The International Monetary Fund has said Nigeria needs to reduce fuel subsidy at a time when oil prices are low in order to bring about more productive government spending.

The IMF, in its new Regional Economic Outlook for sub-Saharan Africa, said growth in the region was projected to remain at 3.2 per cent in 2019 and rise to 3.6 per cent in 2020.

It said subsidies and other transfers from the government averaged more than five per cent of Gross Domestic Product (or 25 per cent of expenses) as of 2017 for sub-Saharan African countries with available data.

The Washington-based fund said, “Fuel subsidies tend to be poorly targeted, foster over-consumption, curtail investment and maintenance in related sectors, and crowd out more productive government spending.

“Some countries need to take the opportunity afforded by low oil prices to reduce fuel subsidies to free up additional fiscal space (Cameroon, Nigeria, Senegal), as was done in Mozambique and South Sudan and is being pursued by Burkina Faso.”

The Federal Government had on May 11, 2016 announced a new petrol price band of N135 to N145 per litre, a move that signalled the end to fuel subsidy payment to private marketers.

But the government later resorted to subsidy regime following the increase in the landing cost of petrol on the back of rising crude oil prices, with the Nigerian National Petroleum Corporation, the sole importer of the product, bearing the burden of the subsidy.

The IMF in its 2019 Article IV Consultation on Nigeria noted that phasing out implicit fuel subsidies while strengthening social safety nets to mitigate the impact on the most vulnerable would help reduce the poverty gap and free up additional fiscal space in the country.

The IMF said there was also a scope to re-examine how to improve the effectiveness of other types of subsidies, citing Malawi’s farm input subsidy programme as an example.

Copyright PUNCH.

The Nigerian Association of Petroleum Explorationists (NAPE) has warned that the reduction in hydrocarbon exploration and steady depletion of the oil reserves will drive Nigeria into risks of long-term disruption to oil and gas supplies, power generation, collapse of industries and significant loss of revenue.

NAPE also declared that with Nigeria being a mono-economy that is largely dependent on the proceeds of crude oil for its sustenance, such inactivity in the exploration business will have dire consequences for the country.

The President of NAPE, Mr. Ajibola Oyebamiji, stated this yesterday in Lagos at a press conference ahead of the association’s 2019 Annual International Conference and Exhibition holding in Lagos between November 17 and 21, 2019, with the theme, “Expanding Nigeria’s Petroleum Landscape: Digitalisation, Innovation and Emerging Technologies.”

Oyebamiji stated that the nation’s oil and gas business is being hampered by several factors, including long procurement and contracting cycles, insecurity, oil theft and illegal refining, saying, the later even poses bigger threat to the sector than the fall in oil price.
“Nigeria is at risk of long-term disruption to oil and gas supplies, power generation, a collapse of industries and significant loss of revenue due to continue reduction in hydrocarbon exploration activities. Reduction in hydrocarbon exploration and exploitation has dire consequences for a country like Nigeria with a mono-economy hinged on crude oil.

“Procurement and contracting cycles in the Nigerian oil and gas industry is about 36 months, making it the longest and most inefficient in the world. The long contracting cycle results in high level of uncertainties in costing and planning, thereby creating a sluggish business climate.

“Insecurity, oil theft and illegal refining are bigger threats to the oil and gas industry in Nigeria than the declining price of oil. The current low oil price is rather a reflection of an over-supply of oil in the world market. In Nigeria, the low oil price regime has led to dwindling national wealth, more burdens on foreign reserves, pressure on infrastructure and social services, inability to meet commitments to institutional lenders, and the list of untoward outcomes is long.”

The NAPE president, who admitted that technology was the heart of all significant achievements in the oil and gas industry, added that the way hydrocarbon was discovered, developed and produced has been impacted by evolutionary technologies that have emerged since the Drake well of
1859.

While noting that the challenge for Nigeria in this era of technology-driven oil and gas sector was how far the country had embraced the new trend, Oyebamiji stressed that with the new era of disruption blowing across virtually all industries, the time had come for the country to embrace new technology, as sustained low oil prices are driving the adoption of digitalization across the oil and gas industry.

According to him, “It is against the backdrop of the foregoing that the Nigerian Association of Petroleum Explorationists will at its 37th Annual International Conference and Exhibition be deliberating on petroleum business and the regulatory environment with a view to addressing the challenges of exploration and production in the onshore, offshore and Nigeria’s frontier basins, as well as seek new approaches for exploration and production in the Cretaceous and Cenozoic basins”.

Source: This Day Via EnergyMixReport