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Nigerians not asking right questions on fuel challenges, says Ibrahim

Ibrahim

Dr. Mohammed Ibrahim was special assistant on Petroleum to former head of state, Gen. Abdulsalami Abubakar. He told COLLINS OLAYINKA in Abuja that Nigerians must ask government questions about money saved from price increase from N87 to N145 per litre and crude oil processing arrangement by the Nigerian National Petroleum Corporation (NNPC), amongst others.

Where did Nigeria get it wrong in its downstream sub-sector of the oil and gas industry to this level of perennial fuel scarcity?
Nigeria got to where it is today, in terms of downstream sector, because of its inability, in the last 40 years, to fast track restructuring of the sector. Nigeria did not realise that the only thing that is permanent in life is change. We decided to remain monolithic and taking ad hoc solution to solve contemporary issues. The 1977 Nigerian National Petroleum Corporation (NNPC) Act is 41 years old. That was when concrete step was taken to restructure oil and gas sector in the country. That is the fundamental factor responsible for where we are today. We have also failed to see the need for us to continuously restructure and reform, so that we can remain a prominent oil and gas nation in the world.

Can you paint a scenario of where we are and the factors responsible for the calamities?
Where we are today is that we are running a modern oil and gas sector using outdated model. Therefore, the situation is that the world has moved ahead. We have created a state monopoly when most parts of the world have jettisoned the idea. There is nowhere monopoly of any sort is vogue. But here, unfortunately, we keep on trying to rear a state monopoly where it is clear that it would not work. If you look at the telecommunication sector, not until we opened up the space and allowed private operators into the system that we were able to record any growth. The system then was heading for a collapse.

For as long as we allow state monopoly or any monopoly of some sort, we will end up in this kind of situation. Some people have argued that the creation of a state monopoly in the downstream sector of the Nigeria oil and gas industry was a necessary evil that was needed to allow Nigeria buy petroleum products at affordable prices.

To my mind, people will always justify whatever action taken by them. When people say Nigerians cannot afford petroleum prices where the space is opened up, it is taking the easy way out, which is not a recipe for development. For instance, it has been said for many decades that Nigeria is an oil and gas producing country. That statement is not true; Nigeria is essentially oil and gas exporting country. There is a difference between exporting and producing. Nigerians are not in charge of oil and gas production and refining. Our joint venture partners, who are the multinational companies, carry out oil and gas production upstream. The entire percentage of Nigerian participation in the upstream activities is less than five per cent. If Nigeria produces two million barrels per day and the 95 per cent of it is in the hands of multinationals, and it is exported, there is no way we can call ourselves oil and gas producing country, but an exporting country, until such a time when there is capacity to produce oil by Nigerians.

Would Nigerians be able to afford petroleum products when the monopoly that the NNPC currently enjoys is no longer there?
The moment the monopoly is broken, competition would be engendered among all the players. Let me paint a scenario here. Nigeria must remember when the current government increased the fuel price from N87 to N145 per litre and Nigerians said government was removing subsidy and government said it was going to use the money saved to fix the existing refineries. What happened to the subsidy gain? The NNPC said it will not import refine crude, but will do what they called ‘offshore processing,’ which meant they will take our crude oil to offshore refinery and bring back refined product to the country. What happened to that scheme?

No one is asking the right questions. Nobody is asking what happened to the money from the subsidy that was removed and we are also comfortable not asking what happened to the crude oil export processing agreement. What happened that the NNPC suddenly started importing refined crude, instead of export processing arrangement? These are the issues. Until these questions are answered, we are not going to get panacea to the intractable problem that we have.

The scenario you have painted is very scary. But with all these confusions, are there ways available to government to find lasting solutions?
You see, I will come back to the point I made earlier. We cannot continue to adopt archaic approaches to contemporary issues and expect a solution that is sustainable. All we have been doing as a country is looking for low-hanging fruits. Until we get a holistic view and interrogate the entire system in a holistic manner, we will never succeed in addressing the problems confronting the oil and gas sector in Nigeria. The so-called hanging fruits are basically allowing the NNPC to continue products importation, allow marketers to import, give concessionary exchange rate, provide tax exemptions and all that stuff. These are not what will ensure the availability of products at competitive rate in this country.

The solutions to our problems are that we must move to a point where Nigeria will not only produce crude oil, but will also process crude oil and export only processed products out of Nigeria. In the short term, what do we need to do? We need to sit down and look at the entire value chain and try to address every aspect of the chain. The NNPC, as it stands today, is purely a Neolithic, bureaucratic institution that will never ever perform efficiently. Even if we bring an angel from heaven to run the NNPC the way it is, it will never function effectively.

Trying to please the marketers whose objective is to make profit will never assist us in a manner that will engender the ability of products at competitive rate. What we need to do is a holistic re-evaluation, reassessment and restructuring of the entire industry along the path of the telecommunication sector, where there will be multiple players, because that is what will engender competition, drives down prices, increases Nigerians capacity in the sector and makes products available in a sustainable manner.

What are your views about the price modulation that was introduced by the Ministry of Petroleum Resources?
The truth of the matter is that price modulation is not a solution to our challenges, as pricing is just one of the elements involved in the entire value chain in addressing the current problem.

To me, it goes well beyond that. Like I said sometime ago, the subsidy that government is paying on petroleum will continue to increase as the price of crude oil increase in the international market and government will continue to spend from the foreign reserve, which will deplete it and expose our economy to monumental danger.

Our situation is that we keep on focusing on constant, rather than on variables. Pricing, in our case, can never be a constant in the modern economy. Pricing is always a variable, but there are other constants that we must get right and unless we get those constants right, we would not be able to solve the problem.

So, to me, the pricing template by the Petroleum Products Pricing Regulatory Agency (PPPRA) and the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, will never take us to the Promised Land.

The fundamental issue here is that the President is not getting the real and quality counsels that he needs to be able to provide leadership to the sector. That is the fact. We should stop being in denial.

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