Energy expert tells FG to make Naira appreciate for better exchange rate

By Emmanuel Kehinde, ilorin

Engr Adebayo Babalola

An energy expert, Engineer Sunday Adebayo Babalola, has called on the Federal Government to make the Naira appreciate for better exchange rate.

Speaking during an interview, Babalola, a retired Deputy Director of the now-defunct Department of Petroleum Resources, said that it is imperative to have good governance which will dovetail to improvement in power generation and supply, more local manufacturing of goods, more agricultural production, improvement in educational and health systems and security as well as provision of infrastructure.

He said, “The reality is that there is a limit to refining locally. What that will remove is the transportation of the crude to that place because such is additive to the landing cost, bringing back the white product into the country. Even when you remove those ones, it will still be a minimal effect on what the price will be.

The price is being controlled majorly by the exchange rate and by the crude oil prices in the international market. We do not have control of the crude oil pricing in the international market but we could do something over the exchange rate. If your exchange rate is N1 to $1 today, refining or no refining the crude price will come to about N1 per litre.

“So the major pricing factors are the exchange rate and crude oil pricing. My reference to when crude oil prices came down, the government also brought it down. That is a pointer to what is controlling the whole thing. It is the exchange rate.

“The transportation will always be there. So when you refine locally, what you are only cutting off is the logistics and transportation of taking the raw product over there, refining it, and bringing it back, those are the things they are cutting off And that is a minimal percentage.

“I agree with you that If we refine locally that may further bring the price down but by what percentage? Maybe 10 or 20 per cent. Which, however, is something.

“I am not an economist but the government can shore up the exchange rate, by improving power generation and supply; improving the exchange rate because when we do not have to import generators, import, everything will come back to zero. Also improving local manufacturing of goods will improve the exchange rate. Today we import many things that we can manufacture locally. Of course, the exchange rate will be high. We have a huge capital flight.

“Also improving education will improve the exchange rate. Many people are sending their children abroad for education and foreign exchange is used for that.

“Medical tourism is very high, so in addition, improving health care is another way to boost the nation’s foreign exchange. Many people are looking for foreign exchange to do medical tests and treatment abroad. A lot of things can be done to improve the exchange rate. Improving infrastructure will go a long way. Almost everything in Nigeria now has to do with foreign tourism. There is medical and educational tourism.

“Also, people are no longer trooping to TINAPA and Obudu Cattle Ranch in Cross River for tourism. They are not going to Yankari Game Reserves in Bauchi State. Where do they now go? They go to Greece, they go to the United States of America, they go to Norway. All these things will take foreign exchange. We are going to Summer now. You see how many people will holiday in the country, they will rather leave Nigeria for other countries. People may also be afraid for their lives.

“Insecurity is another factor. Many people no longer want to go to their villages, they go overseas. If government tackles insecurity, it will make people stay more in the country and that will conserve forex. Many domestic things should be tackled: insecurity, power, education, healthcare should be strategically and consistently tackled. Once you do that, the demand for forex will reduce. You can imagine someone has four children and he has to send them abroad for education because he is not sure when Nigerian universities will open and when they will close. Private universities have come to the rescue as many people now send their children to private universities and that has actually reduced the forex demand for education tourism.

“Also improving agriculture will boost the nation’s foreign exchange rate because when we produce, we import less, conserve forex, and even export and earn foreign exchange.

“In summary, good governance will firm up the nation’s foreign exchange, not guesswork governance that we do. Let’s try this a little, if it fails we go in another direction which is basically what the country has been doing.”

Babalola, who currently is Director of All Grace Energy, also urged the All Progressives Congress-led Federal Government under President Muhammadu Buhari to amend the Petroleum Industry Act 2021 to legalise the FG’s extension of subsidy on Premium Motor Spirit, (PMS) popularly petrol or fuel.

He stated that the reality is that the government had no choice in the circumstances because if they go ahead and remove the subsidy, the price of the white product will triple or quadruple with the present oil price and current Nigeria’s exchange rate.

He added that the removal of the subsidy will unleash more hardship and suffering on the already over-burdened Nigerians.

He also noted that the timing of the subsidy removal is political suicidal to the ruling APC and Buhari’s government as the 2023 general elections are very close.

President Buhari had assented to the Petroleum Industry Bill, on August 16, 2021. The Senate had passed the bill on July 15, 2021, while the House of Representatives passed it on July 16, ending a long wait since the early 2000s.

The Petroleum Industry Act provided legal, governance, regulatory and fiscal framework for the Nigerian petroleum industry, the development of host communities, and related matters.

There is a six-month provision in the PIA for subsidy which will expire in February 2022.

However, on 25 January 2022, the Federal Government said it is proposing to extend the subsidy removal implementation by another 18 months.

Minister of State for Petroleum Resources, Timipre Sylva, spoke to State House correspondents on Tuesday during a special briefing on fuel subsidy organised by the Presidential Communication Team at the Presidential Villa, Abuja.

He said the extension will give all stakeholders time to ensure that the implementation is carried out in a manner that ensures all necessary modalities are in place to cushion the effect of the PMS subsidy removal, in line with prevailing economic realities.

Sylva, said, “We don’t intend to remove subsidies now. That is why I am making this announcement. We also see the legal implication. There is a six-month provision in the PIA that will expire in February.”

It was speculated that petrol may sell for N403 per litre from July 1, this year, given the landing cost of the product, as against its current price of N165.

It, however, could be recalled that the ad-hoc committee of the National Economic Council (NEC) headed by the Governor of Kaduna State, Nasir El-Rufai had recommended a litre of PMS to be sold for N302.

The NEC ad-hoc committee interfacing with the Nigerian National Petroleum Corporation (NNPC) on the appropriate pricing of PMS in Nigeria was established last year by NEC headed by Vice-President Yemi Osinbajo to look into the dwindling revenues of states. It had presented its recommendation on November 2021 to NEC.

Other members of the committee include Edo State Governor, Godwin Obaseki, Ekiti State Governor, Kayode Fayemi, and Ebonyi State Governor, David Umahi; as well as the Governor of Central Bank of Nigeria, Godwin Emefiele; and Group Managing Director of now Nigerian National Petroleum Company, Mele Kyari, (NNPC); Minister of Finance, Budget and National Planning, Zainab Ahmed.

The Federal Government had initially said that in compliance with Petroleum Industry Act, fuel subsidy will be removed in February 2022 but the FG in February increased to 18 months even when it was supposed to have taken off six months after President Muhammadu Buhari assented to the PIB.

Babalola, who is also a former acting Managing Director of Belemaoil Nigeria Limited, in an interview said it will be illegal for FG to continue subsidy on PMS after six months that the PIA became law if the section of the law which stated that removal of subsidy will be in six months after the assent to PIB is not amended.

He said, “The reality is that the government had no choice in the circumstances because if they go ahead and remove the subsidy, the price of the white products will triple or quadruple with the present oil price and our exchange rate. Therefore, it will be heavy on the citizenry and that is not good. That may be the reason why they decided they want to continue it. But then, there is the other side of the coin which is: you have a law in place and the law is operation and you are not going to obey that law. So the government itself is going to be committing an illegality. If that be the case, they have options of what to do.

“FG has options to explore to legalise its continued retention of fuel subsidy. The first option is to go back to the National Assembly and change that particular portion of that law and make it legal what they are doing. The option is for the government to decide to implement and find a way to improve the foreign exchange rate and that will bring down drastically the prices of petroleum products. But as it is, if they want to remove the subsidy, the price of white products will triple or quadruple what it is today. That is the reality.”

Babalola said FG’s decision to continue with the subsidy was a political overture to continue in power.

The energy expert stated that FG lost an auspicious time to remove fuel subsidies.

He said, “Every party wants to be in power. Whatever decisions they make, they are also looking at the future of power and they do not want to lose power so they will not want to remove subsidies especially when we are moving close to elections. The time we had the opportunity was lost when oil prices came down drastically and the government, in turn, brought down the price of white products. That was the time I thought they would have removed the subsidy and said we are no longer subsidizing it.

“If they had done it that way, we would have known that the yoyo would be going on like that with the international oil price and currency because when it came down, people saw it but it was also the government that picked another price when it came down. That was the best time for them to have removed the subsidy totally. But they did not. All because of political consideration.”

Babalola said there will be great and positive impacts in Nigeria when Dangote Petrochemical Refinery commences operation.

President/Chief Executive, Dangote Industries Limited, Aliko Dangote, who also is Africa’s richest man, had on Saturday 22nd January 2022, during a familiarisation visit to the Dangote Oil Refinery Projects, Lekki, Lagos by President African Development Bank (ADB), Dr. Akinwunmi Adesina said the refinery will commence operation by the third quarter of 2022.

Babalola stated that the refinery will revolutionise petrochemical refining, create massive employment and boost Nigeria’s economic transformation and development.

He said, “It is not prophetic to say that it will have a tremendous impact in reducing imports of petroleum products. It will definitely have positive impacts in every way. It will employ people. It will cut off the landing cost of petroleum products.

“Even if it is going to stay at the international price, the cost of taking crude outside the country and bringing the refined products back and the logistics of refining it will be cut off. It will reduce the price of petrol reasonably if he decides to sell in Nigeria.”

It could be recalled that Babalola who is also a philanthropist had during the second edition of the Igbomina National Students’ Union (INSU) empowerment gave out empowerment tools to 45 graduates from the area.

He had also during last the year’s INSU empowerment provided 14 Information, Communication Technology gadgets; 12 sewing machines, four ovens, two make-up kits, one dryer, and one professional welding machine to the beneficiaries according to their areas of interest.

The philanthropist had also given scholarships to 1,362 students and pupils in primary, secondary and tertiary institutions, empowered widows, aged people, sponsored health outreaches which the beneficiaries included some members of Gaa Akanbi, Biada and Oniganka communities in Ilorin South Local Government of Kwara Central; Aare Opin, Osi Community and Oke Opin from Ekiti LGA; Odo-Owa in Oke-Ero LGA of Kwara South and Patigi,Tankpafu and Garogi of Patigi LGA in Kwara North.

Through their foundation, Bayo and Bunmi Babalola Foundation, which he and his wife, Bunmi, founded; they had empowered five widows of the deceased officers of the Nigeria Security and Civil Defense Corps each with a grinding machine, in response to the request of the Civil Defence Officers’ Wives’ Association.