The Federal Ministry of Petroleum on Tuesday said that the new price regime would spur interest in both refineries and fuel retails with potential to drive about $3 billion investments in 2016.
In a statement in Lagos, the ministry said that Nigeria would only stop importation when it attained local production sufficiency.
It said that the government was also working on key initiatives towards boosting local refining capacity.
The statement said that the overarching objective was to create a competitive downstream market in Nigeria and be a net exporter of petroleum products by 2019.
According to the statement, the sector had not yet been deregulated.
The ministry said that Federal Government, through the new price regime, would ensure that the price of products were monitored and modulated to ensure that citizens got a fair value for products they purchase.
The statement said that the new regime would permanently eliminate subsidy payments which was estimated at N1 trillion in 2015 and about N16.5 billion between April and now.
It noted that the Nigerian National Petroleum Corporation (NNPC) lost about N12.5 billion monthly when it took up the responsibility of fuel importation at subsidised pricing using crude oil as a means of exchange.
Commenting on the renewed insurgency and pipeline vandalism in the Niger Delta, the ministry said it had drastically reduced national crude oil production to 1.65 million barrels per day against 2.2 million barrels per day planned in the 2016 budget.
This, it said, would further reduce income to the federation account and also affect crude volumes for Premium Motor Spirit (PMS) conversion and impact on forex earnings.
“In the absence of available forex lines or crude volumes to continue massive importation of PMS, it is clear that unless immediate action is taken to liberalise the petroleum supply and distribution, the queues will persist, diversion will worsen and the current prices will spiral out of control,” it stated.
The statement noted that the Federal Government already had an ongoing strategic plan and investment to ramp up the country’s refineries to attract investors and in the long term become a net exporter of petrol.
“This government was elected on the foundation of trust and based on the implicit confidence in Mr President’s ability to ensure strict compliance to the new framework and also to manage the proceeds from new pricing,” it stated.
The statement stated that crude oil price was at $110 per barrel then and was presently valued at $40 per barrel, hence it was lacking funds to cater for the subsidy regime owing to low crude prices.
Besides, it pointed out the non-availability of foreign exchange to import petroleum products, adding that marketers had drastically reduced their importation since third quarter of 2015 due to scarcity of forex.
It said that there was a need for them to source forex independent of CBN to be able to meet the nation’s demand.
To explain the prevailing high prices in certain states, it said marketers who sourced forex independent of CBN to carry on participation in PMS supply, would continue to sell at prices that enable them to achieve full cost recovery.
The statement said that at an import bill of $600 million per month for PMS, which was CBN’s liquidity to support the importation of PMS, was challenged in the face of dwindling crude oil for exports.
It said that as a result of the regulation of the downstream sector, government continued to incur N13.79 per litre under recovery in form of subsidy, while states failed in their fiscal responsibilities.
This, it said indicated that g rowing subsidy differential is a threat to state debt profile.
According to the statement, as at April 29, under-recovery of N13.79 per litre was recorded in the price of PMS, thus the need to urgently address the trend, as government had no budgetary provision for subsidy payment in the 2016 Appropriation Bill.
“Deductions from FAAC payments of N13.61 billion were recorded monthly while state debts accrued to N34 billion per month.
“If subsidy was removed, a deduction of the estimated subsidy claim will reduce governmental exposure and support states in their fiscal obligations,” it stated.
