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Are Nigerians Prepared To pay 180Naira per Litre?

Nigerians should brace up to pay more for petroleum products, particularly for petrol and kerosene. Reason: The prices of the two fuel sources may soar above N180 per litre as from early January 2012, no thanks to plans by President Goodluck Jonathan’s government to deregulate the downstream industry of the oil and gas sector.
The deregulation policy is a key factor in the yet-to-be-passed-into-law Petroleum Industry Bill (BIP) currently before the National Assembly.

The PIB is based on the report of the Oil and Gas Reform Implementation Committee (OGIC) set up by the Federal Government in year 2000 to carry out a comprehensive reform of the oil industry. It provides the new legal framework for the organization and operation of the entire oil industry in Nigeria. Specifically in the downstream industry, where refining and sales of fuel is done, the PIB recommends the deregulation of the industry to allow market forces determine the prices of petroleum products.

Deregulation leaves market forces as the sole determinant of products’ prices. While over the years, many Nigerians have opposed the implementation of the policy in the oil and gas industry, international finance institutions and donor agencies like the World Bank and IMF have been very harsh in the criticisms of the successive governments that have sustained the policy for a single inherent flaw they condemn as inimical to the growth of the Nigerian economy – subsidy.
In 2008 alone, the subsidy fees paid by the Nigerian government to maintain a uniform price regime in the sale of petrol and kerosene throughout the country were put at over N630billion. That amount was equivalent to about 50 per cent of the capital budget of the Federal Government.

Besides making up for the price of the products where its landing cost exceeds the government regulated pump price per litre, this cost, it should be noted, also covers the cost of payment of freight to truck owners and marketers who carry the fuel from the ports in Lagos and Port Harcourt to other Nigerian cities and rural communities located outside these coastal states. Reasons: The local refineries are no longer functioning and the pipeline transportation facilities that had hitherto carried these products to depots and storage facilities in states other than Lagos and Rivers had long packed up due to oldage and non-maintenance crisis.

But the majority of citizens, backed by the organized labour, careless. Hinging their stance on the fact that the country is richly-endowed with crude oil deposits, it will not be like asking for the moon if Nigerian citizens demand some form of benefits like paying lower prices for the bye-products of crude oil they consume, even if that means the government subsidizing prices for them.
It is believed that the Jonathan’s government has so far spent in excess of N850billion in subsidizing the price of petrol and kerosene in the last 17 months to citizens.

And this is definitely one price the Jonathan’s administration is no longer prepared to pay; it has other competing socio-economic needs to attend to – from bad roads, schools, hospitals, potable water, electricity, industries and even security – the huge sums spent in fuel subsidies, would be more beneficial to citizens and the economy if channeled into the rehabilitation and building of the afore-listed infrastructure. That is the government’s thinking.

But will President Jonathan go ahead to deregulate the oil and gas industry without the backing of the law, in this case, the PIB? Or will the President wait first for the bill to come out of the National Assembly and for him to put pen to it to become a law before the deregulation comes into effect? These are some of the bogging questions that had surfaced following plans by President Jonathan to put an end to all forms of fuel subsidy as from 2012 fiscal year. The removal is likely to feature in the N4.8trillion budget estimate Jonathan may present to a joint sitting of the National Assembly in November.

For keen watchers of the Jonathan’s administration, there has never been any form of pretence that his government is anti-subsidy. In fact, in a subtle way – devoid of the noise that comes with formal government announcements on policy decisions – the government had gone ahead early in the year to deregulate the kerosene business, as it is evident that the product now sells at various prices determined by market forces in the country – above the government N50 per litre price regulated regime. For consumers of diesel and aviation kerosene, the two commodities had long been left in the hands of market forces even without any government public pronouncement.

Many oil marketing firms, and even portfolio careers, now import the two fuel products and sale to consumers at prices not regulated by the government. It was the inability of these businessmen to match the huge demand by consumers with supply that led to the crisis in kerosene supplies earlier in the year. Today, kerosene still sells far above N50 per litre throughout the country, and no case of the reported seal-up of any filling station by regulatory agency DPR has been heard. Perhaps, the Department of Petroleum Resources (DPR), has been dormant realizing it lacks the moral teeth to sanction erring fuel stations. Nigeria’s four state-owned refineries function at less than 20 per cent of total installed capacity.

The result is that the nation – a major global crude oil producer and exporter – is left with no option than to be import- dependent to meet domestic needs. And it will be morally unjustifiable for any regulator to dictate prices to marketers granted licences to import and sell, not for products that the government is not ready to reimburse the excess sums that is incurred if products are sold at recommended prices to consumers. Former Petroleum Minister, Rilwan Lukman, one of the earlier advocates of the deregulation of the industry had posited that “the Nigerian downstream petroleum sector faces enormous challenges that have discouraged third party investment in new refineries and contributed in making existing refineries cost centres.”

Till date all the private firms granted licences to float refineries have failed to bring their work programmes on stream because of the fear they may not recoup their investments under a regime where government dictates prices of their end products. Agreed, that deregulation remains an inevitable government policy to salvage the situation, but given the impact on an already-improvised majority of citizens, it would have made more sense for the government to at least have one functional refinery in the country to meet domestic needs (at affordable or cost reflective prices) before the policy comes into effect.

For now, if Jonathan goes ahead to implement the policy, with or without the DPR, and the bulk of the products will have to be imported, it is very obvious given the volatility of the products in the international market, Nigerian may pay up to N180 per litre for petrol and about N160 for kerosene.

 



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