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Drivers in Lagos last week were paying N162 ($0.40) per litre of petrol, among the lowest rates in Africa — beneficiaries of a fuel subsidy that costs the continent’s biggest crude producer billions of dollars a year.  It was a reminder that while Nigerian president Muhammadu Buhari signed a big oil industry reform act last month — which dictates that fuel should be sold at market prices — little is likely to change soon in Nigeria’s moribund oil industry, or the economy that relies on it. The bill, first put forward more than two decades ago, will create separate regulatory bodies, commercialise the national oil company and bolster the nascent gas sector, moves the government say will help attract billions of dollars of new investment.

In a concession to oil companies, which had long clamoured for more fiscal certainty, it will simplify and reduce some royalties and taxes. But as the petrol pumps in Lagos made clear, the act, which came into effect upon Buhari’s signature, may take years to be fully implemented. After decades of calls for reform and business complaints about an opaque and unwieldy regulatory and fiscal structure, “at least now we have some clarity and semblance of direction for the industry,” said Kola Karim, chair of Nigerian oil company Shoreline. “It’s some of the best news coming out of Nigeria.”

The reforms are a “dramatic raft of changes . . . meant to modernise and streamline all aspects of industry”, Fitch Ratings said in a note last month, adding that they would “greatly reduce the uncertainty in future fiscal governance . . . and provide foreign firms a stable basis for new licences and investments, reducing the long-term risks of fiscal and regulatory regime change”.

One provision in the bill creates a fund that would allocate 3 per cent of spending on oil projects to the communities that surround them, which could provide millions of dollars to areas that have been economically and environmentally devastated by the oil industry over decades. But Fitch warned that “the impact [of the act] will depend on details of implementation”. Amaka Anku, Africa director at Eurasia Group, said the bill should be positive for the industry. But she doubted the administration would be able to implement the entire bill within a year, as it has suggested, given how much discretion it grants to the country’s oil minister — a portfolio held by 78-year-old Buhari, whose nickname “Baba Go-Slow” hints at his velocity.

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Source: FinancialTimes

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