Firstly, the announcements from the minister are worrisome, as the U-turn brings the integrity of the PIA into question. Clause 122 aimed at cost-reflective prices in the sector as a potential sweetener to attract investment. Following the government’s recent announcement, we expect new investments in the sector to remain flat. It remains largely unprofitable for significant oil marketers to import PMS by sourcing FX in the parallel market regarding downstream oil and gas firms. Lastly, the ongoing FGN’s energy subsidy programs continue to create a gaping hole in the FGN finances. The government spent c1.4tn on its under-recovery program to keep the price of petrol fixed in the first 11 months of 2021.

Going forward, given the current rally in oil markets, we expect the NNPC shortfalls to continue to grow in the short term, increasing the burden on the FG’s finances.  Thus, we will see the government continue to rely on its increased debt financing program. However, the recent announcement that the Dangote refinery will come on board in Q3-2022 will ease the dependence on importers in the midterm. 

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