ATA UDO
GUEST COLUMNIST
I read two articles Dr. Amanze Obi wrote on the petroleum sector, in the last couple of weeks, as the country experienced fuel scarcity. The points he made are valid and germane. I cannot agree more. Yes, Nigeria’s fuel crisis is a problem, requiring courage to resolve. If the Nigeria Labour Congress (NLC) did not allow morbid sentiments to becloud its sense of patriotism in January 2012, perhaps, the country could have been spared the crushing crisis that Nigerians have to deal with today. Indeed, when the NLC mobilised Nigerians to pour into the streets to protest against government’s decision to remove fuel subsidy and introduce the policy of deregulation of the downstream sector of the petroleum industry, not a few hailed them for the action. After almost five days on the streets, during which the economy was almost grounded, government rescinded the action, as Labour called off the strike.
But, looking back now at the action, there is no doubt that the NLC would be wishing, regrettably, that it never led the people through that path. Imagine if the several billions and trillions of Naira said to have been spent on fuel subsidy payment over these years were saved after government decided remove the subsidy in 2012. Enough money would have been available for the rehabilitation of the refineries or construction of new ones, as well as other facilities in the oil and gas industry, to guarantee adequate supply and distribution of petroleum products.
The absence of these facilities and the inability of the Nigerian National Petroleum Corporation (NNPC) to maintain or repair them make the deregulation of the petroleum sector an inevitable option. There is absolutely nothing wrong in government providing subsidy per se to its citizens. But, there is everything wrong when the subsidy is a policy meant to support consumption, and not production.
Government, in its wisdom, had decided to subsidise fuel consumption in the country, to help the people at the low end of the income ladder to survive. With fuel price set at a certain level, the subsidy was the difference between landing cost of imported fuel (plus marketers and distributors’ margins) above the approved price level. However, over the years, the policy was enmeshed in massive corruption, as marketers connived with government officials to utilise the fund, as a huge drain pipe to government revenue.
The flaw in the argument has been that then subsidy, which was meant to support the poor masses, particularly those in the low end of the income ladders, became a subsidy for the rich elite.
Apart from Abuja and, to a great extent, some parts of Lagos, no consumer in any other part of the country, has been paying the approved price of N86 per litre of premium motor spirit (PMS), popularly called petrol. The NOI Polls, an Abuja-based opinion and research group, in its latest report said on Monday that in April 2016, apart from Lagos and Abuja, more than 85 per cent of Nigerian fuel consumers bought petrol above the approved pump price of N86.50, while 59 per cent of the respondents paid between N150 and N250 per litre for a litre of the commodity.
There is no other argument in support of the need for government to deregulate the petroleum sector at this time as the above. Deregulation is a policy that would break government monopoly of business. The policy would open up the market economy for private players to participate in an atmosphere of competition where market forces would be the sole determinants of prices of goods and services. Deregulation entails government, remaining to exercise its primary responsibility of overseeing and supervising the economy by establishing the regulatory environment for the operators. Deregulation has several benefits, including its ability to allow the businesses determine their operational processes and strategic imperatives in an atmosphere of competition without government’s interference.
If the downstream sector of the petroleum industry is deregulated, it means the retail prices of petroleum products would be determined by the forces of demand and supply. The policy would definitely create a level playing field where consumers in Abuja and Lagos would be paying the same price at the pump like others in other parts of the country.
The price of automotive gas oil, AGO, popularly called diesel, has since been deregulated. For years, no consumer has complained about the scarcity of diesel, because markers are allowed to source for funds and import diesel, which they sell without government interference. If diesel does not experience any crisis in supply, this is another very strong argument that the deregulation of petrol would enjoy a similar experience. Although not a few Nigerians have always misconstrued deregulation, as the same thing as price hike, nothing is farther than the truth, which is that in the long run, the competition among the players in the industry would force down the price.
Every marketer under deregulation would be interested in wooing the consumers by providing quality service to his customers, whom everyone would be courting, as the beautiful bride, who must be accorded the best of attention to attract and keep him, including reduction in price, to continue to enjoy his patronage.
The spasm of fuel scarcity crisis has been attributed to the lack of capacity of the corporation to meet this responsibility alone. Out of more than 26,700 filling stations nationwide, NNPC has only 37 mega stations only located in the capital cities in the 36 states of the federation and the federal capital territory, while about 2,453 stations belong to the Major Oil Marketers Association of Nigeria (MOMAN), comprising Mobil Oil, Total, Oando, Conoil, Forte Oil and MRS. The rest of over 24,226 outlets located in the country’s hinterland belong to the Independent Petroleum Marketers Association of Nigeria (IPMAN).
Equally, out of nearly 130 fuel depots in the country, the NNPC controls only 22, while IPMAN and MOMAN own about 83 and 24, respectively.
With such glaring inadequate capacity for storage and distribution, there is no way the NNPC would be able to meet the national fuel demand without the opening up the market space to accommodate other marketers in the business.
Because of government regulation and price control, none of the 18 private investors allocated operational licences to construct private refineries has been able to do so. Their argument has been that the environment was not conducive for business, as government fixed price would not allow them to operate and recover their cost. Under deregulation, more private players would be interested in building more refineries in the country, since they would be free to produce and sell products at prices determined only by the forces of demand and supply. The involvement of government would be limited to monitoring of standards and enforcement of compliance to rules. Where government would involve, it would be doing so within the environment of competition like other players.
- Udo wrote in from Abuja.