The Director, Centre for Petroleum, Energy Economics and Law, Prof. Adeola Adenikinju, has said that the present subsidy regime is a clog in the wheel of local oil production, noting that those given licences to set up private refineries in the country will not be able to do so because of the government’s subsidy policy that will not protect their investments.
Speaking with journalists in Ibadan on Thursday ahead of the annual regional conference on energy scheduled for November 24 and 25, Adenikinju said government interference in oil pricing and political instability would continue to scare away banks from financing multi-million dollar oil and gas projects.
The Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke; Secretary of Energy, United States, Dr. Ernest Moniz; and a former Special Adviser to the President on Petroleum Matters, Dr. Emmanuel Egbogah, are expected at the conference, which will bring together stakeholders from the oil producing countries in West Africa.
Adenikinju said, “In the oil sector, the pricing policy is controlled by the government. A government can come in today and make a pronouncement on fuel price, while another can come tomorrow and make another pricing policy, which may not reflect the cost incurred by investors to refine the product.
“There is no bank that will give loan if the economy of the project is not right or if there are lots of political risks involved. Those who have licences to build refineries prefer to import the product and get paid by the government.”
He added that with fuel subsidy in place, investment by the owners of refineries would not be protected because they would be expected to sell their products at prices determined by the government.
Adenikinju noted, “Who will pay the difference between the cost of production and the amount they are forced to sell the products? To address this problem, the government can come up with a policy that will protect the refinery owners and take up their risks.