Politics of Deregulation and Subsidy Removal (1)

I am fanatical about the belief that it is neither religion nor ethnicity that causes instability of Nigeria's political economy. On the contrary, the fundamental causes are traceable to unemployment, lack of values underpinning society, moral decay, the value flux occasioned by the get-rich-quick mania, poverty, frustration disease burden and the suffocating insecurity walking on four legs.

My spirit will never agree with the communiqué issued recently by the Governors Forum, currently chaired by the Rivers State Governor, - Rotimi Amaechi as reported by national dailies calling on the President to immediately hike the pump price of petroleum products in the country. Most embarrassing also is the move to hinge the payment of the N18, 000 minimum wage recently signed to law on the hike. The call by the Governors Forum is undemocratic, punitive, and irresponsible because the Forum seems to be relishing the misery of the Nigerian masses and one begins to wonder if the Governors were elected to inflict hardship on the electorate.

I join hands with those civil society Groups, who posit that political corruption, rather than the issue of petroleum subsidy is the major problem bedeviling development in Nigeria. The assertion was jointly made in Abuja by the Publish What You Pay (PWYP) Nigeria Coalition and Zero Corruption Coalition (ZCC), which are pro-transparency, accountability and anti-corruption civil society organizations. For me, it is a strategy to empower desperate politicians to the detriment of the people.

About 17 months ago, I reject the policy of deregulation and the logic behind it even though I do not quarrel with the logic behind moderate liberalization. My position since then has not changed. The administration of former President Olusegun Obasanjo pushed for deregulation because he saw an economy that was near comatose economy and heavily yoked in a debt peonage. Government realized that it would be necessary to boost production levels of the refineries by inviting local marketers to apply for licenses to build private refineries. This neo-liberal paradigm failed because independent marketers were solely driven by driven by the desire to maximize profit. The failure of this attempt led to deregulation of the downstream sector in the country, while efforts were made to effect turn around maintenance on the refineries.

At that time, it was thought that the liberalization of the downstream sector would dismantle the natural monopoly of the state owned enterprise, create competition in the downstream, reduce the cost government spends on subsidizing the sector and can consequently used the resources freed up to handle the socio- economic and welfare needs of the Nigerian people. Boost in Foreign Direct Investment to the Nigerian economy.

The Nigerian government is aware that it cannot face the problems of the downstream sector in isolation and is well aware of the potential effects on the labour market. It is possible that in the short term unemployment may arise due to price increases and the attendant problem of potential job losses by workers in the refinery, this will be done by investors who aim to maximize efficiency, once they acquire control. Potential savings in the downstream sector are defined as the difference between the actual cost of supplying petroleum products to consumers and a benchmark cost corresponding to the procurement of these products from world markets under competitive conditions; and are subdivided into three categories: procurement, refining and distribution.

The question that arises is how does government stimulate competition? Well that is the challenge because since the refineries to be privatized are natural monopolies. Government must effectively make sure that collusion does not happen once the refineries are sold; government also must still be able influence price mechanism without actually fixing price ceilings otherwise the exercise of privatization would have been in futility.

Comrade Akpatason argued long ago that “a deregulation policy founded on petroleum products importation is an open invitation to chaos and crisis, as the facilities in place, particularly those for storage and distribution are grossly inadequate to manage the volume of imported products sufficient to meet local demand. The issue of Customs duties at the ports for imported petroleum products should be addressed before the policy can work.” Deregulation imposes two types of policy conditions, namely quantitative and structural. Quantitative conditions are imposed at the macroeconomic level of the poor Nigerians, while the structural ones are for institutional and legislative policy reforms. All of them prove to be not relevant to tackling the challenges that Nigeria faces, moreover the policy is unfair, undemocratic, ineffective, and inappropriate mainly because they undermine democratic accountability within Nigeria and will deprive the poor of the access to services (education, health, etc) at a low cost. Yet the influence of the oil industry bill to open up the domestic market trend is so powerful that the government cannot

The fears expressed by the people is that the so called benefits of oil subsidy removal will be hijacked by cartels if government has not fixed the refineries, allow private refineries top operate., and putting in place infrastructures such as pipelines network, jetty and storage facilities, good road network, functioning railway system, and the role of industry regulators in ensuring equity and fair play among others.

Petroleum Minister Dr. Mrs Diezani Allison- the Petroleum Minister may not believe that Nigeria has had an over dose of deregulation. Without the refineries working in their optimal capacities, the massive importation of petroleum product will only promote the growth of the foreign economies, to Nigeria's disadvantage. If local refining is encouraged, some of the extra charges, such as freight/port and other landing costs in the pricing template, will be removed. The deregulation policy will inflict untold hardships on the poor and ordinary people who constitute more than 70 percent of Nigeria's over 150 million people,”. These are fallacies. Previous attempts at deregulation, with the full deregulation of kerosene and diesel clearly demonstrate that deregulation cannot and does not reduce the hardships faced by consumers, rather it will increase it.

During the Obasanjo era the Petroleum Industry was deregulated to the extent that the pump price of Petroleum products was increased for about six times. Again, the same regime sold oil blocs to the political jobbers, cronies and sycophants under the rubrics of loyalty to the ruling People Democratic Party (PDP). The same compradors class that bought over the oil blocs, sabotages the economy by recruiting engaged in oil bunkering. Even the multinational Oil majors are no exception hence it is difficult to know exact how many barrels of oil Nigeria produces a day. This is more so because the British and Asians have vested interest in the illegal, informal and criminal economy.

Over the years, monies earmarked for turnaround maintenance of refineries ended up in the projects of bourgeois contractors. The overarching goals are to leave the refineries to decay so as to alternate the capacity utilization of the refineries. This unedifying Status-quo provides welcome excuses for independent marketers to import fuel and sell at cut-throat competition. The independent marketers and the licensed oil bunkers also have access to huge bank loans. It was this mindless buccaneering class that wrecked horrendous havoc in the banking sector when leading to the mass sack of workers in the banking industry.

So far, there has never been any improvement in the human and physical infrastructure in the country; as investment in education, physical, health and other social infrastructure has nosedived. Rather than calling for the removal of subsidies on petroleum products, the government we expect should turn its attention to the hemorrhage the nation has been suffering in the form of crude export underpayments of $553 million (N8.295billion) by extractive companies, funds trapped in failed banks (N5billion), the N654 billion withheld by NNPC since 2005 for lifting oil, all these reported in the NEITI audit reports of 1999-2004, 2005 and the 2006-2008.

Government is turning a blind eye to the wanton looting of a huge sum of N667.295 billion by a few individuals and companies. This amount comparatively is higher than what Nigeria government used in 2010 for debt services in both domestic and foreign debts burden as appropriated in the appropriation budget of 2010. All these when put together seems to validate the assertion of former President Obasanjo that the present government does not have the political will to fight corruption. In such circumstances, how will the Jonathan administration assure Nigerians that the removal of subsidy will not exacerbate corruption?

It is too early for the Jonathan administration to lavish the goodwill of the people. President Goodluck Jonathan knows that a direct price increase in petrol now would definitely provoke strikes nationally, which will definitely undermine his regime. In addition, the price of oil internationally has remained stable at over $78.00 per barrel since the beginning of the year, thereby providing the regime with some room. The removal of fuel subsidy in Nigeria is a direct affront to the United Nation's Millennium Development Goals (MDGs) number 1, of halving the number of people living in poverty by 2015 and at odds with global concern for the low levels of economic growth and recently reported declining human development index in Nigeria. This is the flipside of the policy Diezani has not explained to Nigerians.

Idumange John, is Deputy President, Niger Delta Integrity Group


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Articles by Idumange John