Nigeria to begin fresh subsidy on transportation of gas products, despite N10.7trn spent in fuel 10-yrs

…PEF says it’ll engender uniformity in in-country gas prices

…Another round of subsidy controversy underway

…Global gas experts query subsidy rationale at fast-pacing energy transition era

Ben Eguzozie, in Port Harcourt

Nigeria, Africa’s biggest oil producer, habituated with age long controversial and costly subsidy on fuel importation and sales, is set to begin another round of subsidy; this time it’s on gas products transportation across the country, a commodity it possesses in huge deposits, but yet to harness. Proven gas deposits are put at over 203 trillion cubic feet (tcf), with the country hardly have scratched the surface.

According to Ahmed Bobboi, executive secretary of Petroleum Equalization Fund (PEF), the proposed subsidy for transportation of gas products “will tackle inflation in gas products pricing; as PEF will ensure price uniformity across the country.”

Nigeria had used the collapse in oil prices in 2020 to remove subsidies on fuel that made the product one of the cheapest globally. By then, Minister of State for Petroleum Resources Timipre Sylva said in September (last year) that, Nigeria expected to save as much as N1 trillion ($2.4 billion) a year after abolishing the support that the state has provided since the 1980s. But this didn’t get through, as events unfolded months later.

Records said Nigeria had spent N10.7 trillion on fuel subsidies in the last 10 years, including N750 billion in 2019. But it had to bring it back the subsidy in March following a global oil spike, as oil has been trading 35 per cent higher at above $65 per barrel. The removal of the subsidy saw several increases in fuel prices in the second half of 2020 (H2 2020), which attracted labour unions to warn of severe protests if further increases were announced by the government.

Supporters of deregulation of Nigeria’s oil industry have argued that the state oil firm, Nigerian National Petroleum Corporation (NNPC) could pass the costs (of fuel importation) as extra income on to the government if customers paid market-driven prices for fuel also called Premium Motor Spirit, PMS).

Now, Bobboi, the PEF Executive Secretary, states in Abuja that the agency would extend its equalisation policy to gas products. He said the proposed policy would ensure uniformity in gas product prices across the country.

“The policy will make the product (gas) available, because we have a lot of gas in the country. It will make it affordable, which will incentivise the marketers to take it to the last mile. It will also incentivise consumer gas use as the marketer will bring down his price. This will do a lot of good to the economy,” he said.

According to him, consultations were currently ongoing with the relevant agencies. And that the passage of the Petroleum Industry Bill (PIB) will approve the functions of the PEF and offer a pathway for the implementation of the proposed policy.

Removing subsidy on petroleum products prices is politically risky for Nigeria’s leaders over the years. It had severally trailed off protests, strikes and lockdowns by labour unions and civil societies. For decades, the government has intervened in the market to ensure the public can purchase cheap fuel – widely considered the single dependable advantage from Nigeria’s squandered oil wealth.

Some global gas value-chain experts and petroleum economists have queried the rationale behind Buhari government’s quest for a new round of subsidy in gas products, a commodity the country has in huge deposits; whereas it is yet to come clean with fuel subsidy.

According to these experts like Friday Udoh, a gas value-chain expert and chief economist at the South-South chapter of the Institute of Chartered Economists of Nigeria (ICEN), it would be good economics and propel growth for Nigeria to rather target its gas into liquefaction projects, LNG that tends to generate more income; than go into a fresh subsidy controversy – a misspent resources needed at a time the country is still battling to recover from a second recession in five years.

Example of big deal LNG, the experts point out, is Mozambique, a resource-rich south-eastern African country, which is driving a $24 billion LNG project, one of the world’s biggest LNG projects, and Africa’s largest foreign direct investment, FDI ever.

So far, Nigeria’s biggest gas liquefaction effort in over a decade, is the Tran 7 LNG which construction is underway by Saipem, Chiyoda and Daewoo (SCD) joint venture in Bonny Island, Rivers State. Already, the incoming project has been linked with some controversies as Italy based core investor, Saipem has secretly plotted exclusion of Nigerian local content (NCD) in the Train 7 project.

Last month, this newspaper exclusively reported that Saipem had created a system in Milan which splits Nigerian 100 per cent scope of work for non-cryogenic packages. It insists that non-cryogenic materials would be imported 100% against approved vendors list, and Nigerian Content Development Monitoring Board (NCDMB) plan on materials. For example, Lot 1 for OEM products with minor value package items for Nigerian vendors.