OPS: Removal of fuel subsidy best for Nigeria’s economy
The Nigerian National Petroleum Corporation (NNPC) has said it would maintain its current ex-depot price of petrol until the ongoing engagement with organised labour was concluded. Group General Manager, Group Public Affairs Division of the NNPC, Dr. Kennie Obateru, who made this known on Friday in Abuja, noted that the corporation was presently bearing the burden of importing refined petroleum products as the supplier of last resort, all in order to guarantee energy security for the nation. Obateru, who clarified the comments by his principal, Group Managing Director of the NNPC, Mele Kyari, at the State House, said the NNPC has no intention to preempt ongoing engagement with labour by unilaterally increasing the ex-depot price of petrol.
He said even though the corporation was bearing the burden of price differentials between the landing cost and pump price of petrol, NNPC as a proactive organisation has made arrangements for robust stock of petroleum products in all of its strategic depots nationwide. While stressing that this was to keep the nation’s supply chain with petrol at all times as he gave assurances of the corporation’s commitment in ensuring energy security as the supplier of last resort. He further assured marketers and all relevant stakeholders in the downstream sector of sustainable collaboration for the public interest.
Obateru advised that, “petroleum products marketers not to engage in arbitrary price increase or hoarding of petrol so as not to disrupt the market,” even as he urged motorists not to engage in panic buying. However, while public outcry greeted the hint by Kyari, of the decisions to sell premium motor spirit (PMS) at N234 per litre soon by putting an end to the N120 billion monthly petrol subsidy, the members of the Organised Private Sector (OPS) have backed the government’s decision, saying subsidy regime in its current form is not sustainable since it portends risk in the cost of governing the country post COVID-19.
The OPS, which is the umbrella body of the country’s chambers of commerce, including Manufacturers of Nigeria (MAN), Lagos Chamber of Commerce and Industry (LCCI), Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), NASME, NECA, NASSI, explained that it was a bitter and hard decision taken by the government which Nigerians must bear to avoid total collapse of governance and wastage of funds post COVID-19. In an interview with Saturday Telegraph in Lagos, the Director-General, LCCI, Dr. Muda Yusuf, said that for decades the burden of petroleum subsidy on the fragile economy has been a cause of concern for past and present governments and the private sector as well because it is an offshoot of the deregulation conundrum which has been marred by mass corruption in the downstream sector of the economy.
Yusuf noted that the OPS has been agitating and mounting pressure on government to allow full deregulation of the downstream sector by liberalising activities of petroleum marketers to take control of petroleum supply and distribution in the country, thereby channeling the massive huge subsidy funds to other critical sectors of the economy. Yusuf said: “The increasing burden of petroleum subsidy is an offshoot of the deregulation conundrum which is a major cause for concern. The subsidy regime in its current form is not sustainable.
There are a number of critical issues that need to be aligned. “We have the huge economic cost of petroleum subsidy and the inherent huge fiscal leakages which are clearly unsustainable. There is the social cost of the possible increase in petrol prices and the worry about possible backlash. There is the adverse investment effect on the petroleum downstream sector resulting from policy uncertainty and inconsistencies. Private investors will be reluctant to invest in petroleum refining if the subsidy regime persists. “There could be a social pricing window in the interim where petroleum products could be sold at a subsidised price.
The NNPC stations could be so designated since they exist in all parts of the country. The government will have to provide a limited budget for this. “The other players in the sector should thereafter be allowed to buy and sell according to the dictates of the market. We need to free the sector from the current repressive and suffocating regulatory framework.
The economy has suffered major setbacks as a result of the over regulation of the sector.” On his part, the President of MAN, Engr. Mansur Ahmed, said that the removal of subsidy on fuel importation is a positive development for the sector as it has been one of the reforms advocated by industry operators. According to him, the determination of fuel prices by Petroleum Products Pricing Regulatory Agency (PPPRA) is contradictory to the economic tenets of liberalisation.
“While it is understandable that government’s involvement in price determination is to prevent price gouging, however, rather than fixing prices, government ought to have strengthened its consumer protection mechanisms to checkmate consumer exploitation by industry operators. “Government’s role should essentially be price monitoring, and not price determination.” The industrialist pointed out that the current partial deregulation regime does not bode well for private investment. “The sector’s investment appeal will be significantly enhanced in a fully deregulated environment. Given its oil endowment, Nigeria has the potential to be a major refining hub in the Western and Central Africa region,” he said.