The Executive Secretary of the Major Oil Marketers Association of Nigeria, Clement Isong, in this interview with OKECHUKWU NNODIM in this interview, says the President-elect, Bola Tinubu, should forget about new oil sector investments if his government fails to implement the Petroleum Industry Act
What critical thing should be addressed in the downstream oil sector by the incoming government?
We have all come together and written a law, which is the Petroleum Industry Act and it basically says petrol should be sold at market prices. Even if the petrol subsidy was going to be temporary, we have been doing it for ages till this period. We moved from when the subsidy was in thousands to when it grew to millions per annum and to billions per annum. Currently, we are told that this year that we are to spend about N6tn on subsidy. I am sure that in our hearts we all know that if we invested that N6tn in sustainable programmes, it will grow the economy. It is a better way to go than to burn it in fuel subsidy. We all know this. So, the first thing that the incoming government must do in the downstream oil sector is the implementation of the PIA. It is a law and the essence of putting our collective wisdom into law is to, among other issues, guide people who want to invest. That (PIA) is the most serious commitment in the sector; it is the law.
But when you go ahead and write the law and you do not implement it, then there is an issue of trust. People cannot trust the state; they cannot trust the government to implement the law. The law has been written, but we are not implementing it. So, why would you expect anybody, domestic or foreign, to bring his capital to invest in your economy when you can go as far as passing a law and you do not implement it? I think it is in order to be credible to find the money that we need to invest and take us out of poverty. Therefore, the most important thing for the incoming government to do is to apply the law.
What about concerns that the implementation of this law, particularly with respect to fuel subsidy, would cause pain to the masses?
There are things that could be done to mitigate the pains in implementing the law would bring. But we all know that sometimes the medicine that you need to take in order to come out of your illness must be bitter. You do not refuse to take the medicine because it is bitter. You keep your eyes on what a whole healthy body means to you because it is good for you. So, you take the bitter medicine. That is what we need to convince ourselves collectively to do. We need a credible government to promise us that all the savings, the N6tn that they are borrowing to handle petrol subsidy in 2023; if we need to borrow, it should be invested in what can bring returns. You cannot borrow money and burn it. If you borrow money and you burn it, then you will not make the money to repay your debt. I am told that about 96 per cent of our revenue is going into the payment debts. You continue to borrow money and you are not investing it in what can give you returns, rather you are spending it on a subsidy that brings you nothing in return. At the end of the day, you are in debt and you have no investments from your earned income that would give you returns.
Investors, both local and foreign, that could have brought their investments to augment are not coming, because the private sector should have more money than the government. If the private sector (domestic and external) brings money and invest, it will complement the investment of the government and it will grow the economy and give us a prosperous nation where people can stand on their feet and live their lives on their own without relying on the government. Investors can generate income from their businesses, create jobs, pay taxes and contribute to the growth of the economy, rather than everybody like parasites living off the country in such an unsustainable way.
Can you explain how the continuation of fuel subsidy limits investments in the downstream oil sector?
Of course, it does. It takes a person with a heart like Dangote to borrow money to invest and build a big refinery like he has built, hoping to recover his investments and as well contribute to the economy. But to be clear, that investment started only after the policy of the government was written in 2017, where it quite clearly said it was moving to deregulation of pump prices. The PIA came into effect in August 2021, which confirmed what the government policy had said would happen. That is the most concrete assurance you can have from a government, when you write into law that if you bring your money, you will not lose it as a result of policies that did not make sense. This is because the policy that says that something costs you N10 and you will sell it at N5 does not make sense to anybody anywhere. It is not sustainable.
So, writing a law that the payment of subsidies will no longer be the case is what will make people invest. Let me use gas as an example. We have declared this period as a ‘Decade of Gas’ and under normal circumstances, gas should be cheaper than petrol. For if you are going to invest in gas, whether you are talking about gas infrastructure, processing, retailing, etc., which is what should take this country out of poverty, that investment can only be so if the investor believes that he will recover his investment and make a decent profit. But when you make your investments in gas and the government continues to subsidise petrol, it does not work for you. This is because you can no longer trust the government. And most importantly you lose your money. Under normal circumstances, you should be selling gas cheaper than petrol, but the government is subsidising petrol, so petrol is selling cheaper than your gas and then it blocks your investment. No normal civil person will invest in those things knowing that government policy can make you lose your investments.
And when we are talking about government policies, we are talking about laws. It goes beyond policy. There is a law in place. So, everybody that you expect to bring in money to invest in petrochemicals, plastics, gas and everything along the supply chain will no longer bring in their money because the government is not obeying its own law. So, investments that should have come in, those investments that will take two to five years to mature for Nigeria to begin to enjoy, have all been put back. The investment decisions have been postponed until we become a serious country. The decisions have been postponed.
What do you think could be the cost of petrol when it is fully deregulated?
It is not safe to project the cost of petrol at the pumps because it is all based on how we manage our foreign exchange as a country. For as long as you continue to create speculation in managing foreign exchange, those people who make dollars will keep their money in dollars offshore and will not bring it into the country. In which case, the dollar will continue to be expensive in Nigeria. If you manage your dollar differently to encourage its stability and the strengthening of the naira, not by the statement of the central bank, but by people trusting the government that each time they make dollars, they bring it back into the country, then I suspect that the pump price could be reasonable. It could be N400/litre; it could be more or can be less. As of today, because the price of crude, the price of Platts is trending downwards, you will get your pump price at less than N400, but this depends on the exchange rate. What we need to understand is that what is the correct exchange rate? It is not the N460/$ that the government is selling, and it is also not the N740/$ that you get at the black market, rather it is somewhere in between.
If there is stability, if there is visibility, if you stop your multiple exchange rates, if everybody develops confidence in the credibility, sincerity and transparency in the management of the nation’s foreign exchange, then your pump price could stand at N400 or above N400, and it might go lower. But this is if the costs of crude and Platts continue to trade lower in the international market. And, of course, once people, investors, interested agencies and banks have confidence that the government is credible and stable in its policies and you do not have policy flip-flops, then all the refinery projects will come on stream quickly and you will then have some sort of protection from the external volatility of the market. I am saying the volatility that the geopolitical events in the world created in the market; you will have some sort of protection from that. Your prices will move gently upwards or gently downwards.
And I suspect that it will be gently downwards in the near future, but that does not mean it will not go up again. However, it will not go up violently in such a way as to shut businesses. So, I will conclude by saying that if we have taught our children to live within their means because we know it is true, why do we then turn around and pretend that we can continue to spend more than we earn as a country? Why do we pretend that we can continue to borrow money? Is it fair? We turn around and lie to the country that we can continue along this path. Is it fair to our children that we incur these debts on their behalf? We know better and must do better.
