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Petrol subsidy has no economic benefit, says Ex-SPE Chair

By Obas Esiedesa

Engr. Joseph Nwakwue, the immediate past Chairman of the Society of Petroleum Engineers (SPE), has said that subsidy payment on pump price of premium motor spirit (petrol) has no economic benefit for Nigeri and has backed the Federal Government decision to scrap it.

Nwakwue spoke at the first WhatsAppinar organised by Platforms Africa Forum last weekend tagged: “e-DISCOURSE”, and moderated by a Ghanaian veteran journalist and accomplished administrator, Mr. Francis KOKUTSE, based in Accra, Ghana.

He noted that the importation of petroleum products into country has impacted negatively on the economy.

He explained: “The impact has not been salutary as a huge proportion of our scarce foreign reserves are used up in importing fuel, putting significant pressure on the exchange rate, exporting jobs to oil refining countries and zero value capture in refining and competency development. It is so wasteful that it can be viewed as an economic sabotage.

“I have always asked for the economic basis for the subsidy regime….no one has been able to explain it well. It is the presence of this poorly designed subsidy regime that has ensured that we remained a net importer of products…with devastating implications for the economy”.

On government decision to scrap subsidy payment completely, the energy policy expert said: “It’s a good development, it has been long in coming and hopefully one that will enable Nigeria to attract much needed investments in refining, domesticate refining to capture the margins, employ more Nigerians in the midstream, allow the midstream to develop and expand, result in appropriate product pricing in the long run and also allow the government to better allocate its resources to key infrastructure and social spending. We should see growth of the midstream with multiple supply sources away from the current single source situation.

“It is also important to do this properly. Ministerial pronouncements are good but not enough. There are four legal instruments that need to be repealed for that to sustainably happen. Section 6 of the Petroleum act 1969 (as amended), Section 4 of the Price control act 1977, the PPPRA act and the Petroleum Equalization act”.

On the impact of the Covid-19 pandemic on the oil and gas sector, Engr. Nwakwue said: “Covid-19 has wrecked havoc on the oil and gas industry as the global shutdown obliterated demand for oil and gas leading to a crash in oil prices, slash in capital spend , loss of jobs and bankruptcies. The impact has been huge and debilitating”.

With more countries in Africa are joining the league of oil producers with active involvement of International Oil Companies in searches for and/or production of crude oil, he noted that this would have positive effect on the continent’s economy.

“The discovery of oil and gas in African countries would have a positive effect on their economies if and only if they take deliberate steps to manage these resources responsibly for development.

“Experience has shown that these resources inject crisis and rent seeking behaviours where efforts are not made to manage these resources for development. I hope that will not be the case. So, it is a good thing for those countries economically and also remember that resource rich countries also enjoy some geopolitical advantages”.

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