If for nothing else, it may never be ‘business-as-usual’ for Nigeria’s economy and particularly the entire value-chain of her vast oil and gas industry, when the novel Coronavirus (COVID-19) pandemic comes is successfully managed, even if not ended.
That was the summary of a presentation at a virtual seminar for financial journalists by Ms. Ronke Onadeko, Principal Consultant DRNL Consult Limited, organized by the Facility for Oil Sector Transformation (FOSTER) in partnership with the Finance Correspondents Association of Nigeria (FICAN) in Lagos.
Some of the first benefits of COVID-19 for the nation’s oil and gas industry, she explained, improved liquidity and deepening of the downstream sector value chain; even as the ongoing deregulation of the sector will attract more investors into the petroleum refining space.
The pandemic, she noted, has also exposed the weaknesses of small players and the greater need for synergy to ensure improved margins through mergers and acquisitions as banking lending to the sector hits single obligor limits.
The oil price crash from $70 per barrel just a few months ago to near $10bp, due to the twin challenge of the crisis that necessitated a production cut agreed among producers under the aegis of OPEC+, worsened by the onset of COVI-19, she said, means that operators in Nigeria would be unable to service their debts. This, she stressed, requires that Nigerian banks restructure loans granted to the operators while hoping that the situation improves
For Onadeko, an expert in project initiation and development, oil and gas operations, trading and marketing and management, developments expected in the Nigerian oil and gas industry would lead to the creation of more employment opportunities, after the initial job losses and policy shifts.
More importantly, she stressed, there will also be “a stronger push for the passage of the Petroleum Industry Bill (PIB),” which will attract more Foreign Direct Investment (FDI) into the sector.”
The oil sector deregulation, she believes, engender stiff competition for customer loyalty in the downstream sector, even as the petroleum products trading and distribution landscape changes for the good of consumers, leading to cheaper products and services.
The 650,000 barrels per day Dangote Refinery and Petrochemical plant in Lagos, Onadeko argued, will not make the cost of petroleum products cheaper, given that the company is a business concern that needs to ensure profit.
The good thing about the project, she added, is that it will eliminate all the costs associated with international purchases, such as shipping, demurrage and other charges, besides helping the country conserve and earn significant foreign exchange by selling to other African countries.
She lamented that the shocks arising from the pandemic hit Nigeria hard and is projected to throw her into recession, made worse by the lack of a plan ‘B,’ because “we have borrowed so much that we don’t have the kind of money we ought to have.”
With the drop in oil prices and Nigeria’s revenue, the country’s foreign reserves became compromised, forcing it to reach out to multilateral agencies for loans and was given conditions such as stopping the multiple exchange rate regime, putting an end to the subsidy on petrol and electricity.
The declining revenue to the federation accounts, she added, means there is very little for the federating units to share at the monthly bazaar, following which many states have become insolvent and unable to pay salaries of civil servants, with spiral effects on the economy. With such unfriendly reality, she noted, the country’s has been downgraded by international credit rating agencies, meaning that it will now borrow at far higher rates, even as FDIs would dry up gradually and inflation go northward.