By Adewale Sanyaolu
For the average Nigerian, the last one year President Bola Tinubu captained the nation’s economic ship, has been tempest-tossed, literally speaking, with hunger and lamentations reaching unprecedented levels.
The problem started with the infamous petrol subsidy removal which hit citizens like a thunderbolt on May 29, 2023.
As that simmered, the federal government rolled out other scathing economic policy reforms like naira float, subsidy removal on petrol, electricity and others, without any cushioning measures to compensate for them.
One year down the line, many conclude that the incumbent administration can only flaunt failed and unfulfilled promises as the fuel subsidy removal, which many insist was hurriedly done, has further upset the economy and dragged more Nigerians into multi-dimensional poverty.
On the other hand, federal government revenues are equally tanking as a result of low oil production which has negatively impacted economic growth plans.
Other setbacks confronting the energy sector in the last one year are; long contracting cycle, government bureaucratic bottlenecks which has left many oil and gas projects unsanctioned, low power generation occasioned by gas supply constraints, widening metering gap, oil theft and pipeline vandalism.
Low oil production threatens budget performance
The Federal Government’s aspiration to meet its daily oil production of 1.78 million barrels per day (bpd) as projected in the 2024 budget is currently under threat over low oil production which industry observers have put at 500,000 barrels per day.
According to the Petroleum Technology Association of Nigeria (PETAN), the 500,000 bpd daily under-production is costing Nigeria about $15 billion daily revenue loss.
On its part, the Organisation of Petroleum Exporting Countries, OPEC, in mid May, disclosed that Nigeria’s oil output, excluding condensate, rose month-on-month, MoM, by 4 per cent to 1.28 million barrels per day, bpd, in April 2024, from 1.23 million bpd recorded in March 2024.
Similarly, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), corroborated the OPEC report, stating that Nigeria’s crude oil output in April rose marginally by four per cent to 1.28 million bpd compared to 1.23 million bpd recorded in March 2024.
However, the Group Chief Executive Officer (GCEO) of Nigerian National Petroleum Company(NNPC) Limited, Mr. Mele Kyari, last week, announced that the country’s oil production volume is closer to 1.7 million bpd.
Kyari spoke in Lagos at a stakeholders’ engagement between the Nigerian Association of Petroleum Explorationists (NAPE) and the NNPC Limited.
According to Kyari, Nigeria has the potential to produce two million barrels per day but “it is not possible today”.
He said this is due to oil theft and pipeline vandalism in the Niger Delta region.
“The good news is, there is substantial work that is being done by the government and I’m not going to speak about it. But I know that this will come to pass. It’s already subsiding. We are already seeing the results,” he said.
OPEC’s data showed Nigeria’s rig count, which depicts the level of oil production activities by operators, averaged 15, in January 2024, a sharp decline from 35 in 2018.
Worried by the country’s low oil production volume, Professor of Energy Economics and President of the Nigerian Economic Society, Adeola Adenikinju, said “With less oil flowing, the government faces tough choices: slash spending, hike taxes, or borrow heavily.
Each option carries its own set of risks, potentially impacting growth, fueling inflation, and straining an already burdened population,” Adenikinju added.
Former General Manager of Nigerian National Petroleum Company (NNPC) Limited, Mr. John Orife, said there was little or no strategy for implementing any energy plan policy makers had drawn up in the last ten years.
“We have remained in the same spot if you ask me. We are not unlocking anything,” Orife, a foundation staff member of NNPC in 1977, said at the recent National Association of Petroleum Explorationists conference.
A report in Africa Oil and Gas Report which quoted the Executive Chairman of AA Holdings, Mr. Austin Avuru, said Nigeria’s oil industry faces a stark reality check, as it needs 45 new rigs to reach “normal” production levels of 2.1 million barrels per day (bpd).
“To arrest the natural decline and add 800,000 barrels per day over two years will require 426 wells, including 106 exploration and appraisal wells as well as 320 development wells,”.
Mounting subsidies, FG’s albatross
Although President Tinubu junked the petrol subsidy regime in his inaugural address last year, indications emerged a few months after that the government had secretly returned to it, forking out billions of naira from the highly-depleted treasury to subsidise the commodity.
Daily Sun’s investigations in March this year revealed that petrol subsidy secretly found its way back into the system in August 2023 and gulps about N1.14 trillion monthly from then till February 2024 (and still counting)1.
The return to fuel subsidy is premised on the rising cost of crude oil in the international market and fluctuating exchange rates which have forced many fuel marketers out of the import space, leaving the role solely to the Nigerian National Petroleum Company Limited as the importer of last resort
Confirming the findings of Daily Sun, Special Adviser to the President on Energy, Mrs Olu Verheijen, at a media briefing in Abuja in March 2024, admitted that the Federal Government has continued to intervene in the per litre price of Premium Motor Spirit (PMS), popularly called petrol sold in the country, despite removing subsidy on the product.
Verheijen said the government has the prerogative to cushion the harsh effects of its policies on citizens, adding that what the President Bola Ahmed Tinubu administration is doing with regards to the fuel price regime is consistent with global practices.
“On May 29, 2023, subsidy was removed. However, government has the prerogative, whether in the US, in the West, and other eastern countries, all governments have the prerogative to maintain price stability and to (mitigate) social unrest.
So, if prices are (moving up), they have the right to intervene. It’s not only in the US, during COVID-19, there were lots of interventions and there were also subsidies. All governments reserve that right.
And so, if for any reason, the administration has reviewed that it is not the right time to have prices continue to fluctuate, given the level of hardship in the country, given inflation, the government has the right to intervene intermittently. All governments do so.”
Chief Executive Officer of Rainoil, Mr. Gabriel Ogbechie, recently claimed that the federal government has resumed the payment of the opaque and controversial fuel subsidy following the devaluation of the naira in the foreign exchange market.
Ogbechie stated this during the Stanbic IBTC Energy and Infrastructure Breakfast Session held in Lagos in March.
He pointed out that with Nigeria’s daily fuel consumption pegged at 40 million liters and the foreign exchange rate at N1,300, the government’s subsidy per liter of fuel falls between N400 and N500, culminating in a monthly total of approximately N600 billion.
Also in March, Managing Director of Pinnacle Oil and Gas Limited, an indigenous oil and gas company active across the entire downstream value chain, Mr. Robert Dickerman, disclosed that Nigeria is currently paying about N1 trillion monthly as petrol subsidy.
Dickerman, disclosed this while speaking during a panel session on Nigeria’s Downstream Forum at the Nigeria International Energy Summit (NIES) in Abuja.
He said there is still a massive subsidy, which explains why the product remains cheap, thus encouraging smuggling to neighbouring countries.
“Nigeria has a long history of allocating resources to oil and gas production at the expense of most other economic and social programs. To balance this, there has been a long-standing policy to mitigate consumer costs via palliatives such as fuel and food subsidies.
But one of the net effects of oil money is underinvestment in local production, manufacturing and other value-added activities that could generate foreign currency through exports. There has also been a large under investment in the maintenance and upgrade of existing infrastructure including electricity, roads, health care, water, waste, education and financial infrastructure such as consumer credit.’’
A former Bauchi State Governor, Isa Yuguda, recently confirmed that the Federal Government still pays subsidies on petrol, though minimal.
Yuguda who was a guest on Channels Television’s Politics Today programme had said a complete removal will inflict untold hardship on Nigerians, even as he urged states to judiciously make use of the double allocations that they now get by channeling it to drive down the cost of products in the economy.
Renowned energy scholar, Prof Wunmi Iledare, in response to Daily Sun inquiry, said for a matter of fact, the diminishing subsidy payment is laudable, but for the apparent collapse in the purchasing power of the currency.
“Another exemplary positive gain is the dedicated attempt to manage money supply optimally. Though inflation continues to raise its ugly head, there is a concerted effort to manage it. “These evidentiary attempts do have implications on the investment flow to the oil and gas sector. Public perception of policy matters in investment decision making, more so in a highly stochastic Exploration and production business environment with constant attention to consistency in strategy and governance.
“I need to also, in the affirmative, commend the apparent focus on natural gas development for expanding the domestic economy within the context of the intent of PIA 2021. I am worried, however, with some of the suboptimal policy instruments applied so far, such as the PEO 2024 on NAG, the CNG vehicle mandates, and the ill-advised gas pricing modality by the Petroleum Authority! I continue to wish for an effectively coordinated PIA implementation and quickly so”, he said.
Experts’ assessment of Tinubu’s one year in office
Iledare expressed worries on the slow pace of the implementation of the Executive Orders on Oil and Gas Reforms signed by the President in March 2024, especially the one on ‘‘Contracting Process to Compress the Contracting Cycle to Six Months’’.
He lamented that the contracting cycle reduction order which is poised to be a plausible game changer if obeyed, unfortunately has factually established the impossibility of getting officials who benefit from problems to solve such problems.
‘’I am therefore not surprised, though, disappointed at the pace at which the executive order is implemented. However, let me say without mincing words that reducing the contracting cycle is the first step to reducing the high and rising cost of production in the Niger Delta Basin. This is therefore critical within the context of investment flow too. It takes too long to get permits to bring important equipments to the country. To even get a visa to enter Nigeria is a task making the cost of hiring experts extremely high!
Energy policy analyst and partner Bloomfield Law Practice, Mr. Ayodele Oni, said whilst this administration intended to kick-off action at a fast rate, there are many challenges for a nation like Nigeria, which the President had to understand and analyze upon the commencement of his tenure.
‘‘Generally, it has been a tough year for many Nigerians with the inflation rate and high cost of living which was influenced by certain factors such as the removal of both electricity and fuel subsidy. Nonetheless, it is viewed that these phenomena were inevitable and required for the ultimate economic transformation which the country requires.
“The administration has tried to identify some of the issues and has taken significant steps to manage several crises which have arisen within this period such as the Naira devaluation in the foreign exchange market. It is however believed that there is still room for significant reforms to be made to ensure economic development in the country.
“It is also envisaged that in enforcing these economic reforms, the Administration will take implementation steps which are specifically tailored to suit the Nigerian economic backdrop. This will ultimately lead to overall improvements in all aspects of the Nigerian economic industry,’’.
For the power sector, Oni said it is a laudable achievement that President Tinubu, assented to the Electricity Act, 2023 and the Constitution Amendment.
According to him, this new regime has now decentralized the power sector and granted powers to the States to enact their own laws and create their own electricity markets, adding that, already some States like; Lagos, Enugu, Oyo, Osun, Akwa Ibom, Rivers, Delta and Kogi States have already enacted their laws. He explained that NERC is also working actively on transitional issues for the sector and guiding the States as they proceed.
‘‘The Ministry of Power is also working on the NIEPSIP which would be a master document to guide the sector. Although, the power sector still continues to suffer from erratic power supply, the solution to this cannot be resolved in one year and it appears there is commitment on the part of the government. Nonetheless, there is still a lot to do to improve the state of electricity in Nigeria. The States now have more roles to play as well.’’
“For the oil and gas sector, Oni said whilst there was a significant increase in the prices of petrol right from the commencement of this tenure which has affected the whole country, it is important that there is a good level of commitment from the government to address these issues”.
He said both the NUPRC and the NMDPRA have continued to issue regulations to guide players in the sector. Recently, there have also been Executive Orders to send some reliefs and provide incentives for investments in the sector.
‘‘Sadly, the oil production rate in Nigeria in the last one year has not been stable. However, the government seems to be taking steps to handle issues of vandalism. There are also ongoing projects for rehabilitation of the refineries. For the gas aspect, there are some ongoing initiatives on gas utilization and commercialization including the recent focus on adoption CNG as fuel for vehicles. It is hoped that there will more significant improvements and progress for the energy sector as a whole in the next 12 months.
Furthermore, the government should identify and focus on the critical areas for development. Electricity is the backbone of socio-economic development of a nation. It is a good way to improve to standard of living of the people because it helps to stimulate other sectors like health, education, commerce, and industries. This administration should focus more on providing access to affordable and reliable electricity for both industry and domestic consumers. This could help reduce cost of production of goods and ultimately address some of the inflation issues that the country currently battles with.
While some of the policies of the government in the last few months are expected to have long term impacts, there should be measures put in place alongside the policies to provide short term comfort for the people. This is a low hanging fruit for the government. It would also ameliorate the financial hardship that is currently being experienced.
In the coming months, the government should focus on areas of infrastructure, security, access to electricity, education, availability of fuel and alternative sources, improved health care amongst others. It is also important to reduce waste and cut out some administrative expenses at this time to show more support to the plight of Nigerians.’’