Subsidy Management: The Role of Government Refineries’ Commercialisation Using the NLNG Model

Abstract

The continuous gulp of scarce Federal Government resources in Nigeria is worrisome, as significant proportion of NNPC oil generated revenue is absorbed in the form of oil subsidy payments while, abandoning a 450 thousand refining capacity project for importation of refined petroleum products. Hence the study into Subsidy Management: The Role of Government Refineries’ Commercialization using The NLNG model. Techniques of Autoregressive Distributed Lag was deployed to examine Oil price subsidy payment(OPSP) on corporate governance quality(CGQ), economic value added proxy of NLNG dividend payment to NNPC (Dv-NLNG); while controlling for institutional quality(ISQ),external reserves (ER) and output per capita (GDPPC).The estimate result revealed that lagged value of OPSP showed that continued disbursement of subsidy payments from Nigerian Federation Account results in promotion of subsidy regime without recourse to refineries rehabilitation. Corporate governance quality exhibited an inverse relationship with oil price subsidy payments. The weak corporate governance of NNPC pave way for harsh consequences of subsidy payments and unattended issues of moribund refineries in Nigeria. Dividend received from NLNG accounts for 53 per cent, on average, to subsidy payments and empowering refinery rehabilitation. Controlling for stochastic effects of Institutional quality on subsidy management as well as capacity to revamp refineries. The finding result revealed that, weak regulatory power and lack of policy transparency hampers refineries rehabilitation, and encourages continuation of subsidy regime in spite of the allegation of corruptions. It was recommended that, the PIA should be revisited with clauses with respect to the Board of the NNPC Limited, limiting the power and discretion of the President to appoint members of the board. In this way, the firm may be completely separate from any outside influence or financial ties, allowing it to follow the guidelines of good corporate governance