Monday 16 May 2016

#MustRead: Reflections On The New Pump Price Of PMS

New Fuel Price
by: Eze Onyekpere

The background scenario leading to fuel subsidy taking a centre stage in our developmental dialogue in recent times is anchored on a plethora of facts. Four government-owned refineries that function at less than 10 per cent of their installed capacity despite public funding for turn-around-maintenance. Even if they were to function at full capacity, they will satisfy less than 50 per cent of our fuel needs. The TAM hardly turns the refineries around but there is evidence that in the past, it has turned around the financial fortunes of so many men and women of power. 

The majority of the populace and the government deny the fact that the refineries are so old and may have come to the end of their useful productive life and as such, we need to move on to building new ones instead of the debilitating fixation on TAM. In the last one year, Nigerians were regaled with false stories of increased performance of our refineries after TAM until recently, when the fuel scarcity forced out the truth.

The second is that there is no private refinery of scale available in the country and government has not invested in new refineries in the last 30 years. The Dangote Refinery is still in the works and is expected to start production within the next 24 months. The enabling environment for the private sector to establish refineries that gives a good return on investment whilst guaranteeing profitability has been lacking and the political will to establish same has been traded with negative politics. We all recall the opposition to deregulate the downstream sector of the petroleum industry and the 2012 crisis and occupy movement. Funny enough, the opposition that strenuously opposed deregulation yesterday are now in power and are the ones championing the reforms. Nigerians will also remember that the Petroleum Industry Bill had been stuck with the Sixth and Seventh National Assembly and never emerged as an Act for presidential assent. Eight years wasted on the bill and no forward movement. Today, the executive has yet to get its acts together and re-present the bill to the National Assembly. The current bill pending in the National Assembly is a private members bill. This cannot be the hallmark of an executive with the fire of reforms.

The third is that Nigeria imports the bulk of her demand for refined products while exporting oil in its crude form with no value added despite the rhetoric of diversification of the economy over the years. Evidently, increasing value added in the oil sector has remained the untapped low hanging fruit that would have propelled the diversification of the Nigerian economy. By importing refined petroleum, we export jobs, deny ourselves of much needed revenue that would have accrued for corporate tax and the tax of workers in the refineries; we increase the price of fuel considering that we have to pay for freight, insurance, lightering charges, etc.

The fourth is that oil subsidy is taking up a disproportionate percentage of the annual federal budget and exerting a lot of pressure on the management of fiscal and monetary policy. This time round, with decreased foreign exchange earnings from crude oil which is our major source of foreign exchange, the Central Bank of Nigeria cannot sustain the importation of refined oil at the controlled window of N197 to the dollar. But wait a minute; are we about losing the momentum to deregulate? The Federal Government is pegging the naira at N298 to the dollar for the purpose of importing fuel when everyone knows that the dollar sells far more than N298 in the foreign exchange market. Media reports indicate that the dollar exchanged at about N350 at the end of last week. So, who will be absorbing the present difference of N52 or any other difference if the naira further depreciates? This raises further questions about leaving the price of imported fuel to be fully cost reflective whilst refusing to allow the naira to find its real value. Can we really afford to reform the price of petroleum products outside the context of a wider petroleum industry reforms anchored on a bill passed by the National Assembly and assented to become law by the President? Can we increase prices outside of a coherent developmental strategy that situates the price of petroleum products within a larger framework of reforms?

The fifth is that despite all official pretences, petroleum products have never been sold at a uniform price across the country. The official price is only respected by marketers around the Abuja and Lagos environs. Marketers in other parts of Nigerian have exercised liberty to sell above the official price with little or no sanctions. They usually claim that they buy at inflated costs at the depots making it impossible for them to sell at the controlled price without incurring loss. Thus, arguments about maintaining a low price never benefitted the population outside the Lagos Abuja axis. Usually, no voice is raised and no public institution or place is occupied if Lagos and Abuja get their fuel at the controlled price. Thus, arguments about the increase in the cost of living arising from increased transport and energy costs have some merits but may not necessarily be true, since beyond the two privileged cities, the cost of transport and energy has been already adjusted. Admitted, there is hardship in the land.

The sixth is the fact that Nigeria is a poor country but due to the profligacy of its leadership, Nigerians unfortunately think that the country is rich. This breeds a sense of entitlement and the right to participate in an already baked imaginary national cake. Even in these lean times and declining public revenues, that sense of entitlement still pervades the land. Allied to this is the fact that increased corruption that has bedevilled the oil subsidy sub-sector, especially in the last administration. Even the SURE-P that was supposed to provide palliatives to Nigerians after the 2012 crisis was also mired in corruption. Nigeria is a dysfunctional society where poverty is endemic and social safety nets are lacking. Education is not linked with industry and provides no clues about innovation and opportunities to escape from poverty.

However, the approach adopted by the Federal Government in increasing the pump price leaves much to be desired. There were no consultations and no opportunities to engage alternative viewpoints; just a unilateral announcement which has elicited an expected response. Labour and its civil society allies will embark on an indefinite strike. How will the government respond to this crisis? How will it seek to cushion the impact of the increase and the fallout of other economic policies? Even the government of Goodluck Jonathan organised a televised debate involving key stakeholders in government, labour and organised private sector before effecting an increase.

We need an elite consensus for development which is beyond partisan politics, a pathway of sacrifice, leading from the front and by examples. The leadership cannot in good conscience be appealing for sacrifice, patience, calm and restraint from Nigerians whilst its leaders indulge in ostentatious consumption and exhibit prodigality in their lifestyles. Mr. President, the federal executive council and members of the National Assembly; stand up to be counted.

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