Business

Deregulation amid resistance to oil cage freedom

The labour unions in Nigeria have not hidden their opposition for deregulation of the oil sector. ADEOLA YUSUF, in this report, takes a second look at the resistance to free market system and how this has caged the supposed development of the downstream sub-sector

 

 

The Nigerian National Petroleum Corporation (NNPC) last Thursday made two key announcements that should calm frayed nerves on its stand about deregulation of the downstream sub-sector. First, the Mallam Mele Kyariled corporation demanded stiff penalty for fuel marketers, who have engaged in hoarding to create “artificial scarcity.”

The second is that it had, in spite of the rise in the price of crude oil in the international market, ruled out any increment in the ex-depot price of Premium Motor Spirit (petrol) in February, 2021.

 

The two announcements were, according to the NNPC, based on the ongoing negotiation with the labour unions.

 

Just last week, the price of crude oil rallied to $61 per barrel, the highest in 13 months.

 

This was after oil price sank to sub-zero level in the wake of Covid- 19 in 2020. Ordinarily, for a country like Nigeria that is heavily dependent on revenue from oil, the price rally should be good news as it portends more money for the government to provide social amenities for the welfare of the citizens. But the cheery news of oil price rally is dampened by the prospect of a rise in the pump price of Premium Motor Spirit (petrol).

 

Sylva, Kyari share their thoughts

 

During the launch of the Nigerian Upstream Cost Optimisation Programme (NUCOP) last week, both the Minister of State for Petroleum Resources, Chief Timipre Sylva, and Kyari hinted at the prospect of a rise in the pump price of petrol in the country in line with the deregulation regime in operation in the downstream, following the rise in the price of crude oil.

Since then, the leadership of organised labour have been beating drums of war, contending that a pump price increase would impose more hardship on Nigerians who are already battling the effect of a sluggish economy.

 

Taking the bull by the horns

 

Deregulation of the downstream and pump price increase have been very testy issues that have generated a lot of conflict between the government and labour for close to two decades.

 

Since 2004 when the Federal Government started the policy of selling the crude oil earmarked for local refining/consumption at international price, it created a situation where the landing price of petroleum products was higher than the regulated pump price of petroleum products in the country.

 

The old system where crude oil earmarked for local refining/consumption was sold to the NNPC at a subsidised rate was able to take care of price differential between landing cost and regulated pump price.

 

With the new policy, a system of subsidy payment was introduced to take care of the price differential. But over time, the subsidy system became cumbersome and the Federal Government began to find it unwieldy  and unsustainable.

 

The various attempts to end the subsidy regime by deregulating the downstream became a constant subject of bitter conflicts between the government and labour sometimes resulting in debilitating strikes. In March 2020, the Federal Government finally took the bull by the horns and deregulated the downstream by taking advantage of the low oil prices induced by Covid-19.

 

The Minister of State for Petroleum Resources and the Petroleum Products Pricing Regulatory Agency (PPPRA) stated repeatedly that going forward, the price of PMS would be determined by prevailing market forces. One of those forces is the price of crude oil.

Deregulation and its effects

 

With the current rise in the price of crude oil, it is inevitable that the price of petrol would go up in the local market. More so when there is no provision in the 2021 Appropriation Act for subsidy payment.

 

The deregulation of the downstream is supposed to bring about some sort of liberalisation of the sector, which would make it possible for all petroleum products marketers to source their products from anywhere and sell at any price dictated by prevailing market forces.

 

The competition arising from that would have helped to force pump prices down to the benefit of the citizens. But the scarcity of foreign exchange has made it difficult for the marketers to import products, thereby making NNPC the sole importer in keeping with its statutory role as marketer of    last resort.

With the agitation of labour to roll back the deregulation, NNPC is inadvertently being made the fall guy to absorb the cost of the price differential between landing cost and pump price.

 

This would put NNPC in a very bad spot financially and eventually lead to a situation where it would be difficult to further import products.

 

The obvious implication of that is fuel scarcity and the return of fuel queues. The same people who are resisting the deregulation would be the same people who would turn around to castigate NNPC for not supplying enough fuel to guarantee zero fuel queues and for not making a profit at the end of its financial year.

 

The saboteurs

 

The Price of Premium Motor Spirit (PMS) also known as petrol has hit N170 per litres in Lagos, Nigeria’s commercial capital as filling stations belonging to members of the Independent Petroleum Marketers Association in the city as well as in the neighbouring Ogun state, according to checks by New Telegraph, increased the pump price.

 

The price of petrol was hiked to as much as N170 per litre last Tuesday from N162 per litre. It was gathered that this is as a result of the supply shortage caused by hoarding facing private depots in Apapa. Some of the stations were Capital Oil and Gas, Fatgbems and Amo Oil, among others.

War on hoarding

 

It “called on relevant regulatory authorities to step up monitoring of the activities of marketers with a view to sanctioning those  involved in products hoarding or arbitrary increase of pump price,” a press release by the Group General Manager, Group Public Affairs Division, Dr. Kennie Obateru, read.

 

The statement explained that the decision was to allow ongoing engagements with organized labour and other stakeholders on an acceptable framework that will not expose the ordinary Nigerian to any hardship, to be concluded.

 

“NNPC urged petroleum products marketers not to engage in hoarding of Premium Motor Spirit (petrol) in order not to create artificial scarcity and unnecessary hardship for Nigerians while giving assurance that it has enough stock of petrol to keep the nation well supplied for about 40 days,” the statement added.

 

It would be recalled that the nation’s downstream sector was deregulated in March 2020 with Sylva stating that the prices of petroleum products would be determined my prevailing market forces.

 

Last line

 

Labour must learn to be objective in its resistance to the downstream sector reforms meant to eradicate the distortions in the market which have been responsible for bouts of scarcity and lack of investments in the sector.

 

If the labour leaders spearheading the resistance to deregulation are fair to themselves, they would recognize that the deregulation has largely stabilized petroleum products supply over this past year.

 

Once the foreign exchange issue that has made it difficult for major and independent marketers to engage in importation of petroleum products is resolved, the other gains of deregulation will kick in and Nigerians will be better for it. One of the key arguments of labour is that if the refineries

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