DEREGULATION OF PETROLEUM PRODUCTS
In an ideal free market economy, deregulation is the operating parameter in all facets of industrial and commercial activities. Market forces are always given the right of way to arrive at an equilibrium position at which there will be no victor and no vanquished between consumer and producer and both will feel satisfied.
Critical but simple analysis of the interplay in petroleum marketing shows that the equilibrating forces at play in price determination are unnecessarily subjective. The supply side is controlled by exogenous factors while the demand side is ruled by indigenous fiat. Political forces are at play in fuel supply in Nigeria resulting to fiscuts between the government and labour.
Let us consider the differentials in producing fuel locally with all the trappings of employment opportunities and continuous importation and selling at landing price without subsidy. The deregulation agenda should be lauded and welcomed but it looks like putting the cart before the horse. We are all aware of the use the subsidy savings would be put into but to talk of it now is like starting a building from the roof and looks like one cutting his nose to spite his face.
The nation should be informed of the cost of refining a litre of PMS product in Nigeria. The Petroleum Product Pricing and Regulatory Authority on 15th August put the landing cost of a litre of PMS product at =N=129.21 and the marketers margin and other handling charges at =N=15.49 which bring the landing of a litre of fuel to =N=144.70. The official pump price of a litre of fuel is =N=65 which puts the subsidy at =N=79.80. With these figures at hand it will be foolhardy for any sane person to continue to argue that there is nothing like fuel subsidy.
For comparative purposes, it is necessary that the cost of producing a litre of fuel in Nigeria should be ascertained to square it with the landing cost of a litre of imported fuel. However even if they are the same, which nevertheless should not be, the issue of refining all the fuel used in Nigeria within our boarders should not be wished away. If the deregulation is introduced and implemented at this point in time the pump price of a litre of fuel will approximate =N=144.70 from =N=65.00. The multiplier effect of the new pump price under the deregulated downstream sector would be devastating and indeed crushing. The nation would be riddled with run-away inflation which may trigger social unrest.
Government should not continue to fiddle with building more refineries even by private investors with all the needed cooperation and assistance from the government. With mass unemployment starring us on the face, government should not continue to create employment opportunities in those countries where imported fuel is being refined. Whatever it costs to build a refinery in Nigeria, let it be relative to the annual expenditure of =N=1.2 Trillion on subsidy provided employment opportunities are created for our school leavers. It is known that tens of thousands of idle hands are employed in overseas petroleum refineries from which Nigeria gets its fuel supply. This is done to the detriment of our millions of idle hands. By continuous importation of PMS and other petroleum products the nation is losing in two crucial sectors; the masses are denied of employment while the imported products are supplied at prohibitive cost. As long as the petroleum products are imported so long would the nation deny the unemployed of gainful employment in oil sector.
The federal government should stop dreading construction of new refineries. Government is the biggest spender in the economy, the largest employer of labour ad the lender of the last resort. If private investors could not venture into oil refining due to certain constraints, government should brave it. First, efforts should be made to ensure that the four existing refineries are producing optimally even though they cannot produce fuel for millions of vehicles in our roads. Local refineries would accelerate economic growth, reduce crime and stabilize the polity.
On the argument of using the savings from the subsidy to provide infrastructural and social amenities, there is tendency for the amenities to be provided to be swallowed up by the hyper-inflation the new price of fuel will usher in.
Akamobi writes from Lagos.