Finding itself suddenly at its wits’ end, following the tumbling prices of crude oil, the government, as usual, is contemplating subsidy removal from petroleum products. Oil prices, which once peaked at $147 per barrel but had remained at over $100 per barrel in the past seven years, have suddenly dropped below the $80 mark. And for a government that is heavily dependent on crude oil sales for the funding of its activities, such a downward slide in the prices of the commodity always implies an immediate financial crisis, which it believes can only be addressed by subsidy removal.
Though cloaked this time as deregulation of the downstream sector of the oil industry, the Minister of Petroleum Resources, Diezani Alison-Madueke, said recently at the oil trading expo in Lagos that ending subsidy was the only way to stimulate competition and engender growth in the industry. Quoting the World Bank, the minister reportedly said that, “Subsidy on petroleum products in Nigeria and other oil-producing African countries would be unsustainable,” both in the medium and in the long terms.
This has come as no surprise to those who have been following closely trends in the oil industry. The Nigerian government, over the years, has always tended to equate deregulation with an upward review of prices of petroleum products. Available evidence shows that between 1978 and now, the prices of petrol have been adjusted 16 times, resulting in a rise, through the years, from 15 kobo to the current price of N97 per litre. The last time a price adjustment was carried out, fixing the pump price of petrol at N143 per litre, from N65, nationwide protests erupted, forcing the government to review it to N97.
While deregulation is actually the right way to go, the government has always found it difficult to go the whole hog in its implementation. How can the government be mouthing deregulation while still holding fast to price fixing and ensuring that the product sells at the same price in all parts of the country? By just stopping at price increase, the government only ends up defrauding the people by fixing any amount and claiming such to be the competitive rate at which importers of refined fuel could operate and make profit.
To justify its position, the government also flaunts a dubious template that it claims provides the basis for arriving at the prices. The cost, the government would want the people to believe, is the same, irrespective of the country from which the fuel is imported. On the template is also an item tagged demurrage, implying that every litre of fuel imported into the country must incur demurrage, which must be passed on to the consumers. Why have the falling oil prices in the international market not reflected in the pump price of petrol? This has led many to even argue that there is nothing like subsidy at all and what is being bandied about as one is a scam.
The probe by the House of Representatives, which revealed that Nigeria spent over N2 trillion on subsidy in 2011, over and above the N245 billion originally budgeted, tends to give credence to such claims. Since 2012, the country has been losing, on the average, N971 billion yearly to the so-called fuel subsidy.
It is even tragic that the country that produces the largest quantity of crude oil in Africa has been importing refined products in the past 20 years, with no efforts to buck the trend. It is believed that the four government refineries have been made moribund to guarantee the continued importation. The last time a report came out on the state of the refineries, it was revealed that they were operating at just 10.46 per cent of their installed capacity. Yet, privatising them has become a herculean task even after Alison-Madueke admitted that the government was not cut out to run businesses.
What is baffling is that the government has done nothing to change the situation even when it knows that the subsidy has been a direct product of corruption, arising from Nigeria’s inability to refine crude oil locally. While the government-owned refineries have remained comatose, very little has been done to encourage local entrepreneurs to build refineries. About 18 of them that were licensed had remained dormant until the multi-billionaire businessman, Aliko Dangote, signified interest in building one last year. Even the Greenfield refineries promised by the government have remained a mirage.
If the government is indeed serious about deregulation, the starting point should be to privatise the refineries, which continue to gulp billions of dollars of public funds in turnaround maintenance that turns nothing around. Thereafter, efforts must be made to encourage those who got licences for private refineries to build them. Not a few Nigerians were alarmed when a recent report quoted the minister as saying that the ongoing mass importation of refined petroleum products would continue in Nigeria and other African countries for the next 20 years.
If local refineries spring up in sufficient numbers, not only will many jobs be created, the middlemen who are currently feeding fat on the so-called subsidies and who have refused to plough back their massive profits into developing local refineries will be eliminated. And, in no time, Nigeria will derive maximum benefit from being an oil producing country by even becoming a net exporter of refined petroleum products
