Petrochemicals and petroleum refineries contribution to Nigeria’s value added tax basket has maintained its downward trend in the first quarter of 2019 by dropping further by 17.06 percent to N956 million compared to N1.1 billion in the fourth quarter of 2018, according recent data published by the National Bureau of Statistics (NBS).
According to data from NBS, the q1 2019 figures of Petrochemicals and petroleum refineries VAT contribution showed the sector its yet to pick up from hitting a five year low of N4.70 billion to the VAT pool, full year 2018 which is 57 percent less from a high of N8.10 billion in 2014.
VAT is a function of value creation in any sector of the economy. A falling VAT means the sector is shrinking and creating less taxable value. Performance data of Nigeria’s refineries show they have been performing below installed capacity.
Wummi Iledare, Petroleum professor at University of Cape Coast’s Institute of Oil and Gas said Nigeria’s declining VAT at a time when the price of oil is rebalancing passes very negative signal and warning that the worse could be ahead if urgent actions are not taken.
Africa’s biggest oil producer’s petrochemicals and petroleum refineries contribution to the VAT pool has been falling since 2015, from N7.10 billion to N5.20 billion in 2016 and N4.81 billion in 2017.
“Nigeria lacks stability and investors want their money in a place where they are sure of their investment. They prefer to have 10 percent return on investment in a place where the situation is not volatile, than a place where they get 100 percent but is very volatile,” Charles Akinbobola, an energy consultant in a Lagos-based oil and gas firm, said.
Petrochemicals are components derived from oil and gas that are used in daily products such as plastics, fertilisers, packaging, clothing, digital devices, medical equipment, detergents and tyres.
They are becoming the largest drivers of global oil demand, in front of cars, planes and trucks, according to a major study by the Paris-based International Energy Agency (IEA), ‘The Future of Petrochemicals released in 2018’.
According to IEA, “Petrochemicals are set to account for more than a third of the growth in world oil demand to 2030, and nearly half the growth to 2050, adding nearly 7 million barrels of oil a day by then. They are also poised to consume an additional 56 billion cubic metres (bcm) of natural gas by 2030, and 83 bcm by 2050.”
“Our economies are heavily dependent on petrochemicals, but the sector receives far less attention than it deserves,” Fatih Birol, the IEA’s executive director, said.
“Petrochemicals are one of the key blind spots in the global energy debate, especially given the influence they will exert on future energy trends. In fact, our analysis shows they will have a greater influence on the future of oil demand than cars, trucks and aviation,” Birol said.
Nigeria built three petrochemical plants in Eleme, Warri and Kaduna. These plants have combined capacity to produce 240,000 metric tonnes of polyethylene, 130,000 metric tonnes of polypropylene, and 18,000 metric tonnes of carbon black per annum.
However, a few years of operation and all the plants became moribund. A research conducted by the University of Benin, Nigeria, identified the reasons for collapse of the petrochemical plants to include irregular importation of feedstock, poor maintenance and lack of technical and managerial capacity.
Despite being one of the largest producers of crude oil in Africa in the last four decades, Nigeria has consistently struggled to keep its refineries functioning optimally without success.
Over the years, stakeholders have agreed that oil and gas sector can best be described as the goose in the Nigerian economy. If it is well nurtured and fruitful, the spin-offs can lead to a transformation of the economy.
Unfortunately, despite this key role that the sector is expected to play, it has over the years failed to meet the yearnings of many ordinary Nigerians in terms of engendering the pivotal economic transformation and development of the country.