Fuel subsidy retention will aid corruption in the downstream sector- George Etomi & Partners’ Q3 report
The Federal Government’s decision to retain payment of fuel subsidy for another eighteen(18) months has been faulted as a major impetus that will sustain corruption in the downstream sector.
This was part of the views expressed by George Etomi & Partners Editorial team in its Energy Focus Report for First Quarter 2022 exclusively obtained by EnergyDay.
It would be recalled that the Petroleum Industry Bill – now Petroleum Industry Act, was passed into law on 16 August 2021 to tackle the long-standing concerns of corrupt practices and lack of transparency in the Nigerian Oil and Gas industry.
According to the report, the major effect of the extension of the subsidy regime will mean that the downstream sector will not be deregulated and open to full commercialization or privatization.
The report said subsidy retention would in effect derail the purpose of the Petroleum Industry Act(PIA). Recall that President Buhari recently got the approval of the National Assembly to increase the estimated provision for Premium Motor Spirit (PMS) subsidy for the year 2022 by N442.72billion. An increase from a previous level of N3.557trillion to N4 Trillion.
The report says, “it is pertinent to note that the subsidy removal was to take place on February 16, 2022. However, due to wide consultations, with key stakeholders especially economists, an amendment was proposed for the statutory period to be extended to eighteen (18) months as against the initial six (6) months stated under the PIA.
“The aim of the proposed extension is to ensure that the effects of the removal of fuel subsidy is sufficiently mitigated within a time frame when all necessary infrastructure is put in place to cushion the likely negative impacts the removal will cause on Nigerians, especially the most vulnerable.
“Furthermore, the Minister of Finance, Budget and National Planning stated that the extension of the statutory period is necessary due to inflation, as the removal of fuel subsidy at this time will be extremely disadvantageous to the economy.
“It is important to note that there will be implications for the extension of the removal of fuel subsidy as against the timeline stated under the PIA. The major effect of the extension will mean that the downstream sector will not be deregulated and open to full commercialization or privatization, in effect, derailing the purpose of the PIA.
“On the other hand, the extension was recommended by economists who are of the view that the Nigerian economy is not ready for the removal of fuel subsidy. Economists added that the removal of the fuel subsidy in line with the dictates of the PIA will lead to suffering imposed on the average Nigerian, due to the likely negative effects the removal would cause.
“Although, the points stated by economists are valid, it is imperative to note that worldwide, where commercialization occurs, it is expected that there will be an outcry.
“Consequently, it is only expected that there will be an outcry at whatever point deregulation occurs. Additionally, the non-removal of fuel subsidy aids corruption as fuel subsidy is a front-cover for corruption. On that basis, it would seem beneficial to undertake the removal of fuel subsidy now, in line with the dictates of the PIA.
“The Government is veering towards undertaking a phased deregulation to reduce the impact an outright deregulation will cause on the masses. This approach is commendable, however, is the phased approach the best approach to go now, considering the fact that inflation is rising, and will be at an all-time high due to the current international issues on ground and oil prices? Ultimately, if inflation was not an issue the phased approach proposed by the Government is not an entirely bad approach, but as it stands now, the effect of a phased deregulation will heavily impact the masses given the rate of inflation. The report further recommended that the Government adopt the phased approach rather than extend the period of implementing the removal of fuel subsidy.
The amendments of the administrative structure of NUPRC, NMDPRA established under the PIA
Speaking on the proposed amendment of the administrative structure of the regulatory authorities under the PIA, Etomi & Partner said the proposals if accented will have a positive impact on the Nigerian oil industry.
The report recommended that prompt steps be taken to actualize the amendment of the PIA to ensure national balance in the Board composition of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the Nigerian Midstream and Downstream Petroleum Regulatory Authority(NMDPRA)
The Report said it expects that between Q2-Q4 of 2022, the PIA (Amendment) bill, will be passed by President Buhari .
It said, “We expect that the increase in the number of Board members of the regulatory authorities will foster national unity, provide a balanced geopolitical representation and inclusion in policy development and decision making.
Gas Pricing Regulation
In its view on the Gas pricing regulation, the Report said NMDPRA is expected to exercise powers conferred by section 33 of the PIA on it to introduce the gas pricing.
The regulation according to the reports focused on the quality specifications of marketable natural gas; regulates the marketable natural gas prices for strategic sectors e.g. power sector ; provides the gas pricing classification; provides gas pricing for retail gas customers.
This, according to the Report, will regulate the marketable natural gas prices of the strategic sectors which are regulated under the PIA and shall regulate the unregulated markets for natural gas.
Domestic Gas Delivery Obligations Regulations
The Energy Focus Report said that the Nigerian Upstream Regulatory Commission (NURPC) on 9 February, 2022 introduced the Domestic Gas Delivery Obligations Regulation.
The introduction of this regulation by the NURPC, is in line with powers conferred on it by section 4(3) of the PIA.
The Report said it is hopeful that the regulation will determine and enforce the domestic gas delivery obligations and ensure gas availability for power generation and industrialization, which in turn will improve economic development.