THE DEREGULATION OF THE DOWNSTREAM OIL SECTOR: MATTERS ARISING
The Federal Government surprised most Nigerians last week, with the sudden deregulation of the down stream petroleum sector. After preaching, cajoling, persuading and even begging President Muhammadu Buhari to deregulate the downstream since the day he came to office, many of us- diehard proponents of deregulation were beginning to give up hope. I almost gave up hope after the global oil price came below 30 dollars per barrel, extinguishing all forms of subsidy and nothing happened. That was a perfect time to deregulate and yet government stubbornly stuck to its position. Instead it took the ill-advised cosmetic step to reduce the price of PMS from 87 to 86.50 Naira per liter. The only reason, I did not give up hope completely was my understanding of the potent power of economic realities to punish misguided stubbornness and unrealistic policy options. With the projected recovery( often cyclical) of the global oil prices, with the continued dwindle in Revenue, the sustained supply gap and with no provision made for subsidy in the deficit-laden 2016 Budget, I was certain that the government would be 'forced' sooner or later to let go. Though I was worried about the size of the economic damage that would have been caused before then, given the growing suffering of Nigerians at filling Stations due to the sustained scarcity and the sharp practices at the NNPC Depots and filling Stations. So when it happened last week after wasting one year and after further damaging the economy, even I was shocked by its suddenness and steepness. Though I will like to congratulate the government for finally seeing the light and making a U-turn, the way and manner this happened has caused several questions and matters to arise. TOTAL DEREGULATION OR MERE REMOVAL OF SUBSIDY.
The government needs to be categorical on what it has done, because removal of subsidy does not automatically translate into full deregulation . We have even heard people call what has happened-Guided deregulation. When we argue that it is full deregulation, some ask why the price cap? Why will the government be fixing prices, 135-145 Naira per liter? Should not the market be allowed to fix its price like it is for diesel and other essential products in the market- Food & Medicines? . Many people feel that in a fully deregulated and free market there should be neither minimum, nor maximum price. Is this therefore for real or an interim measure? Should this change in policy not be backed by legislation to grant comfort to all stakeholders in the industry?
SUBSIDY REMOVAL OR A NEW FORM OF TAXATION
NNPC is expected to source its foreign exchange to import PMS from the official foreign exchange market where the dollar still sells at about 199 Naira to the dollar and then it will sell its products at about the same price as the independent marketers who will buy forex from the interbank or parallel market at a minimum of 285 Naira per dollar. That will result in a huge profit for NNPC and the Government. So have we moved from subsidy to taxation? Is this a smart way to fund the deficit?
HAVE WE INDIRECTLY DEVALUED THE NAIRA OR CREATED A THIRD FOREX MARKET
When the government uses a different exchange rate(different from its official rate) to calculate official transactions and enact policy change, what does that mean? By announcing that the new price of PMS was based on an exchange rate of 285 Naira to the dollar, the government to all intents and purposes has devalued the Naira without admitting it . Alternative view is that Government has created a new forex market, bringing the total to three- official rate, fuel import official rate and parallel( Bureau De change) market rate. How do these multiple rates promote Macroeconomic and market stability?
HOW SOON CAN WE RAMP UP LOCAL REFINING
Ordinarily, this deregulation( If it is exactly it) should remove a major obstacle to local refining. Asking businessmen to sell their product below cost and or limiting their margins is a major disincentive to investment. So we expect the refineries that have been on the drawing boards for years to move to the construction sites. Also with NNPC making huge profits from this new arrangement, it should be in a position to service its existing refineries regularly and carry out Turn Around Maintainance ( TAM) on due dates, without waiting endlessly for subsidy repayments which never come on time. All things being equal, soon we shall bring this chronic fuel scarcity and all the fraudulent activities associated with subsidy administration to an end in our Country. Emphasis being on all things being equal, because of the notorious "Nigerian factor"
HAVE WE SEEN THE END OF THE POWER OF LABOUR TO LEAD CIVIL DISSENT
From the military days until now, the organized labour represented by the Nigerian Labour Congress( NLC) and the Trade Union Congress( TUC) have provided the major bulwark against government excesses, unpopular government decisions and tyranny. The June 12 resistance that led Babangida to step aside was led by the organized labour and its associated unions( PENGASAN and NUPENG ). We recall the bravery of the Kokoris of the time. All efforts since Babangida, Abacha, Obasanjo and recently Jonathan to remove subsidy or to deregulate the downstream oil sector has been challenged by the organized labour. At each point, they organized strikes supported by the civil societies that grounded the Nation for days and some for weeks. Adams Oshiomhole shot to National lime light because of these strikes. Almost always, they succeeded in reducing the governments initially announced prices and also obtained relief measures for workers and agreed on what the subsidy savings would be used for. Abacha's PTF and Jonathan's SURE-P were two far reaching efforts to cushion the effects of the partial subsidy removals.
All these while, the labour unions were united and they spoke with one voice. But for the first time in recent history, the Labour has been divided and so could not take a united action, therefore the General strike called by the Ayuba Wabba- Led faction of NLC was largely ineffective, while government reached an agreement with the Ajaero-led faction, as TUC withdrew from the strike arrangement, destroying the unity of Labour and its power to lead civil dissent. Is this good or bad? As a pro-deregulation enthusiast and business man,this is good, because the labour unions could not disrupt businesses and further cause injury to the struggling economy. But as an Activist and Nationalist with a sense of Justice, fair play, and history,I am not quite sure. With no valid opposition from a largely disunited PDP, there is no more deterrence for the Government in power. It seems to have conquered labour, with the active connivance of Adams Oshiomhole, a one time labour leader and so can enforce its policies without fear of any strong opposition or dissent. While this may have served the Nation well this time, the consequences of this divide & rule may hunt us in the future. Only Time will tell.
The government needs to be categorical on what it has done, because removal of subsidy does not automatically translate into full deregulation . We have even heard people call what has happened-Guided deregulation. When we argue that it is full deregulation, some ask why the price cap? Why will the government be fixing prices, 135-145 Naira per liter? Should not the market be allowed to fix its price like it is for diesel and other essential products in the market- Food & Medicines? . Many people feel that in a fully deregulated and free market there should be neither minimum, nor maximum price. Is this therefore for real or an interim measure? Should this change in policy not be backed by legislation to grant comfort to all stakeholders in the industry?
SUBSIDY REMOVAL OR A NEW FORM OF TAXATION
NNPC is expected to source its foreign exchange to import PMS from the official foreign exchange market where the dollar still sells at about 199 Naira to the dollar and then it will sell its products at about the same price as the independent marketers who will buy forex from the interbank or parallel market at a minimum of 285 Naira per dollar. That will result in a huge profit for NNPC and the Government. So have we moved from subsidy to taxation? Is this a smart way to fund the deficit?
HAVE WE INDIRECTLY DEVALUED THE NAIRA OR CREATED A THIRD FOREX MARKET
When the government uses a different exchange rate(different from its official rate) to calculate official transactions and enact policy change, what does that mean? By announcing that the new price of PMS was based on an exchange rate of 285 Naira to the dollar, the government to all intents and purposes has devalued the Naira without admitting it . Alternative view is that Government has created a new forex market, bringing the total to three- official rate, fuel import official rate and parallel( Bureau De change) market rate. How do these multiple rates promote Macroeconomic and market stability?
HOW SOON CAN WE RAMP UP LOCAL REFINING
Ordinarily, this deregulation( If it is exactly it) should remove a major obstacle to local refining. Asking businessmen to sell their product below cost and or limiting their margins is a major disincentive to investment. So we expect the refineries that have been on the drawing boards for years to move to the construction sites. Also with NNPC making huge profits from this new arrangement, it should be in a position to service its existing refineries regularly and carry out Turn Around Maintainance ( TAM) on due dates, without waiting endlessly for subsidy repayments which never come on time. All things being equal, soon we shall bring this chronic fuel scarcity and all the fraudulent activities associated with subsidy administration to an end in our Country. Emphasis being on all things being equal, because of the notorious "Nigerian factor"
HAVE WE SEEN THE END OF THE POWER OF LABOUR TO LEAD CIVIL DISSENT
From the military days until now, the organized labour represented by the Nigerian Labour Congress( NLC) and the Trade Union Congress( TUC) have provided the major bulwark against government excesses, unpopular government decisions and tyranny. The June 12 resistance that led Babangida to step aside was led by the organized labour and its associated unions( PENGASAN and NUPENG ). We recall the bravery of the Kokoris of the time. All efforts since Babangida, Abacha, Obasanjo and recently Jonathan to remove subsidy or to deregulate the downstream oil sector has been challenged by the organized labour. At each point, they organized strikes supported by the civil societies that grounded the Nation for days and some for weeks. Adams Oshiomhole shot to National lime light because of these strikes. Almost always, they succeeded in reducing the governments initially announced prices and also obtained relief measures for workers and agreed on what the subsidy savings would be used for. Abacha's PTF and Jonathan's SURE-P were two far reaching efforts to cushion the effects of the partial subsidy removals.
All these while, the labour unions were united and they spoke with one voice. But for the first time in recent history, the Labour has been divided and so could not take a united action, therefore the General strike called by the Ayuba Wabba- Led faction of NLC was largely ineffective, while government reached an agreement with the Ajaero-led faction, as TUC withdrew from the strike arrangement, destroying the unity of Labour and its power to lead civil dissent. Is this good or bad? As a pro-deregulation enthusiast and business man,this is good, because the labour unions could not disrupt businesses and further cause injury to the struggling economy. But as an Activist and Nationalist with a sense of Justice, fair play, and history,I am not quite sure. With no valid opposition from a largely disunited PDP, there is no more deterrence for the Government in power. It seems to have conquered labour, with the active connivance of Adams Oshiomhole, a one time labour leader and so can enforce its policies without fear of any strong opposition or dissent. While this may have served the Nation well this time, the consequences of this divide & rule may hunt us in the future. Only Time will tell.
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