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Fuel price, deregulation and nation’s refineries


On September 2, an announcement was made to the effect that the ex-depot price of premium motor spirit (PMS) otherwise known as petrol has been increased to N151.56 per litre which has pushed up the previous price of between N148 and N150 per litre of petrol.


But it has been reported that pump prices in some filling stations were going for as much as N161; you will trust us to want to take advantage of such developments.


This will be second such announcement of pump price increase under the COVID-19 pandemic regime after it was gleefully announced to all and widely celebrated that the petroleum products market was going to be henceforth deregulated. Since the announcement of this increase, all hell has been let loose as we return to familiar territory of agitation which usually follows such increases.


So far, notices of shutdown of the economy have been served by organized labour and sporadic protest marches have been experienced in state capitals. In one particular instance the lawyers were reported to be leading a protest march.


And some have even asked and complained unpatriotically why reactions have been muted under this government compared to what particularly happened during President Goodluck Jonathan regime.


As we discuss this matter what readily comes to my mind was the fuel price hike of January 2012 under the Jonathan regime as an attempt was made once more for the umpteenth time to end the clearly unsustainable nightmare of humongous wasteful subsidy.


This event of the wide spread protest remains ever green in mind as I was holed up in a hotel in Abuja having gone to offer capacity building consultancy to the staff of NEXIM Bank for a whole week because of the lockdown which resulted from this agitation as the economy was brought to a screeching halt as efforts were made to force the hand of the government to reverse the price hike.


The attempt to end subsidy on petroleum prize has been with us for as long as one can recall with no avail.


The fact that subsidy payment in Nigeria on petroleum products is wasteful, opaque, corruption laden is common knowledge to all compatriots, but what has been lacking has been the political will to push this matter through in spite of the fact that all accept that this practice is not sustainable.


We all have to consider the amount of money said to be expended in offering this subsidy; it is mind boggling particularly when seen alongside its effect on lack of commensurate budgetary allocations to the important social sectors of education, health, water supply and general sanitation amongst others.


My personal stand on subsidy payment has been well canvassed over the years as it is aligned with the views of most contemporary economists. Sub  sidy  if we must call a spade by its name is wasteful and clearly a misallocation of scarce resources particularly as we are here talking of subsidizing consumption.


If at all there is going to be justification for any subsidy payment it must be limited only to production as it is adjudged to have the potential to boost capacity. But there is everything wrong with the way and manner we are now currently attempting to deregulate the pump price of petrol.


It is difficult to properly conceptualize price deregulation under the current regime except we are content with what has been dubbed price modulation. You cannot have a market whereby product importation is still under the monopoly of the State with the requirement for occasional announcements of depot prices and claim to have price deregulation.


For any serious and definitive progress to be made in the desired direction, the state must hands-off importation which should be handed over to the major oil marketers. It is anomalous for the State to be announcing prices and then turn round disingenuously to claim that it has no hands any longer in the determination of pump price of products.


It is also not in order to retain some of the regulatory agencies with their mandate which clearly  and still claim to have deregulated the market for petroleum products. As has been proposed, what regulation that will remain following deregulation should be confined to quality assurance and the need to keep a keen eye to ensure that the oil marketers do not exploit their monopoly to fleece the consuming public by guiding against profiteering.


Therefore, from where I stand and as far as I am concerned, we are yet to bite the bullet and resolve to make up our minds to deregulate the products market and end the shame of the characterization of Nigeria as the only dominant oil producer that still has to resort to importation of fuel for its consumption needs. But this administration must rise up to its responsibility on this matter to free the economy from this albatross of subsidy payment.


It is in its second term and therefore on its last leg and therefore should be able to muster the political will which has been so painfully lacking all these years to push through this belated but much desired termination of this harmful, shameful, growth impeding payment of corruption laden subsidy.


The multilateral finance agencies as has been announced have made the removal of subsidy for petroleum products and for power supply as well as the unification of exchange rates as preconditions for the approval of the country’s loan requests. It is opportune to leverage on such demands as anchor to push through some of these urgent and badly needed policy reforms.


But beyond the issue of the deregulation of petroleum products market, there has been no talk lately about the shameful state of the country’s refining capacity. It would seem as if we have all given up on the almost dormant state of the nation’s three refineries as it now remains regrettable that the sale of the refineries by President Obasanjo at the twilight of his administration   in 2007 was reversed by the successor Yar’Adua administration.


Who knows by now we could have put all the issues regarding the importation of the petroleum products and associated problems behind us? And if we are able to deregulate the pump price of fuel, we might then be in a position to attract private capital into the sector.


As it is common knowledge, refinery business is capital intensive and nobody in his right mind would be prepared to undertake such investments under a regulated market environment. In fact, the reality is that it is impossible to attract institutional funding to undertake this investment under the prevalent price regulated regime.


The expectation was that by now the Dangote Refinery at the Free Trade Zone here at Lekki must have been near completion to operationalize its 650,000 barrels a day refinery installed capacity. But for one reason or the other this refinery has suffered a number postponements of the projected time for commencement of operations. It is stating the obvious to observe that when this refinery comes on stream that it will be a game changer as it is bound to be impactful on the Nigerian economy.


It would create large opportunities for employment as it is set to end the gory of refined product importation into the country albeit at market price if we remember that it is operating from a free trade environment.


But above all, as a nation we must come to the realization that fossil fuel is being gradually made redundant as technology pushes at the borders; talk of electric cars and what have you. Be that as it may, there must be no going back on the avowed determination to deregulate the Nigerian oil market this time around.


Chizea, an Economist, writes from Lagos


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