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The raging battle over the implementation of the new minimum wage across board is a further stain on the credibility of our governance system. While it is conceivable that electoral promises made on a podium could easily be jettisoned by politicians due to deficient morals on the part of our leaders, it is criminal for a political leader to arbitrarily disobey the law that was constitutionally passed by the National Assembly and signed into law by the president. This to me is the apogee of whimsicality and capriciousness in public administration. Our aspirations as a nation will never transform into concrete improvement in our lives under this trending circumstance.
It is no longer news that the pump price of petroleum products will be increased very soon. Different reasons have been proffered for this impending increase by government officials and agents of petroleum products importing companies. They have brandished the absence of a deregulated regime as the major obstacle to price stability, construction of new refineries and unhindered availability of products. Is that really the case? The only deregulation they subscribe to is increase in pump prices of different products without consideration for the affordability of the ordinary Nigerian. Let us critically examine their position to see if it holds water under our present developmental framework.
The first point is the propaganda that Nigerians are enjoying subsidy on petroleum prices. This is very far from the truth. In an earlier piece in August, I wrote as follows: “The consequence of unfettered deregulation on the economy without consideration of our economic dynamics is better imagined than experienced, therefore necessary questions must be asked and answers provided before implementation of the policy.
These questions include:
1.Are we really subsidizing petroleum products?
2.If the answer to the above is yes, in what form are we enjoying the subsidy?
3.Considering the claim by the Petroleum Products Pricing Regulatory Agency (PPPRA) that premium is subsidized at N83.72/ltr, will it not be in the interest of all if full disclosures of price build up is made?
4.What is the ex-refinery price of a liter of petrol?
5.What is the landing cost of same product?
6.What percentage of the ex- pump price is attributable to margins?
It will help the debate if we make a comparative analysis with Ghana that imports about 50% of its local consumption of petroleum products. The pump price of petrol in that country is an equivalent of N150/ltr, but the government was honest in disclosing to the people that over 40% of the price build up was as a result of taxes. Note that import duty is higher in Ghana. So, are we importing at ex-refinery price of supplying countries or their ex-pump prices? This can also be linked to the argument that subsidy is responsible for the depletion of our foreign reserve which is far-fetched. Are the good people of Nigeria responsible for the comatose state of the refineries? Will the increase in pump price reduce the consumption requirement of Nigerians? What is depleting the foreign reserve is the failure of the government to repair existing refineries as well as construct new ones to minimize importation of refined petroleum products. This malady cannot be cured by deregulation either. Like I stated in an earlier piece, there are three price determinants of petroleum products in a deregulated regime which the government must deal with to curb wastages due to operational inefficiencies. These are:
1.International price of crude oil: This the government can control through the quick repair of the refineries and construction of “Green Refineries” as promised Nigerians during the presidential debate. Once the refineries are operational, buying crude oil from NNPC under a hedged pricing arrangement will also eliminate cost associated with shipping and sundry maritime charges.
2.Exchange Rate Differential: Fiscal and Monetary indiscipline on the part of the government will definitely result in high inflation and depreciation of the local currency. Considering that crude oil is priced in United States Dollars, a fractional depreciation in the value of the Naira will lead to adjustment in the pump prices of different products. The government must not pass its inefficiency to vulnerable Nigerians to bear.
3.Cross Subsidization: This is the measure the government relies upon in ensuring the protection of the lower income bracket. The government could for reasons of affordability and protection of the environment reduce the deregulated price of kerosene and make up the difference in aviation fuel which tilts to a middle/higher income usage. It is also used to offset the cost of maintaining product availability in all parts of the country. This guarantees equilibrium in petrol pricing across the nation.” The above submission is still valid and nothing has changed.
Their second postulation is that imposition of tax on petroleum products (which they have termed deregulation) will engender the construction of new refineries which will in turn create jobs, ensure a healthy foreign exchange reserve and drastically reduce prices. This argument falls on its face when subjected to a thorough strict proof. There is no empirical evidence to show that “deregulation” is a catalyst for investment in the sector. Ghana was importing about 28% of fuel needs prior to walking the path we are being pushed to walk. Five years down the line, no new refinery has been built while the imported product volume has jumped to almost 50%. The case is the same in Senegal, Ivory Coast, Togo, Benin and other “deregulated” African countries.
The economics of fuel importation and refineries is as simple as other malaise facing the country. A private investor in the sector will consider the cost of power, distribution infrastructure and the security situation on the country. The cost of importation will always be cheaper for the oil moguls unless these issues are holistically addressed. We are facing the risk of creating an importation cartel that will ultimately frustrate every government’s effort at creating minimum conducive atmosphere for building new refineries. The example of generator importers in the power sector should serve as a useful lesson in this regard. The monster we are about to create will subject unmitigated pressure on our foreign exchange reserves and continuous devaluation of the Naira.
Thirdly, the product availability pandering is a non-starter when viewed through the prism of distribution infrastructure. The Hon. Minister of Petroleum Resources informed the entire country that we are importing more kerosene that actually required, yet Nigerians could not get the products. It degenerated to the ridiculous extent of the governors supervising the distribution of the product in open stadia across the country. This abnormality lingered while the cost of kerosene went over the roof nationwide. What has changed in two months?
Ordinarily, there is nothing wrong with tax imposition on petroleum products. The problem is that we operate a corrupt and inept system that thrives on zero accountability. In other climes such taxes are either sector or project defined to ensure transparent administration of the proceeds. It could be targeted at educational infrastructure, health facilities or even a mitigation levy to generate funds for a new refinery. The government can do the following before any “deregulation” of the sector:
*Make full disclosures to Nigerians on what constitute subsidy in this instance.
*Construct the promised green refineries to ensure that locally refined products compete in prices.
*Allocate anticipated tax receipts to determinable developmental projects.
*Create a buffer between the economic management team and entrenched interests in the sector.
*Review the licensing regime to accommodate a mandatory clause that ensures the building of refineries by big importers.
*Ensure that tax revenues are shared based on consumption of the products.
It will serve the interest of Nigerians if the proposed taxation is halted for now.