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Nationwide gloom as FG runs with downstream deregulation

•Exits price fixing, adds gas to Nigeria’s gasoline mix

It is no longer news that the Federal Government has finally yielded to pressures from fuel marketers to fully deregulate the downstream sector of the nation’s oil and gas industry as part measures to end decades of corruption -ridden subsidy regime. But what could interest the vast majority of the citizenry is that life may no longer be the same again given the additional spending they would be making for goods and services in a country with little or no social safety nets.

With no reliable mass transit system, poor power supply, high unemployment rate and rising food inflation at close to 13 percent, coupled with other challenges brought about by the COVID-19 pandemic, there is growing anxiety that tougher times and days of pain are already on the horizon.

“Government is no longer in the business of fixing prices for petroleum products. We have stepped back. It will now be determined by market forces. 

“Our focus now is on protecting the interest of the consumers and making sure that marketers are not profiteering. 

“This is about the survival of our country. There are certain things that the country can ill-afford at this time”.

With these statements, the Minister of State, Petroleum Resources, Mr Timipre Sylva, stoutly defended government’s full deregulation policy and thereby foreclosed the possibility of Nigeria ever returning to the era of fuel subsidy.

Though the government’s position appears very unpopular among Nigerians and has since triggered threats of industrial action from the nation’s Organised Labour, the Minister, in a media briefing last week, said the Muhammadu Buhari administration will not budge as deregulation remains the best remedy for the economic crisis created by the COVID-19 pestilence and its associated challenges.

Petrol consumers woke up last Tuesday to a rude shock of a sharp hike in price from N149 to N162/litre.

The anguish was heightened by an increase in electricity charges 24 hours earlier, which threw consumers into panic mode. Prior to this, the government had in April announced it would no longer be paying for under-recovery or subsidy on petrol, in line with current development in the global oil sector. However, since the announcement, several pressure groups, including the Nigeria Labour Congress have slammed the Federal Government for leaving the citizens at the mercy of greedy oil marketers who are now officially empowered to unleash predatory prices on consumers. They also believe the time wasn’t right for full deregulation, especially as government had just hiked electricity tariff in the midst of a pandemic. 

Among stakeholders resisting the hike in petrol price are the Nigeria Labour Congress and Trade Union Congress (TUC); who are consulting with civil society allies and relevant organs of Labour movement for a nationwide strike.

For instance, President of NLC, Ayuba Wabba, said in Abuja that the both unions plan to hold a meeting this week to work out modalities for an industrial action.

The TUC President, Quadri Olaleye, in a statement, confirmed that consultations had started. He said it was a most wicked and insensitive move to hike petrol price and electricity charges when jobs and businesses were adversely impacted by COVID-19. “They have developed a thick skin that our pleas and cries no longer mean anything to them. No government has raped this country like the present one; ironically it has enjoyed our understanding the most. They beat us and when we cry, they send security operatives after us or force us to pay a fine of N5m for ‘’hate speech’’. Our patience has run out,” he said.

More so, the Senate hinted it might hold an emergency session to address worries raised by hike.

But Sylva has since replied his critics, and insisted that those blaming the Federal Government for the hike in petrol price were totally ignorant of how deregulation works, stressing the government hopes to channel over N1 trillion hitherto spent yearly on opaque subsidy payouts to other ailing sectors needing urgent financial lifeline. He also said the policy decision was a consensus reached with relevant stakeholders assuring that despite its engrained short term pains, the longer term gains would be better.

Sylva explained that the interest of Nigerians was totally taken into account before the government approved the deregulation policy while appealing for public support.

He said: “You all know that President Muhammadu Buhari aligns with ordinary Nigerians, especially the poor.

“Left for him, he will never allow an increase in pump price; but for this to happen, it means that it is an inevitable decision.

“Deregulation will definitely come with some pains, but survival of the country is paramount. Subsidy regime was like we were burning our candles at both ends. You are subsidising at the pump and subsidising the foreign exchange. “So, if you put all the subsidies together, it came to more than N1 trillion and who were we subsidising?

“It is the same rich people that benefit from the subsidy and the poor people continue to lose from even subsidy. This country cannot continue to afford this subsidy.”

“The COVID-19 pandemic once took the price of crude oil to sub-zero. Nations paid people to have oil free. In Nigeria, the government had cut crude production from two million barrels to 1.412 million barrels per day. This has affected our revenue.

“We are also introducing a complaint box in the ministry of petroleum. If a marketer is raising prices beyond a certain rate, you report to us. We have become the police because our duty is to ensure the public is not cheated. We are now on the same side to police the marketers and retailers to ensure they do not profiteer from the public,” Sylva explained. 

He said that whenever crude oil price goes up, the price of fuel will also move accordingly, since the market was now deregulated.

He reiterated that in a few weeks time, the government would be rolling out the alternatives in the form of Compressed Natural Gas (CNG) and Liquefied Petroleum Gas (LPG), which are cheaper and better alternatives.

“In the end, I do not think that people will even feel the increase because by the time you get used to gas to fuel your car at half the price of petrol, you probably won’t think of petrol anymore. From next month, these alternative fuels will be available on a mass scale. We will start with the NNPC-owned filling stations across Nigeria, before making it go national. We will start dispensing CNG, LPG, LNG, to motorists who have converted their vehicles to use alternatives to PMS.

“Some privately owned stations have asked to be admitted into the programme.

Going forward, DPR will ask filling stations to upgrade and sell these new alternatives or their license won’t be renewed. It’ll go very fast and within a short time, it’ll be everywhere. It is expected to produce lots of jobs. There will be conversion kits everywhere. Soon, it will be everywhere. Later on, those who buy cars will buy those that can use gas and petrol or gas alone. Those driving keke are already enjoying it and they want it. This is a year of gas. 

“Let us allow this policy to mature. There are just teething problems, but a little down the line, Nigerians will be happier for it and this country will survive better economically” he said.

Under the fuel subsidy system, petroleum products were sold at a price lower than the landing cost with the Federal Government paying differentials that ran into billions of naira.

Under the current guidelines the government said the cost of the product would henceforth be determined by market forces in the international crude oil market, stressing it would no longer incur further costs on under-recovery.

The government also noted that the pursuit of a policy of transparency and accountability was being entrenched in the Nigerian National Petroleum Corporation (NNPC), adding that in the next few months, aside the recently published accounts of its subsidiaries, the Corporation will release its group’s audited accounts to the public.

More so, the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, had at a recent web seminar organised by the Extractive Industries Transparency Initiative (EITI), explained that the subsidy removal decision, amongst other steps taken by the government was geared towards weathering the economic headwinds posed by the COVID-19 pandemic.

She said: “Our country Nigeria is going through a difficult economic period because of the crisis of the COVID-19 pandemic. This same crisis has also given us the opportunity to undertake some reforms that have been very difficult to carry out in the past.

“In general, we have developed a fiscal stimulus package of N2.3 trillion, about $5.9bn multi-sectoral economic plan. The design is to be able to minimise the impact on the economy, to prevent contraction of the economy and prevent businesses from collapsing and also to protect the poor and vulnerable.

“Specifically, in relation to the extractive industry, we took the opportunity to remove fuel subsidy that has been a significant drain on our resources and on the economy.

“This we have been able to do by adopting a price modulation mechanism and the government has removed fuel subsidy provision from its revised 2020 budget and also from the Medium Term Economic Framework (MTEF) for 2021-2023. We don’t have plans to incur any expenditure on fuel subsidy.

“What that means is that the price of refined products PMS (petrol) will be determined by the global price of crude oil, so the price will keep changing according to how the global market operates”, she explained. 

Stakeholders have also weighed in on the deregulation matter. 

According to the Managing Director of OVH Energy, an Oando licensee, Mr Huub Stokman, Nigeria’s downstream industry remains the most fragmented in the petroleum industry value chain because it is competing with the Nigerian National Petroleum Corporation (NNPC), which, as operator and regulator, imports about 100 per cent of the country’s petroleum requirement. Stokman thus threw his weight behind deregulation, saying that the move will free up funds for the development of critical sectors of the economy.

For his part, energy expert and partner, Bloomfield Law Practice, Dr. Ayodele Oni, maintained that the price modulation model currently being adopted was not sustainable.

Nonetheless, Oni said that as many stakeholders have recognized, the current market realities make this an appropriate time to deregulate the oil sector and allow market forces to determine the pump price of petrol and create increased competition in the downstream petroleum industry.

He explained that the global crash in oil prices has been caused by the outbreak of the Coronavirus, resulting into excess supply over demand of oil in the global markets.

With no end in sight to the pandemic, he said it is unclear how long the crash in the global price of crude oil will last.

‘‘Currently, petroleum subsidy paid by the Federal Government of Nigeria is determined by the deficit between the expected open market price of petrol and the pump price both of which are determined by the PPPRA. The drop in global crude oil prices has resulted in the landing cost of petroleum and a consequential reduction in the expected open market price of petroleum and as a result, a reduction in the cost of petrol subsidy.

“The Federal Government’s actions in allowing market forces to determine the cost of petroleum has served as an indication to many of its willingness to deregulate the downstream petroleum sector. However, this outlook may be premature, as the Federal Government’s directives by all means indicate that the pump price of petroleum will still be regulated monthly albeit in line with prevailing market forces,’’ he said.

Chairman, Major Oil Marketers Association of Nigeria(MOMAN), Mr.Tunji Oyebanji, said without short-term hardship, Nigeria will be in deeper trouble and become like Venezuela.

‘‘So for the sake of my children and yours, we have to bite the bullet for a better future.’’

The MOMAN boss disclosed that at things stand now, the country is into full Deregulation, adding that deregulation means that prices will go up and down just as they went down in April

He, however, advised that Nigerians should brace up for higher cost of fuel, as Europe enters  the winter season when demand for refined crude goes up.

‘‘Already there are indications of more investments in local refining in Nigeria which will moderate the cost.  Fierce competition will also moderate the price. As you can see, not everyone is selling at the same price. So as things stand we are into full Deregulation.

Unfortunately this is coming at the time when most of our citizens are struggling with difficulties created within the context of the post Covid-19 economy, but we believe that Nigeria been presented with a historic opportunity to get it right this time as a country to rebuild our economy for the benefit of all Nigerians.’’

According to him, prices at the pump will have to be adjusted to reflect realities of the increase in ex-depot prices by PPMC, adding that the magnitude of the increase, timing and location is a decision left to each company.

‘‘Consistent with global best practices,  MOMAN does not dictate prices to its members as this would be anti-competition in a fully deregulated market.  We welcome governments action in allowing the market to determine prices as we believe it will prevent the return of subsidies while allowing operators the opportunity to recover their costs. This will in the long run encourage investment and create jobs. We all must remember the country is broke and can no longer afford subsidy. There is no provision for it in the budget.  With this, the incentive for  smuggling will be reduced. More funds will be available to the government for investment in infrastructure, roads, health, education and power.