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N11tn Petrol Subsidy, Illogical

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  • N11tn Petrol Subsidy, Illogical

Terminally ill refineries, unsustainable imports, intermittent scarcity and a notoriously opaque accounting system; things might not get better anytime soon for Nigeria’s petroleum industry, let alone the economy.

It is why the Federal Government has spent more than N10 trillion on petrol subsidies in the past six years, the Senate recently stated as it approved another subsidy payment of N129 billion to 67 oil marketers. This is a wasteful hole that ought to be sealed swiftly.

In all, the Senate Committee on Downstream Petroleum Sector estimated that it cost Nigeria N11 trillion to fund petroleum subsidies in six years. For a major crude oil producer, this is an irrational economic model. Nonetheless, this is not new because the country’s refineries, with 445,000 barrels per day name-plate, have been obsolete for decades. In turn, the country has depended heavily on imports to sustain itself. How ridiculous.

Until the 1990s, the imports were minimal, but the refineries progressively degenerated due to mismanagement, cronyism and corruption. Predictably, massive imports ensued, which the Olusegun Obasanjo, the short-lived Umaru Yar’Adua and the Goodluck Jonathan administrations failed to tackle. Amidst all this, corruption and product scarcity thrived.

Undeniably, the sleazy bazaar reached its zenith on Jonathan’s watch. Import contracts were dished out to shell companies and the Peoples Democratic Party’s cronies. In one unforgettable episode, a committee discovered that the Accountant-General of the Federation’s office made 128 subsidy payments of N999.99 million in the space of 24 hours between January 12 and 13, 2011.

Subsequently, the number of petrol importers rose geometrically from 19 in 2008 to 140 in 2011. Most of the products were supplied only on paper; many importers got paid for products never imported. Products loaded in tankers did not reach their destination; others were smuggled to neighbouring countries. In total, the Jonathan government paid out N2.57 trillion as subsidies, 900 per cent more than the N245 billion in the budget. Bizarrely, that was half of the total federal budget for 2011. Rightly, when that administration raised petrol prices in January 2012, it triggered a backlash.

It is unfortunate that the Muhammadu Buhari government is enmeshed in the same subsidy folly in the guise of “under-recoveries.” On assuming power in 2015, the President had declared that he would stop petrol subsidies and rehabilitate the refineries. On both counts, he has failed woefully. This is incomprehensible: Buhari campaigned for office promising to enthrone financial rectitude; his experience as oil minister during Obasanjo’s military dictatorship in the late 1970s has been of no use.

These days, it is the public entity, the Nigerian National Petroleum Corporation, that shoulders the burden of importing petroleum products. Absurdly, the oil ministry regulates the price of petrol, capping it at N145 per litre though it has deregulated diesel imports. By fiat, the NNPC solely determines the quantity of petrol being consumed daily. This is anti-competition, locking out a chunk of business organisations in the downstream sector.

Moreover, it is subject to confusion and opacity. First, the NNPC labels whatever it spends on subsidies “under recovery” in an attempt to bypass scrutiny of subsidy payments by the National Assembly. This is a weird and illegal accounting system, which landed Jonathan’s administration in hot water in 2012. Second, Nigeria’s daily consumption has creased up astronomically. From about 35 million litres in 2011, the NNPC claims that Nigerians now consume over 53.2 million litres daily. This is suspicious. Instructively, the regulator of the downstream is also the sole importer.

In all this, the economy suffers profoundly. Too much money is being wasted on importing refined products and subsidy payments. That N11 trillion would have gone a long way in completing the 11,886 abandoned federal infrastructure projects compiled by the Presidential Projects Assessment Committee in 2011. There is yet the issue of agonising periodic scarcity. Unwittingly, the regulator has excluded the investors who would have built their own profit-making refineries. This is wrong.

In other oil producing countries, high premium is attached to refining for domestic consumption and exports. Aiming to double its refining capacity, Angola’s Sonangol has recently signed a partnership with an independent, United Shine, to construct a-60,000 barrels per day refinery in its Cabinda province. In 2013, Singapore (which produces very little crude), was refining 1.1 million barrels per day, stated the Organisation of Petroleum Exporting Countries. Indeed, OPEC estimates that by 2021, refining by member countries of Kuwait, Saudi, Venezuela, Ecuador, Angola, Iran, Algeria and the UAE will reach 13.3 million barrels per day with an investment profile of $66.5 billion.

In contrast, Nigeria’s four moribund refining entities run at a loss, with scant hope of resuscitation. This is illogical. An NNPC report stated that in Buhari’s first term, the refineries lost over N231 billion. A note by BudgIT, a non-profit, estimated in its “Inside Nigeria’s Local Refineries” report that the refineries incurred a combined loss of N159 billion in 2018, with capacity utilisation at a mere 8.6 per cent. This is not a business model that can succeed, which should provoke serious thinking in the Buhari government.

To show seriousness, Buhari should end the conflict of interest in the industry. Henceforth, the President should cease to be the oil minister. The Petroleum Resources Minister, who also heads the NNPC board, should not head the boards of other agencies under the NNPC. This way, these other agencies can act independently.

Crucially, Buhari should privatise the refineries. Holding on to them is a massive disservice to the national economy. Shell Petroleum constructed the first refinery in partnership with the government. Using this model, the Buhari government can enter into partnerships with the oil majors to build new refineries. With a modern rail network, products can be transported to all parts of the country. At the same time, this policy will encourage those acquiring licences to begin work on their refineries and save the economy from ruin.

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.

Energy

How Nigeria’s National Power Grid Collapsed Ten Times Within 9 Months 

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The national power grid has again collapsed, leaving many Nigerians in total darkness.

Investors King can authoritatively report that this is the tenth time the power grid will be disrupted this year alone.

For this recent collapse, the grid, reportedly lost power generation around 1:39 pm on Tuesday.

Information revealed that power generation was 2,711 megawatts as of 1:00 pm, having previously peaked at 3,631 MW.

Earlier, power generation peaked at 3,934.77 MW around six o’clock in the morning.

However, between 2 pm and 3 pm, hourly generation dropped to 0.00 MW.

The Transmission Company of Nigeria confirmed that the national grid experienced a partial disturbance at about 1:52 pm on Tuesday, 5th November 2024.

TCN spokesperson Ndidi Mbah mentioned that the recent collapse was due to a series of line and generator trippings that caused instability in the grid and, consequently, the partial disturbance of the system.

Mbah pointed out that data from the National Control Centre revealed that a part of the grid was not affected by the bulk power disruption.

TCN however indicated that work work is in progress to restore power.

She explained that engineers are already working to quickly restore bulk power supply to the states affected by the “partial disturbance.”

Mbah noted that presently, bulk power supply has been restored to Abuja at 2:49 pm, maintaining that “we are gradually restoring it to other parts of the country.”

She apologized to Nigerians for whatever inconvenience the collapse might have caused.

Findings by Investors King revealed that the grid had collapsed at ten different times between March and November, this year.

Times the grid collapsed included February 4, March 28, April 15, July 16, two times in August 5, October 14, October 15, twice in October 19 and now today, November 5.

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Energy

Darkness Falls Again: TCN Explains Latest National Grid Collapse

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The Transmission Company of Nigeria (TCN) has provided an explanation for the latest National Grid collapse, which occurred on Tuesday, November 5.

Tuesday’s collapse, marking the 10th in 2024 alone, left Nigerians in total darkness.

Recall that the National Grid collapsed twice in October, sparking concerns among Nigerians.

Reacting to the latest collapse via a statement on Tuesday, the General Manager of TCN Public Affairs, Ndidi Mbah, disclosed that the collapse happened at 1:52 pm.

The GM revealed that the grid collapse was caused by line and generator trippings.

Mrs. Mbah said, “TCN states that the national grid experienced a partial disturbance at about 1:52 pm today, 5th November 2024.

“This followed a series of line and generator trippings that caused instability in the grid and, consequently, the partial disturbance of the system.

Data from the National Control Centre (NCC) revealed that a part of the grid was not affected by the bulk power disruption.

Mbah disclosed that operators are working to restore power in affected states, adding that power was restored in Abuja.

She explained, “TCN engineers are already working to quickly restore bulk power supply to the states affected by the partial disturbance. Presently, bulk power supply has been restored to Abuja at 2:49 pm, and we are gradually restoring power to other parts of the country.”

Apologizing to Nigerians, TCN said, “We sincerely apologize for any inconvenience this may cause our electricity customers.”

Investors King, in an earlier report, revealed that in an attempt to address the persistent collapse of the national grid, the Nigerian Electricity Regulatory Commission (NERC) announced that discussions were underway with Independent Operators to take over the management of the grid.

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Energy

Nigeria Partners with ECOWAS and Morocco to Launch $26B African Gas Pipeline

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The Nigerian government, in partnership with the Economic Community of West African States (ECOWAS), Morocco, and Mauritania, has announced plans to advance the $26 billion African Atlantic Gas Pipeline project to drive economic growth across Africa.

This development was revealed on Monday, November 5, by Mele Kyari, Group Chief Executive Officer of the Nigerian National Petroleum Company Limited (NNPCL), at the ECOWAS Inter-Ministerial Meeting on the Nigeria-Morocco Gas Pipeline Project.

Speaking at the meeting, which was attended by ECOWAS Ministers of Hydrocarbons and Energy as well as representatives from Morocco and Mauritania, Kyari stated that, once completed, the project will connect 13 African countries.

Represented by Olalekan Ogunleye, NNPC’s Executive Vice President for Gas Power & New Energy, Kyari said this will be Africa’s largest pipeline project.

Ogunleye confirmed that progress has been made with the front-end engineering design completed, the phase two study finalized, and work ongoing for environmental and social impact assessments as well as land acquisition and resettlement.

He emphasized NNPC’s readiness to execute the project: “Today, we come together to make significant progress in the African Atlantic gas pipeline project, which is a transformative initiative connecting at least 13 African nations in shared prosperity and development. These achievements underscore our capability to deliver this landmark project, supported by strong regional collaboration.”

Ekperikpe Ekpo, Minister of State for Petroleum Resources (Gas), described the project as a game-changer for the regional economy, stating, “We stand at a critical juncture where these agreements can reshape our energy landscape, strengthen our economies, and uplift our people.”

He also highlighted that the project will increase Africa’s presence in the global gas market, noting that “the agreements demonstrate a strong commitment to advancing hydrocarbon and energy trade across ECOWAS, enhancing access to natural gas in West Africa, and expanding Africa’s global footprint in the gas market.”

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