Palliative measures necessary to guarantee oil sector deregulation success – FSDH CEO

The Chief Executive Officer of FSDH Merchant Bank Limited, Hamda Ambah, has said government must provide palliative measures for the masses in Nigeria to guarantee the success of the deregulation of the downstream oil and gas sector, which will lead to the removal of fuel subsidy.

She said that the perceived apprehension of the masses is genuine as the implementation of the fuel subsidy may lead to increase in pump price and may further erode the already weak purchasing power of the masses if no social safety net is provided. 

Ambah said the savings to the government from the removal of fuel subsidy payments can be used to provide more primary healthcare centers, increase allocation to the school feeding programme, provide adequate funding for compulsory primary and secondary education in the public schools, provide soft loans for the petty traders, invest in the power sector and other areas that can have direct impact on the Nigerian masses

She noted that it would tantamount to economic suicide if the government continues to subsidise petroleum products in the face of dwindling government revenue, considering that from 2017 to 2018, the estimated value of the subsidy jumped from N225bn to N731bn.

“Government must plan adequately if it intends to deregulate the downstream oil and gas. It should not occur suddenly because the country can no longer afford to pay the increasing amount of subsidy. A critical part of the preparation will involve engaging various opinion leaders, religious organisations, as well as trade and labour unions. It should also come up with a framework on how to deploy the savings that will result from the withdrawal of the subsidy to improve the wellbeing of Nigerians. Such a framework must include a transparent tracking mechanism to show that the government is doing what it promises to do after the removal.

“A good example reform system to learn from in recent years is what the Central Bank of Nigeria (CBN) did in the foreign exchange market by introducing the Investors and Exporters (I&E) Foreign Exchange window”, she asserted.

She implored the Major Oil Marketers Association of Nigeria (MOMAN) to work and maintain a constant dialogue with the government to ensure the success of deregulation policy.

She advised that the private sector players must also be ready for a symbiotic relationship with the government during the process.

“It is necessary for private business concerns to know that they must work with the government to develop plans for deregulation and responding to the concerns and fears that people will have. This will involve informing the people of the true state of affairs in the sector and how the savings that will result will be used for their benefit in the long run, even though there might be some initial discomfort at inception”, she added.

The MD said it is a known fact that the financial situation of the country is presently challenging, which makes the fixing of the margin of oil marketers and the price of petrol untenable in the long run. To make people accept the need for the deregulation, she maintains that the figures must be publicised for the public to know that government finance is haemorrhaging.

According to her, one of the major problems of the sector is that the trading margin is fixed as an absolute number instead of being fixed as a percentage of the cost.

“This means that for instance if petrol was sold for N40 ten years ago and the trading margin was N2 which was 5% trading margin. Now that petrol is being sold at N145, if the trading margin is still N2, it means that the trading margin has dropped from 5% to 1.38%.

“A review of the performance of the oil marketing companies that are listed on the Nigerian Stock Exchange (NSE) over the last ten years shows that they have been struggling to survive. The poor performance is largely the result of the eroding margins.  The result of this poor financial performance is a lack of interest from stock market investors.

“There are other issues in the downstream petroleum industry that operators should be able to resolve themselves. However, those solutions require substantial financial investments to be made in order to achieve the expected results.

“The level of investment in the sector is not adequate because of the low return on invested capital that has been achieved over so many years. Rational investors deploy their capital in a business, industry or country where they can earn a reasonable profit that can compensate them for the capital invested,” she added.

 

Source: Independent

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