‘How government can stop wasting trillions on fuel importation’
• Stakeholders warn of forex scarcity, increased debt burden
• CBN retains 65% loan-to-deposit ratio policy for banks
Nigeria last year spent a whopping N3trillion importing about 18 billion litres of Premium Motor Spirit (PMS) popularly called petrol, the Petroleum Products Pricing Regulatory Agency (PPPRA) disclosed yesterday.
This revelation however has irked some stakeholders who criticised the poor state of the country’s refineries and the absence of modular refineries. They also decried the impact of the situation on Nigeria’s fragile economy, urging government to stop the payment of subsidy and muster the political will to rehabilitate the refineries.
PPPRA Executive Secretary Abdulkadir Saidu had said in Abuja that the total quantity of PMS supplied across the nation from January to November 2019 was 18,623,992,092 litres and the PMS average sufficiency stood at 40.68 days.
He said 1,612 vessels laden with different petroleum products docked on Nigerian waters in 2019. A breakdown of marketers’ performance shows that the Nigerian National Petroleum Corporation (NNPC) was responsible for 99.61 per cent of the total 19,175,737,226 litres of petrol imported while Major Oil Marketers of Nigeria (MOMAN) imported 0.39 per in 2019. Only 166,332,185 litres of PMS were produced locally during year.
Going by the open market price of N174.81 kobo per litre published on the agency’s website, the importation amounts to about 30 per cent of the nation’s N10.59 trillion 2020 budget.
Considering that the total budgeted oil revenue for 2019 was N3.73tn, oil and gas expert, Michael Faniran, regretted that the cost of petrol importation has almost wiped off the nation’s crude oil revenue. “At the official exchange rate of N305, the N3tn spent on importing PMS is about $9.9bn. This puts so much pressure on our forex demand and ultimately the exchange rate of the naira to a dollar,” Faniran said.
According to him, Nigeria’s contribution to the economy of the countries where refineries are located is more significant than her total capital expenditure of N2.03tn for the same period. “Nigeria has no choice but to increase her local refining capacity to confront this scourge,” he added.
Sunny Eromosele, chief executive officer of Mudiame International Limited and Mudiame Welding Institute Limited, asked the Federal Government to account for progress on local refineries, noting that product importation shames the image of an administration that claims it is focused on localisation.
“Five years is gone. Where are the refineries that the government promised? The modular refineries are nowhere. Depending on Dangote refinery will only create monopoly,” he warned, saying the current situation depletes the nation’s resources, drains foreign reserves, cripples government’s capacity to implement capital projects and increases the debt burden.
A former president of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), Peter Esele, cautioned Nigeria to brace up for challenges that may come in the course of the year as the country struggles to strike a balance between maintaining fuel subsidy and deregulating the downstream sector.
“Subsidy is likely to come up this year because government finances are going to come under severe pressure. So, government will spend huge sums of money on debt re-payment and funding of fuel subsidy this year. The implementation of minimum wage will also be a challenge especially at the state level. The volatility of the prices of crude oil is likely to continue, which is going to be a threat to our budget benchmark. If the price of crude oil is too high, that will lead to huge subsidy payment and if the price is too low, the amount of money that will be available to government will be small. So, both ways, the country and labour unions have a year that will witness huge challenges for the working class of Nigeria.”
The Managing Partner, The Chancery Associates, Emeka Okwuosa, noted that the inability to refine products in Nigeria would continue to affect the country negatively. He was however hopeful the situation could improve if Dangote refinery comes on stream soon.
He maintained that it is shameful for an oil-producing country like Nigeria to stick to fuel importation. “I hope the Federal Government can address the issue holistically by passing the Petroleum Industry Bill, encouraging more private refineries to come on board and encouraging investments in the oil and gas sector,” Okwuosa stated.
An economist and Dean, College of Postgraduate Studies, Caleb University, Segun Ajibola, said: “N3trillion expenditure on PMS in one year is a humongous figure, given the size of Nigeria’s annual budget and GDP.” He advised that the only way out is to complete the turnaround maintenance of the local refineries and make them operational at full capacity to meet local demand.
“For that to work, it would only require fiscal discipline, prudence and accountability and the will to clip the wings of the economic rent seekers, while looking forward to Dangote refinery to correct the state of disequilibrium in the downstream sector of the oil industry,” he noted.
The Central Bank of Nigeria (CBN), meanwhile, has retained its 65 per cent Loan-to-Deposit Ratio (LDR) policy for the nation’s banking industry.
The decision, which the apex bank described as “interim”, was however contrary to expectations of an announcement of additional five per cent increase to the subsisting 65 per cent Loan-to-Deposit Ratio (LDR) earlier proposed.
The LDR policy is used to assess banks’ liquidity, comparing their total loans against total deposits within a particular period. Nigeria’s financial institutions have been compelled to lend 65 per cent of their total deposits.
The policy attaches great importance to lending to small businesses, retail, mortgage and consumers, while failure to meet the target continues to attract a levy of additional Cash Reserve Requirement of 50 per cent of the shortfall on or before March 31, 2020.
In the circular by CBN’s Director of Banking Supervision, Ahmad Abdullahi, the apex bank further advised financial institutions to maintain strong risk management practices regarding their lending operations, as there would be the monitoring of compliance, review of market development and possible further alterations.
The CBN move – initiated to push banks to be innovative in credit creation, support small businesses and wean them off the risk-free government security – is currently yielding results, as an increase of about N1.16 trillion has been recorded since May 2019.