Recently, president Goodluck Jonathan disclosed it was not going back on deregulation of the oil sector as
the policy’ is one of
the plans which the administration plans to disconnect cabals which have been holding the nation by
jugulars in the distribution and sales of petroleum products.
In a nation wide broadcast to the country last week
president Jonathan, who accused some politicians and other
interest groups of going beyond
the implementation of the deregulation
policy to hijack the protests,
noted that the he took the decision after consulting
widely
with state governors and leadership of the national assembly.
According to
president Jonathan “given the
hardship being suffered by Nigerians and
after due consideration and consultations with state governors and leadership
of the national assembly,
government has approved
the reduction of the pump price of petrol to N97
per liter.
“Before now, there had been allegation from government
quarters that some politicians and civil society groups, as well as political
elements were suing the platform of
labour on the controversy generated by the fuel subsidy
removal to whip up political sentiment.
“It has become clear to the government and well
meaning Nigerians that other interests beyond the implementation of the deregulation policy
hijacked the protests. This has prevented an objective assessment and
consideration of all the contending issues for which dialogue was initiated
by government. Thee same interest seek
to promote discord, anarchy, and insecurity to the detriment of public peace”, Jonathan said.
Meanwhile, in view of government’s plan to deregulate
the downstream oil sector and gas sector (petroleum refining and marketing),
industry experts believe this will open up the sector to new
investments
However, hen competitive forces are unleashed, it
will result in efficient resource allocation expected to eventually drive down the price of fuel in the country.
Commenting on the issue, Aaruna Abubakar, a public analyst
noted that the petroleum sector in the country right now could be compared
to what telecomm in Nigeria looked like before the market opened up.
While disclosing that owned, it was a
monopoly as there was no competition and service
was poor.
Thus, according to Abubakar “ very few people owned a
telephone and it was very expensive. Also because telephone is an infrastructure crucial to economic growth the Nigerian economy also
suffered in those years. Any observer to
telecom sector in Nigeria will notice
that the advent of GSM in 2002 has fueled
economic growth . The deregulation of the oil sector will also have
a similar but larger effect (oil is a major input in manufacturing ) on the
economy.
For Abaran Maku, minister of information in a
statement issued through his press secretary, Joseph Mutah, he noted that the oil
sector deregulation intends to open up the sector for growth and investment .
According to Maku, through removal of petroleum subsidy might cause an initial like in the price of petrol
at the take off of the deregulation policy, government is taking measures to
check the trend through the active participation of the
Nigeria national petroleum corporation (NNPC)
in the sale of fuel to prevent profiteering.
In the same vein, the
information minister revealed that the control of petrol price had stifled growth of the downstream sector and prevented
private sector investment in the refining of petroleum products. “Private
investors will not seize the opportunity
to establish refineries that will
compete in production to bring
down the price of petrol in no distant
future and create more job opportunities for Nigeria’s” the minister stated.
While assuring that funds that will accrue from deregulation would not form part of the
regulate budget but would be managed by credible Nigerians from diverse
interest groups who would apply the resources to projects that have direct
bearing on the common man, the minister united that part of the subsidy reinvestment programme is the restoration of
the railways across the country to provide
alternative and affordable means of transportation of goods and
services.
Already, the federal government has entered into
partnership with the original builders of the
nations existing refineries to
turn them around for production at installed capacity between 18 and
24 months.
However, three
new refineries are expected to be
build in Lagos, Kogi and Bayelsa states by the private sector
with government equity participation to
refine (400,000) four hundred thousand
barrels of crude daily.
Notwithstanding, it is happy news that the dispute on
the “removal of subsidy between the federal government and the organized labour
and civil society has ended somehow
after the presidents address to the nation and the reduction of pump
price of petrol from N141 to N97.
Although labour said that the new price
of N97 was a unilateral by the
government, it was magnanimous enough to call
off the strike and the mass
protests.
Nevertheless, the week long strike of workers and the subsequent protests followed
immediately the unilateral action of the
federal government in removing what is
termed fuel subsidy: that removal
resulted in increase in the pump price of gasoline from N65 per litre to N141
per liter in Lagos. That more
than 100% increase in the coast of transportation and other items in
the Lagos and many other parts of the
country.
Although the last five day strike and demonstrations by workers and others caused a lot of inconveniences the episode brought home vividly the
evidence of great destruct between
the government and the governed
It has also
portrayed a situation where ordinary people would not want to be taken for
granted again on policies that would
affect their living condition. The
disagreement has left the realm of subsidy removal to embrace other sectors of government, including accountability.
There is no
doubt that a policy of subsidy removal
on gasoline is a progressive one of it
actually exists and well explained to the people. All what is necessary is
for the government officials to explain
the elements of subsidy in the
present price
Structure and articulate its effect on the economy
many Nigerian are unaware of the cost of the liter of gasoline produced at home as
against the imported lading cost
of such product.
Also, people are ignorant of the exact percentage of
imports to total domestic consumption at any
given time. Many would question the rationale of importing refined
products into a country which is a large
producer of crude oil . whey not
refine your crude abroad, if it is absolutely necessary and enjoy the
production of products associated
with barrels of crude oil?
The problem is whether there was subsidy on the
pump of N65 per liter of petrol before the increase of
N141 per liter
To me, if the imported cost of a
liter of petrol is N140, and the domestic pump price is N65, than there is an element of (N140-65) subsidy
of N75 in this case, government is right in its assertion of subsidy removal.
However, that
would not be the true story. The landing cost of 140 or
any figure would arise under an exchange rate of 155+ to 1 US dollar. If the
exchange rate had been fixed at 2 to 1 US dollar the imported cost of a litre
of petrol would had been less than 2. At 2 per litre, there would have been
nothing like subsidy. Thus, for an import dependent nation, the exchange rate
management is a fundamental issue. Common sense economics would dictate when it
is necessary to apply multiple system of exchange rate in order to solve some
problems.
In the justification to increase the price of
gasoline, the question of deregulation scrupulously crept in there is no reason
why a policy increasing revenue from oil product should be confused with
deregulation which is a policy of transferring the operations (manufacturing,
storage and distribution) into the hands of the private sector. As it should be
expected, government involvement in the field of deregulation would be to
ensure good standard of operation, security, tax and provision of
infrastructures.
The aim of the government and that of organized labour
would be to ensure that prices fixed by oil marketers are reasonable and
affordable especially, in a country with abundant crude oil. The duty of the
government is not to engage labour in fixing prices, which is the
responsibility of the stakeholders. One would expect that this process would
engage the attention of the government in the next three months in order to
solve once and for all, the naggings problem of subsidy.
It should be possible under full deregulation for any
responsible government agency to account each marketer to buy domestic crude
(not at world price) but a figure slightly above the real cost of local
production with some agreed margin and allows such marketer refine its
purchased crude to its specification at the local refinery or any nearly
refinery of its choice. Thus, the ex-refinery cost of product could be
determination, storage distribution and tax, etc, this would be the real cost
of products.
Moreso, the giving of license for the importation of a
single product, example gasoline does not make economic sense. The cost of
gasoline should be determined in the context of other product like
kerosene, diesel funds and other
products associated with the refinery of any single barred of crude oil.
If all factors are considered including the real cost
of producing a litre of gasoline at ht local refinery and the additional import
cost under a favourable exchange rate, it can be concluded that there would be
no need for any subsidy.
What the government has done is to increase it’s
revenue through increasing pump price of gasoline. The argument of subsidy
removal or deregulation is not genuine or misleading.
After the bitter experienced of January involving strike
and demonstrations, the government should now spell out in details, it’s policy
on deregulation of the downstream sector of the oil industry end prepare to
hand over the operation of the down stream sector to the private sector where
it should belong. As indicated above, the efficient running of the refineries
and additions to existing numbers should be left in private hands with, of
course, meantives to attracts new investment.
In a nutshell, the question of corruption and the
existence of cabals will no longer be problem in a deregulated downstream
sector of the economy. The question now is what would happens to the supply of
products to the market if importation by marketers ceases because they are
afraid of being called “cabals’ at a point when home production is sufficient?
Etc.
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Druker,
Peter F. (1994) Management, Tasks, Responsibilities
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