By Ediri Ejoh

DESPITE numerous challenges witnessed in the petroleum industry in 2015, stakeholders are optimistic over a positive outlook in the current financial year.

According to the Lagos Chamber of Commerce and Industry, LCCI, there is a need to diversify the economy away from oil, and to offset the negative impact of the slump in crude oil prices now a little above $30 per barrel.

Economy

The Director General, LCCI, Mr. Muda Yusuf, told Vanguard that with oil price at all-time lows, the imperative of economic diversification cannot be overstressed.

His words: “Oil and gas investments are no longer as profitable as it used to be especially in the light of the high production cost in Nigeria. Many oil service companies are experiencing a slump in business as new investment in the upstream has slowed considerably, as there are also policy issues slowing down investments.”

He further hinted that “there will be better policy clarity for investors to take decisions in 2016 as already indicated in the Medium Term Expenditure Framework, MTEF, and the Fiscal Strategy Paper, FSP, for 2016-2018.

“However, there will be serious fiscal challenges as oil price remains very low, and the capacity of government to meet its financial obligations will be greatly constrained because of the severe revenue constraints.

Others according to him include: “The purchasing power will remain low as employers struggle to meet obligations to workers.

• The pressure to diversify the economy will be more intense.
• The government will have to initiate policies to accelerate private sector involvement in its programmes through public private partnership, PPP.
• The debt profile of government is likely to further increase.
• Ongoing projects may be affected adversely by revenue challenges.
• Taxation drive will intensify.
• Investors with high forex exposure will face difficult times.

The petroleum industry in 2015, was faced a number of challenges including the general elections, vandalism, scarcity of foreign exchange and continued fall global oil price, which stalled development in the upstream oil and gas business.

As a result of these challenges, there were sharp drop in government revenue, and cash flow crunch in the economy leaving many state governments and MDAs unable to meet their financial obligations to workers and contractors,

Power supply

On his part, the Chairman of Egbin Power Plc, Mr. Kola Adesina, recalled that 2015 was very challenging for the sector.

He however urged the Federal Government to “make rules that would shore up confidence and liquefy the sector in 2016. Policies and decisions must seek to satisfy relevant stakeholders by the removal of obstacles to progress and investment.”

He hinted that gas supply for power had improved and should be sustained, adding that pipeline maintenance and security must improve to engender availability.

According to him, “We can use stranded gas more by encouraging appropriate pricing of gas and providing key enablers to gather, process and wheel it. The critical parameters for costing and pricing electricity are largely universal, mixed with local influences like interest, inflation and exchange rates.

“Once all these factors are put together we develop a price template. Electricity is largely an economic product laced with socio-political undertone. It is when the latter is more pronounced that you find distortions masking reality.”

He however argued that, “we must incrementally strip electricity pricing of emotion in order to stimulate availability, industrialization and job creation to eradicate poverty and misery.”