By Chidiadi Ibekwe
Over the years the Federal Government has spent trillions in subsidizing fuel; a gesture that ought to benefited the people but has been scuttled by some unscrupulous participants engaged in petroleum products marketing. Reports from Petroleum Products Pricing and Regulatory Agency, PPPRA has it that a total sum of 2.3trillion was expended between 2006 and 2010 under the Petroleum Support Fund, PSF to pay marketers of fuel the difference between market prices and the pump price of petrol as arranged by government.
Analysts have questioned the rationale behind government’s continued sustenance of subsidy to the tune of trillions when such funds could be channelled into infrastructural projects that will in turn meet the challenges that ought to be surmounted in a deregulated economy. Speaking at a stakeholders workshop organised by the House of Representatives Ad Hoc Committee investigating local and foreign loans obtained by Federal and State Governments, the Central Bank of Nigeria Governor, Sanusi Lamido Sanusi said “Last year, we spent a trillion naira for which we are borrowing. Why should we be paying a N570 billion subsidy that the elite are enjoying at the expense of the Nigerian people? The money is going to a cabal. These are the same people that borrow from banks and do not pay. These are the ones rigging elections and are aiding corruption. We have to cut them off”.
Subsidy has not only resulted in the diversion of scarce public resources away from spending in critical infrastructure and human development but has discouraged competition, stifled private investment in refineries and encouraged smuggling of petrol into neighbouring countries where prices are higher. Obviously, the intent of fuel subsidy has been defeated as its administration is beset by ineffectiveness, leakages and corruption. Again it’s not as though the Federal Government is not informed on the negative impact of regulated prices on the downstream sector of the oil industry as well as the huge burden it poses on government finances but it appears that the will to implement deregulation is lacking.
In 2003, the Federal Government opted for deregulation with the overall objective of introducing competition, enhancing efficiency and improving supply. The policy involves the removal of government control on petroleum products prices, allowing market prices to prevail and the opening up of petroleum products importation to the full participation of private sector players.
Since its conception, several governments have canvassed and implemented some aspects of the policy such as the granting of licenses to build refineries as means of increasing private sector participation. The Yar’Adua administration set up a presidential committee on deregulation whose responsibility was to dialogue with various stakeholders and equally fixed a date for the commencement of deregulation in the downstream sector.
Yar’Adua said “we are committed to deregulation because we are convinced that subsidy distorts the system, encourages corruption and creates more problem than it solves. We are aware that initially there will be pain but those will be temporary and the whole nation will be better for it.” Reinforcing government’s commitment to deregulation, the then Minister of State for Petroleum, Odein Ajumogobia noted that “ the downstream sector is today characterised by government monopoly and dominance, mismanagement of existing refineries, lack of investment and infrastructure constraint. The present scenario encouraged sharp practices and makes Nigeria the only OPEC member that still imports refined petroleum products. Government wants to take the bull by the horn and stop these once and for all”. Ajumogobia also stated that a functioning industry would create the much needed atmosphere for an industrial boom which he highlighted as; self sufficiency in refining, regular and uninterrupted domestic supply of petroleum products at reasonable prices, creation of a favourable investment climate for local and foreign capital in a manner that would ensure optimisation of the nation’s downstream potential, a self financing and self sustaining sector as well as a downstream sector that guarantees return on investment.
Despite the good intentions behind the policy and dialogue with stakeholders and civil society groups the kick off date was vehemently opposed on the grounds that deregulation was not feasible at the time given the deplorable state of refineries, roads, railway and other socio-economic infrastructures. The critics listed fixing and building of refineries, availability of petroleum products, provision of an enabling environment for meaningful restructuring of the petroleum sector, repair of roads, fixing the problems around power generation and supply among the conditions to met before deregulation could take off.
To decisively deal with the problems of electricity which was among the 7 point agenda of his predecessor (late Musa Yar’Adua), Goodluck Jonathan in 2010 ordered the full implementation of the Electric Power Reform Act of 2005, launched the power sector roadmap, signed into law a new gas pricing regime that would govern the price of gas to power for the next five years and promised to engage all gas producers in ensuring availability of gas for power plants. He came out with plans for a national grid and steps which would boost Nigeria’s generating capacity to over 14000 mw in 2013. The CBN has also earmarked $2billion for funding power projects. These laudable moves have received international commendations and are already yielding results.
Goodluck Jonathan equally took a bold step in ensuring petroleum products availability. To curb incessant fuel scarcity, which before now had bedevilled the economy and which resulted from frequent delay in the reimbursement of fuel subsidy under the petroleum support fund, and ensure product availability, the Federal Government approved the introduction of sovereign debt instrument by the PPPRA. This sovereign debt instrument serves as a guarantee for prompt settlement of legitimate petroleum supply transaction on approved volumes in the event of delayed reimbursement beyond the allowed 45 days as stipulated in the guidelines of the PSF. Under this arrangement, marketers are required to make advance payments of administrative charges and petroleum equalisation fund charges prior to being issued with the debt instrument. The Nigerian National Petroleum Corporation, NNPC was also served with a 7 day ultimatum to end the perennial fuel scarcity or face the consequences. This move led to the creation of “NNPC War Room” and the disappearance of endless queues at filling stations.
Consolidating its efforts aimed at ending future artificially induced fuel scarcity by owning at least 50 percent of all the filling stations in country, NNPC increased its outlet to 502. The corporation has equally vowed to ensure a sustained policy of zero tolerance for fuel scarcity. Group General Manager, Public Affairs; Levi Ajuonuma said “NNPC’s new year tiding to the nation is that Nigerians should be ready to enjoy unimpeded supply of petroleum products all year round. I make bold to put on record that the era of product scarcity is over.”
Commenting on the constant availability of petroleum products at filling stations in the past seven months and the uniform price across the country, President Jonathan said “my team and I made no promises on adequate fuel supply in Nigeria. We simply did what was expected of those who govern. We delivered it and you are living witnesses to that”. The road and railway infrastructure are also being revived with various contracts awarded by Federal Government to ensure that they are in good shape. The dredging of River Niger is also in course.
Government should proceed with the implementation of the deregulation policy without any further delay. The precedence of certain sectors of the economy which have been deregulated such as the telecommunication industry and their numerous achievements underscore the need to fully deregulate the downstream sector of the petroleum industry.
No doubt the government has been able to tackle the problem of fuel scarcity and PMS is available across the country at the same pump price. But at what cost? As long as government continues to subsidise fuel consumption, recurrent expenditure will continue to balloon, while strategic sectors which need critical funding are denied of it.