The last few days have been hard on Nigerians; not to say that the last six years, or the decades before have not been, but it is particularly difficult because while other oil-producing countries rejoice at the rebound of fuel prices after the all-time low caused by COVID-19, Nigerians mourn.
This is because as prices of crude rise globally, the price of petrol at filling stations in Nigeria rise astronomically, with no safety net. Only a few days ago, they went as high as N212, with some filling stations even selling at higher prices.
Nigeria, Africa’s largest crude producer, has the 10th largest crude reserves in the world, yet imports refined petroleum products and is reported to have spent at least N10 trillion (over US$26 billion) on subsidizing petroleum in 12 years. While there have been attempts to remove petroleum subsidies, the moves have been largely unsuccessful, culminating in the eventual subsidy removal by President Buhari last year—a move that also did not last long.
However, subsidies are not the primary cause of Nigeria’s woes. Nigeria currently exports at least 1.5 million barrels per day of crude. Research by the Nigeria Extractive Industries Transparency Initiative (NEITI) shows that in 2018, Nigeria earned US$32.6 billion from crude sales; with peak prices now, more revenue is expected. Yet, with no functioning refineries, the country continues to export unrefined crude, which gets sold back at a premium as petroleum products, with all the attendant costs of production, shipping, demurrage, security, as well as the exporter’s profit factored into it.
The effect is that the downstream marketer who sells the products in Nigeria will do so at cost plus, thus the average Nigerian end user has to pay high prices for the products, unless the Federal Government subsidizes it, which in turn also takes up a large share of the budget, depriving other sectors of development funding and deepening poverty.
As it happens too, a lot of the money allocated for the subsidy does not go to subsidy costs. In 2011, the country spent N2.6 trillion on fuel subsidies, an amount 900 percent more than the N245 billion earmarked for it in the budget. Worse off, the Nigerian National Petroleum Corporation (NNPC), the state-owned oil company, is a cesspit of corruption. In 2011, the Petroleum Revenue Special Task force, a Federal investigative task force indicted NNPC for not being able to account for $1 billion paid to it by oil companies. This is just one of numerous indictments of the institution.
Unfortunately, the only document that can effectively disband the NNPC and create a more transparent and market-driven state oil company—the Petroleum Industry Bill—is in limbo in the House of Representatives.
The irony of rising crude oil prices is then clear—with increased prices on the global market, we earn upstream and lose downstream, and the consumers who are fed by the downstream sector feel the biting effects, all because we cannot develop local refining capacity.
It is even more unfortunate that the Federal Government sees the Dangote refinery as the silver bullet to its problems. With the Dangote refinery only able to refine 650, 000 barrels per day, what happens to more than half of the crude oil the 1.74 million barrels the country produces? What is the plan for refining locally outside Dangote?
While the corrupt subsidy regime has for long-hidden the real quagmire Nigeria is in from the average Nigerian, the proposed subsidy removal has made it obvious how much the Nigerian economy is a sitting duck. As the country struggles to recover from the effects of the pandemic on the economy, it equally has to deal with the backlash it will get from removing subsidies at this time, as well as the toll it will take on its people—the oil-fed nation that the country is. Yet, we cannot continue to subsidize fossil fuels, as the global consensus around it is that it is unsustainable, and development finance organisations are unwilling to fund such economies.
Interestingly, it does not take much for Nigeria to balance these interests. By utilizing the billions of naira earmarked for subsidies every year to fund low cost, efficient, decentralized electricity; improve grid power; make cooking gas more available and scale autogas-powered vehicles, it will be significantly providing alternatives and lifting people out of poverty, while at the same time achieving sustainable energy.
Additionally, in January this year, the country’s first methanol project achieved FID. Methanol technology is a viable investment vehicle, which can be used to scale methanol fuel production and like China and Italy, the country can make it a major fuel. Until Nigeria achieves that level of epiphany, the irony of rising crude oil prices will always bite at its economy, and the average citizen will pay dearly for it.
Carbon Tax: A market-based alternative to carbon emissions in Nigeria
A carbon tax is a way to have users of carbon fuels pay for the climate damage caused by releasing carbon dioxide into the atmosphere.
Fossil Fuel is hurting us. It is an undeniable truth. I have heard in many conversations more often than not a very solid support for the fossil industry. Rather simple conversations on its perils and disadvantages always end with resignation by the other party that “fossil has come to stay.”
While not doubting that premise, I rather believe a lot can be done to limit the harmful effect of what is here to stay with us. A lot can be said about how beneficial fossil fuel is to the economy and how it is initially cheaper and more available but, in truth, the harms still exists.
Sadly, these harms are more than good. The clarion call to stop these emissions has been on for a very long time, but the reality remains the attention span of the larger consumer population is very very short when it comes to that discourse.
I would say, the essence and need for us to look to further means to mitigate the harm from fossil fuel is not just for a cleaner environment but also for an environment to still exist. The constant clamour for a change in our perspective is not just for the growth of the alternative sector but also a struggle for survival, because we will all lose if we do not stop.
Now, since we have declared to ourselves that we wouldn’t stop, it only makes sense if we can effectively checkmate how we continue with fossil, adopt Carbon Capture techniques and in an attempt to make sure no one goes overboard, impose fines on the amount on those that burn beyond their limit and on fossil that enters the country. This is a concept that, rather thankfully, already exists. Carbon Tax.
A carbon tax is a fee imposed on the burning of carbon-based fuels (coal, oil, gas). A carbon tax is a way — the only way, really — to have users of carbon fuels pay for the climate damage caused by releasing carbon dioxide into the atmosphere.
It is a market-based alternative that helps the government reduce the carbon footprint and also allows them make money as a government when there is a breach of this solemn oath to stay in check. In Nigeria, The Carbon Tax Act came into force on 1 June 2019. The carbon tax was designed to apply to direct emissions in the following categories as specified in the National Greenhouse Gas Emission Reporting Regulations:
- Fuel combustion, which relates to emissions released from fuel combustion activities;
- Fugitive emissions from fuels, which relates to emissions mainly released from the extraction, production, processing, and distribution of fossil fuels; and
- Industrial processes emissions, which relates to emissions released from the consumption of carbonates and the use of fuels as feedstock or as carbon reductants, and the emission of synthetic gases in particular cases.
It is trite to say that this entire scheme is altogether ineffective and barely surviving. It is sad to note because there are numerous benefits to Carbon Tax. The advantages of doing this asides still having a healthy civilization in the next 100 years are numerous. First, it would be creating a very profitable system of revenue for the government. Here, the government will not need to spend much on the initial cost of having this revenue stream in place. Aside from the need to establish an agency to enforce the limits and payment of fines and the adequate system of calculating and verifying the amount consumed, the expenses on the government is almost Zero. This agency unlike many others in this country will be more active than idle, considering the existence of various fossil burning industries in Nigeria and being largely oil-dependent.
Secondly, this would help Nigeria join the global effort to reduce the carbon footprint and in turn put Nigeria on the good pages of the global community as a contributor to green energy. This will birth a host of benefits for the Nigerian Community and also assist the domestic green energy advocates.
Furthermore, this system will help to promote the alternative energy industry. The renewable energy industry will from this initiative be able to sufficiently measure the actual impact of their activities on the environment and the economy as well as challenge the growth of new innovations to grow it. The campaigns will no longer be dependent on cancelling out the large emissions killing the environment since more revenue now streams for the government from them, but to the actual direct benefits of renewable energy.
This alternative will also assist the government in assessing the benefits of reducing emissions and growing the renewable energy industry. The implementation of this will serve as a step for the assessment and understanding of the dynamics, policies and funding needed for the full inevitable integration of Green Energy.
The advantages are numerous and as such need Carbon Taxing to be revived in the country. In all sincerity to the dynamics of Nigerian politics and due respect to our exalted government, it is almost too easy for these things to be put in place seeing they will also have a fresh channel to loot from while saving our dear lives and making the air cleaner. A Win-Win for all the parties involved.
Written by Ude Fortune Chiziterem
PIB: FG adds more terms to bill to attract more investors – Report
The FG has made some changes to the PIB in a bid to attract more investors to Nigeria’s oil and gas sector.
The Nigerian government has added some changes to the Petroleum Industry Bill (PIB) which includes the reduction of hydrocarbon tax to 30% for converted leases, down from 42.5% in its original bill plan, in a bid to attract more investors to Nigeria’s oil and gas sector.
This was disclosed by Reuters in an exclusive report on Friday, which cited people close to drafting the bill and revealed a letter from interested oil companies.
The report disclosed that the Bill was expected to be passed in May, and would have some later stage changes such as:
- Lowering of royalties for new production from deepwater oilfields to 5% from 7.5% and boosting the production level that triggers higher royalties from 15,000 barrels per day (bpd) to 50,000 bpd.
- For onshore and shallow water oilfields, it will reduce the hydrocarbon tax to 30% for converted leases, down from 42.5% in the original bill.
- NNPC’s assets and liabilities will be transferred to a limited liability corporation, which will enable oil companies receive debt owed by NNPC.
The report revealed that oil executives in their letter urged for more changes regarding gas and fiscal term stability, stating that “terms are not sufficiently competitive to stimulate the desired new investments.”
What you should know
Recall Nairametrics reported in December 2020 that the Minister of State for Petroleum Resources, Timipre Sylva, revealed that the much anticipated Petroleum Industry Bill (PIB) would include provisions for lower taxes to sustain stable investments in Nigeria’s oil sector.
Nairametrics | Company Earnings
Access our Live Feed portal for the latest company earnings as they drop.
- PZ Cussons Nigeria Plc appoints Ifueko Okauru as Independent Non-Executive Director.
- Chams Plc announces the appointment of Patricia Duru as new CFO
- NPF Microfinance Bank reports a profit after tax of N614.42 million in FY 2020.
- UACN Property Development Company Plc appoints Ojo Odunayo as new CEO.
- Unilever Nigeria Plc reports a loss of N492 million in Q1 2021.