycle – IMF recommendation on subsidy removal, followed by fuel queues, adjustment and in some cases the IMF is ignored and then intended and unintended consequences that follow.”

Nevertheless, while it reiterated that subsidy was not disdained in itself, it noted that its abuse and inefficient administration of the incentive, “has made it a fraud that must be checked.”

The Petroleum Products Pricing Regulatory Agency (PPPRA) had disclosed that Nigeria’s daily consumption increased by two million litres to 56 million litres in 2019.

This was a 22 per cent surge over 2017 daily consumption of 46 million litres.
This increase, according to the report, was largely not in line with “our consumption pattern during the time.”

“There has been a drastic decline in the importation of new cars over the period due to high import duties and levies. “Similarly, the increased traction of diesel engine vehicles and other modes of transportation such as air, water and rail, also do not support the supposed rapid growth in daily fuel consumption.

“Another bane of fuel subsidy is the arbitrage and smuggling opportunities across national borders. This means the Nigerian government is indirectly subsidising the petrol consumption of some neighbouring countries and it could justify the increase in consumption over the last three years,” it added.

Furthermore, the report noted that the impending expenditure cut from the removal of fuel subsidies would free up resources to embark on other social safety nets. But, it pointed out that the fact that there are no guarantees that these savings would be used to improve the quality of life of the economically vulnerable affects the case for subsidy removal.

“Reduction of other subsidies will aid fiscal consolidation. Fuel subsidy is not the only item that needs to be priced efficiently.

“The government also needs to allow for efficient resource allocation in the power sector and foreign exchange market. “Resource allocation through the interplay of market forces (demand and supply) limits market distortions. The adoption of cost reflective electricity tariffs will help address the power sector’s liquidity issues, improve the capacity of players across the power value chain and eventually output.

“Similarly, the gradual convergence of exchange rates will also ease pressure on external reserves, improve transparency and bolster confidence in the forex market.

“The reality is that petrol subsidies are being abused and ripping off the people who are the victims of inefficiency and fraud.

“Therefore, it is necessary to change the template and tie it to parameters – mainly the price of crude oil, the exchange rate and other costs metrics,” it added.

Is the CEO and Founder of Investors King Limited. He is a seasoned foreign exchange research analyst and a published author on Yahoo Finance, Business Insider, Nasdaq, Entrepreneur.com, Investorplace, and other prominent platforms. With over two decades of experience in global financial markets, Olukoya is well-recognized in the industry.

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Oando Targets 100,000 Barrels Per Day Production by 2028

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Oando Plc

Nigerian energy company Oando is targeting a production of 100,000 barrels per day by 2028, following its acquisition of Eni’s Nigerian Agip Oil Company (NAOC) earlier this year.

This was disclosed by Oando Executive Director Alex Irune during an exclusive Fireside Chat at the ongoing African Energy Week: Invest in African Energies conference with Bloomberg News Correspondent Jennifer Zabasajja.

He shared the company’s future expansion plans and role in Nigeria’s energy transition and plans by the company to contribute to the 2 million barrels per day.

Mr Irune also highlighted the growing role of indigenous firms in the sector, particularly as international oil companies (IOCs) divest from onshore and shallow water assets.

“In the space of 24 months, you’re going to see about 60 percent-70 percent [of Nigeria’s production] by indigenous players, just based on the transition of IOCs to the deep offshore and the acquisitions we have seen, whether it’s Seplat, our deal or the ongoing Renaissance deal,” he said.

He also revealed that Oando is focused on maximizing the development of assets acquired through its deal, which increased its stake in OMLs 60, 61, 62 and 63 to 40 percent and nearly doubled its reserves to one billion barrels of oil equivalent.

The company’s ownership in NAOC’s joint venture assets will also grow, including 40 oil and gas fields, 12 production stations, and key infrastructure including pipelines, processing plants and the Brass River Oil Terminal.

He also noted that Oando remains open to future mergers and acquisitions across the continent.

“We’re always looking to do a deal. We stay where we have a comparative advantage, but we don’t rule out any markets. Nigeria is the first place we look – we have an immense amount of potential. As a leading energy company, we owe it to the country to reach that potential.”

Mr Irune also discussed the role of Nigeria’s Petroleum Industry Act (PIA) in strengthening the investment case, particularly for gas in Nigeria and fostering industry synergies.

The Oando-NAOC deal was the first M&A transaction following the PIA’s implementation and the company plans to leverage the deal to boost oil and gas production, with a view to supporting Nigeria’s energy transition in the future.

“In the immediate term, our focus is on producing every drop of oil we can to be able to fund that transition journey. We will use gas as a transition fuel – our assets are largely gas assets as a company, and Nigeria is largely a gas province as a country.”

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Alleged Bankruptcy: AMCON Withdrawals Case Against Dapo Abiodun’s Petroleum Company

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Asset Management Corporation of Nigeria (AMCON) has said it has withdrawn the case it instituted against Heyden Petroleum Limited.

The Corporation had approached the Lagos Division of the Federal High Court and prayed for the court’s approval to takeover Heyden Petroleum Limited owned by the Ogun State Governor, Dapo Abiodun.

AMCON had accused the company of bankruptcy, saying it was moving to acquire it in order to save it from further risk.

The presiding judge of the Federal High Court, Justice Ambrose Lewis-Allagoa had, after reviewing AMCON’s motion and supporting documents, agreed with it and ordered an interim takeover of the petroleum company.

Meanwhile, in a swift reversal, AMCON, in a statement issued by its Head of Corporate Communications, Jude Nwauzor, disclosed that the Asset Management Corporation had discontinued the matter, noting that “AMCON is not in dispute with Heyden Petroleum.”

Nwauzor said, “Our attention has been drawn to a publication in the media regarding to the pending litigation between the Asset Management Corporation of Nigeria (AMCON) and Heyden Petroleum Limited

“We hereby notify the general public that AMCON and Heyden Petroleum Limited have settled all issues between them amicably, and Heyden Petroleum Limited has demonstrated commitment to meeting their obligations and has been making payments accordingly.

“Given this latest development, AMCON has formally discontinued its pending litigation against Heyden Petroleum Limited, particularly Suit No. FHC/AMC/67/2024.

“As a responsible debt recovery agency of the Federal Government of Nigeria, it is not the practice of AMCON to engage in a media trial of obligors who are meeting their obligation. Accordingly, the general public is urged to disregard any negative commentaries on the relationship between AMCON and Heyden Petroleum Limited.”

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N1.3bn Fraud Allegation: Court Orders Arrest of Dana Air MD For Not Showing Up For Arraignment

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Mr. Hathiramani Ranesh

A Federal High Court in Abuja has ordered the arrest of the Managing Director of Dana Air, Mr. Hathiramani Ranesh for failing to appear in court for his arraignment in the alleged N1.3 billion fraud preferred against him by the Office of the Attorney-General of Federation (AGF).

The Federal Government had on October 10, 2024, asked the court to issue a bench warrant for the arrest of Dana Air after failing to honour invitation for his arraignment.

The AGF had filed a six-count charge against Ranesh and two others and marked Dana Group PLC and Dana Steel Ltd as the 2nd and 3rd defendants, respectively.

The prosecution argued that Ranesh and the two companies, along with others still at large, committed a felony between September and December 2018 at the DANA Steel Rolling Factory in Katsina.

They were accused of conspiring to remove, convert, and sell four units of industrial generators—three units Ht of 9,000 KVA and one unit of 1,000 KVA—valued at over N450 million. These assets were reportedly part of the Deed of Asset Debenture used as collateral for a bond, which remains valid.

The defendants and others at large were said to have conspired to fraudulently divert N864 million between April 7th and 8th, 2014, at House No. 116, Oshodi-Apapa Expressway, Isolo-Lagos.

This sum, reportedly part of the bond proceeds from Ecobank intended for revitalizing production at Dana Steel Rolling Factory in Katsina, was allegedly diverted for unauthorized purposes.

They were also accused of conspiring to transfer N60,300,000 to an Atlantic Shrimpers account (No: 0001633175) at Access Bank, fraudulently diverting funds earmarked as part of the Ecobank bond proceeds for resuming production at the Katsina factory.

The cumulative amount involved in the charge totals N1,374,300,000. Each offense is said to be contrary to and punishable under Section 516 of the Criminal Code Act, Laws of the Federation of Nigeria, 2004.

After Mojisola-Okeya Esho, counsel to the Federal Government, had requested for bench warrant to be issued against Ranesh, the defence lawyer, B. Ademola-Bello, disagreed with Esho, saying that they had filed a preliminary objection challenging the jurisdiction of the court to hear the matter and that the prosecution had already been served.

Delivering ruling on the application, Justice Obiora Egwuatu, agreed with Esho that Ranesh’s arrest was necessary due to his failure to appear in court despite being served with the charge and several proceedings having taken place.

Justice Egwuatu held that, according to Section 184 of the Administration of Criminal Justice Act (ACJA), 2015, the court has the authority to issue an arrest warrant against any defendant who fails to attend court sessions.

Egwuatu ordered that Ranesh must appear before the court on January 13, 2025, before any objections can be raised.

Consequently, he adjourned the matter till January 13, 2025, for hearing.

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