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THE OIL SUBSIDY ARGUMENT

By NBF News
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A good government is that which uses political power and the instrument of the law for the overall good of the society; the law being the thread that not only binds society and beats it into the rhythm of order, it is also the fulcrum on which other activities, government, private-sector driven and individual derive validity. Having knowledge of the import of the law and good governance, and why law is a leading tool in societal development, we can make a quick analysis of its role in solving the challenges arising from development.

A development system (to be) entrenched may be political, economic and social; the political system may be democratic, autocratic, monarchical, religious or a mishmash depending on the leanings of the people and the peculiarities of each society. No argument is made for the ranking of what system into good, better or best but how these reflect on the challenges of societal development.

A society of necessity has to develop, either positively or negatively; it lacks the benefit of a red-light intersection. Either there are policies to move the society forward or there are none with the unavoidable result of backward development as a result of society's dynamism. Society, as a being evolves on its own and the people in it innovate to either utilize the change for good or lean back to allow society run itself in a state of nature.

On the other hand, development policies may be made but with no or ineffective feedback mechanism; by feedback is meant accountability of public institutions and offices to the people directly or through their representatives. A feedback mechanism to ensure soundness in the system may include a section of the law criminalising certain actions and listing others for disciplinary measures as well as instituting by the same law an office to oversee proper operations of an agency by the law with constant innovative amends to avoid relapse and redundancy.

To start with, laws and policies of government are the fulcrum on which development rests. Government policies earmark a sector, make laws to regulate the sector and use a combination of laws and policies to guarantee the growth of society. Take the Nigerian oil-subsidy removal debacle. The removal of subsidy is government policy geared towards the development and transformation of the country by the agenda of the administration but how does this work without the law?

This is not achieved by the making of new laws but the full and transparent implementation of not just the laws but innovations of the legal instruments governing transactions in the sector. For instance, government issues licences to oil companies to explore and refine petroleum for local consumption and export but with the end game of liberalising for market forces to utilize. Subsidy is a major rent-seeking incentive for government officials, their cronies and cutthroat investors who would rather cut corners in the name of importation to be entitled to government subsidy funds and create a cartel-enrichment the government wants to disband. What can laws and policies do?

First, laws can create clauses in the legal instruments circumscribing the issue of licences providing completion of refinery-building duration clauses, conditions entitling oil companies to government subsidies, conditions under which licences would be revoked, criminalisation of certain sharp practices in anticipation by oil companies, etc.

Second, oil subsidy removal in phases of the progress of oil exploration and refining infrastructure embarked upon by oil companies through the granting of government licences.

This would involve inspections of oil infrastructure projects by the oil companies to determine revocation of licences or not, blacklisting on oil subsidy-collection qualification, the extent on subsidy removal for local production and consumption to be optimal, etc.

Third, a regulatory body to oversee government policies on daily production, ethical practices within the sector, labour relations for local workers vis-?-vis foreign oil companies operating within Nigeria and price regulation for the protection of local consumers among others. My concern for price regulation is two fold: oil as a public good with consequences for economic development should not be left completely to the private sector.

One of the arguments for having a government is the regulation of society and services provided within the society such that although government is liberalising and isn't directly involved in the production process by leaving same to private hands, it should have a moderating influence through regulatory policies to ensure access for all. Second, although one of the strong reasons for business is profit-making, profit-making should not be at the expense of service provision.

Service will not be provided if the price regime puts it out of the reach of the ordinary man who as a player in the economic process, would be ostracised by a profit-grabbing business enterprise more concerned with making abnormal profit than granting access to the product for economic development. A case in hand is the situation in Nigeria at the liberalisation of the telecommunication industry with initial prohibitive costs that put the service out of the reach of the ordinary economic player.

Oil as a more important and volatile resource may not easily settle and stabilize as the telecommunication market if left entirely to market forces hence my disagreement with the term 'deregulation' where it means a lack of regulation for the oil sector. The term 'liberalization' appears practically better for policy-control of the sector by the government. Secondly, the Nigerian Communications Commission as a regulatory body has been active in controlling the industry to prevent it imploding.

Kuye writes from Lagos.