THUR, APRIL 23 2020-theG&BJournal- As the covid-19 health crisis persists, attempts to curb the spread of the disease continue to significantly affect global revenues and resources. The universal measures of social distancing, movement restrictions, lockdowns, though necessary to stem the spread and impact of the pandemic have on the other hand, contributed to slowing down the global economy. Sustained low oil prices and price volatility has and is expected to continue to reflect negatively on the Nigerian economy, thus the need to adopt policies that sustain its revenues in the short to medium term while exploring long term options to drastically reduce over dependence on oil post-covid-19. The effects of the pandemic on the oil sector underscore the imperative to revisit the much advertised policy of economic diversification.
While commending the Nigerian government on the steps taken to sustain the Nigerian economy through oil sector reforms; to deregulate the downstream sector, re-open bid rounds of marginal fields, cut the 2020 budget, contemplate privatization of the refineries and others, there are some additional interventions required to crystalize those policies and further support the Nigerian economy.
Moving forward, all strategies must be sustainable, if Nigeria is to minimize the effects of the inevitable recession due to the falling oil prices, depreciating revenues, rising debt ratio and diminishing reserves. The recent OPEC + production cuts may be too little too late and so Nigeria must look internally for solutions and adopt interventions that take a longer term view.
Speaking on this development, the Program Coordinator of Nigeria Natural Resource Charter (NNRC), Ms. Tengi George-Ikoli notes that the group arrived at this position based on the gaps identified in its recently published Benchmarking Exercise Report (BER 2019) which x-rayed the state of the Nigerian petroleum sector, highlighting policy options to support the Nigerian government’s efforts to stimulate growth of the economy and its post covid-19 recovery.
To optimize the opportunities from oil and gas exploitation to withstand the prevailing covid-19 shocks and its after effects, she pointed that Nigeria must consider the following policy options to stabilize the sector, maintain revenue flows, attract investment and drive growth:
-Maintain peace and stability in the Niger Delta to sustain revenue flows from oil production. Sustaining beneficiation schemes by NDDC, MNDA and other interventions will support the governments stabilization efforts;
-Improve coordination between federal and Niger Delta state governments on the response to the Covid-19 pandemic including the design and implementation of stimulus plans;
-Liberalize the downstream sector to allow market forces determine pump prices for petroleum and other products. This will ensure the availability of revenues necessary for more critical areas of the economy;
-Improve the efficiency of the downstream oil sector by reviewing its policies, regulations and operational guidelines to ensure profitability, improved private sector participation and improved employment;
-Adopt and constitutionalize a savings mechanism with clear and transparent operational rules. This could be by retaining the more effective sovereign wealth fund (SWF) in the NSIA and transferring funds from the Excess Crude Account, the stabilization fund and other similar funds to the SWF. This will help fortify the Nigerian economy from oil price volatilities and other economic shocks. Ramping and prioritizing domestic gas-based industrialization projects, to diversify Nigeria’s energy supply, increase local employment and reduce domestic demand and Nigeria’s reliance on oil;
-Support a major and urgent shift to gas in terms of investment focus. Gas supply to domestic market for power, industrial & manufacturing feedstock and enabler to economic development. Emphatic shift to the gas value chain offers Nigeria the leverage for socio-economic development in the medium to long term;
-Fast-track the passage of the petroleum industry bill to bring about the fiscal, governance and regulatory clarity required to monetize Nigeria’s 200+ tcf of gas reserves. Speedy passage of the Petroleum Industry Bill will provide a clearer strategic direction to the entire industry, re-engender trust, thereby increasing investments which will in turn increase national revenues required for development;
-Review the existing fiscal framework to ensure competitiveness and support Nigeria’s ability to attract investments into the upstream sector, effectively shoring up Nigeria’s diminished reserves;
-Institutionalize cost management strategies within the sector with the overall objective of reducing the high unit production cost of crude thereby improving governments revenue from the sector;
-Immediately privatize refineries as stated by NNPC to improve Nigeria’s access to finished products in country, reducing potential for over reliance on external support for products, to preserve Nigeria’s sovereignty; and
-Sell off unviable government owned oil assets to raise revenue and boost efficiency in the short to medium term.
The NNRC strongly believes that adopting these reforms will improve Nigeria’s competitiveness, revenue inflows and improve her ability to survive and subsequently recover from the effects of covid-19 on the global economy.
The government, the NNRC warns, must adopt a wholly consultative approach in its reforms, transparency and inclusivity to increase likelihood of acceptance and implementation. Prioritizing these reforms is necessary while Nigeria considers other medium to long term reform plans simultaneously.
The NNRC’s 2019 Benchmarking Exercise Report (BER) outlines other sector gaps to be focused on in the medium to long term to improve Nigeria’s oil sector performance. These can be found on the NNRC website on www.nigerianrc.org/2019-benchmarking-exercise-report.
The Nigeria Natural Resource Charter (NNRC) is a non-profit policy institute that implements the Natural Resource Charter (NRC), a set of principles intended for use by governments, civil societies and the international community to determine how best to manage natural resource wealth for the benefit of current and future generations of citizens. It is led by an esteemed panel of experts on natural resource governance that convenes on a biannual basis to analyze the governance issues relating to the petroleum sector in the country.
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