• Tuesday, July 16, 2024
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Petroleum industry in confusion as FG plans to amend new PIA

Events that shaped Nigeria’s oil, gas sector in 2022

The Nigerian petroleum industry was on Tuesday thrown into confusion, as President Muhammadu Buhari’s government announced plans to amend the Petroleum Industry Act (PIA) to accommodate fuel subsidy.

The planned amendment to the PIA is coming just five months after that important law expected to sanitise the sector became operational.

The Act, which was signed into law by President Buhari just on August 16, 2021, was expected to deliver on specific objectives, including promoting an efficient, effective and sustainable development of the Nigerian petroleum industry as well as encouraging and facilitating local and foreign investments.

Also, by the provisions of the Act, the fuel subsidy regime was expected to end in February 2022, but the government in October said it was providing fuel subsidy up to June, in the 2022 budget.

However, all expectations were placed on hold on Tuesday as the Federal Government sought an 18-month extension of the period for subsidy removal and an amendment to the Petroleum Industry Act, to avert legal crises.

Findings by BusinessDay showed that the 18-month extension (February to July 2023) will end after the expiration of President Buhari’s administration, which is expected to end in May 2023.

This will mean a transfer of the fuel subsidy removal to a new administration, which is expected to take over power in May 2023.

Speaking on the development, Taiwo Oyedele, fiscal policy partner & Africa tax leader, Pricewater house Coopers (PwC) said the plans to extend the subsidy regime beyond budget provision will put more strain on the government budget, which will, in turn, lead to increased borrowings.

He also noted that as the government seeks amendment of the PIA, the activities of the Nigerian National Petroleum Corporation which, according to the Act, is expected to run commercially may return to the status quo, thereby undermining the benefits of deregulation.

He said, “The government has said 2022 budget only provide for subsidy till June, and after that, there will be supplementary budget. So that in itself means that we will put more strain on the government budget to fund the subsidy, we will have to borrow more, leading to the increased budget deficit and Nigerians are the ones to pay back all the borrowing.

Read also: Politics trumps economics as Nigeria sticks with subsidy

“The PIA expects that NNPC to be run commercially which means it cannot do subsidy, but the government seeking amendment, the law will be placed on hold. So NNPC maintains its status.

“Everything remains the way they have been, I think we have to think about what is right for Nigeria at this time. So it’s high time we ask ourselves, is this the best way to go, the answer is no.”

Minister of state for petroleum resources, Timipre Sylva who announced plans to amend the PIA and seek the National Assembly approval of the 18 months extension said the government agreed to extend the fuel subsidy removal after due consultation, to among other things, “enable the government set modalities for its implementation as well as ensure the protection of the livelihood of all Nigerians, especially the most vulnerable”

Corroborating with Oyedele, the CEO of the Nigerian Economy Summit Group, Laoye Jaiyeola condemned the move to extend fuel subsidy removal, stating that paying so much money to fund subsidy is not sustainable for the Nigerian economy.

According to him, the extension will only pave way for more borrowings, as the provisions made in the current budget elapse by June.

“It is bad that we have chosen to continue to spend on subsidy, it is not sustainable. The removal of fuel subsidy is long overdue, so the earlier we get the political will to dismantle it, the better for us.

“The fuel subsidy, conceived initially as a short-term support tool has endured over time, thereby becoming a threat to fiscal sustainability.

“In the last three decades, Nigeria has spent substantial government revenue on subsidies which has become increasingly unsustainable,” he said.

The NES group in its 2022 economic outlook had expressed optimism over benefits associated with the PIA, stating that there was the need to ensure quick and proper implementation of its provisions.

“Ultimately, it is anticipated that reforms initiated in the PIA will help attract investments, improve efficiency and productivity, as well as maximise socio-economic outcomes associated with high performing oil and gas industry,” it stated.