All Stick, No Carrot: The Morning After Buhari’s Petrol ‘Deregulation’

May 13, 2016by Tope Fasua0

The Federal Government, after a meeting with unions, NNPC and other stakeholders, yesterday announced that it will now ‘fully deregulate’ Premium Motor Spirit (petrol) prices, because it has come to the conclusion that Nigeria cannot continue subsidising that subsector, among other reasons. This action has met with kudos from many quarters, and knocks from others.

I happen to be one of those who opposed the removal of subsidies in January 2012, but for me, the chief reason then was that I believed we should not be bamboozled into overlooking the massive fraud that had happened under the so-called subsidy regime. Nigerians later found out that N2.3Trillion was paid out as subsidies in 2011 – an unprecedented figure, and a record-breaking fraud, as most of that were for phantom fuel supplies. The irony is that today, all the perpetrators of the heist are still walking around free, and most of the cases have gone cold – including the one involving one Honourable Farouk Lawan who was caught with $600,000 in his Shagari-type hat, in a sting set up by the SSS allegedly on the orders of former President Goodluck Jonathan. Meanwhile, our best shot at tackling corruption is to pursue one man for false asset declaration. But I digress.

By every means, the government should exit this business of ‘subsidy’ because it has enabled criminals to feed fat on the blood, sweat and tears of hapless Nigerians. I had advised that government removed its hands entirely when crude oil dropped to $28/barrel. That was the perfect time. But the next best time, is now. However, trust Nigerians, if government says ‘not more than N145, hardly will anyone sell below that upper limit. My observation of the type of economic system we have been running for the past decade is one which enables superrich people to take advantage of the poor. It is scorched-earth capitalism.

There are many issues that need to be carefully considered, this morning after the government ‘bit the bullet’. First, how did PMS prices climb up to N145 in Nigeria in a time when crude oil – and PMS prices – are at all-time-lows elsewhere? What happens when crude oil climbs to $80 or more? Officially, naira has devalued by about 33 percent since 2011 when fuel sold at N65 (even though with much subsidy). The point is that we were never able to shake this subsidy thing. Even when crude oil price went as low as $28, the PPPRA still alleged that subsidy was being paid – even though they claim that 80 percent of pump price depends on global crude prices. The bond between the regulators and importers/marketers is so strong, and the poorest of the poor bear the brunt of their incest. An importer told me over the weekend how he imports at anything between N86 and N150 per litre (landing price), with his transportation cost from the ports to filling station being N14 per litre, and I asked how come their prices never go down even though in the countries where they buy these refined crude, prices have crashed – sometimes up to 70 percent!

Crude oil prices determine pump price in other places. I recall that two years ago, PMS was $4.00 per gallon in Houston, TX, USA. The last time I was there – two weeks ago – it was $1.80. In London, the pump price is presently an average of GBP1.08 (or $1.50 per litre). It used to be over GBP2.00. In the UK, 61 percent of fuel price is taxes (partly to discourage people from driving but to instead use the train and buses). So, the real price is much less than what appears at the filling station.

The reality – to Nigerians – is that as the price falls elsewhere, it climbs in Nigeria. Mind you, in these other countries, not only is per capita GDP (or average income), like 100 times more than Nigeria, but they also (like London) have fantastic and cheap transport systems that makes it totally optional for one to drive into any filling station. In fact most workers have no cars, and when they do, they use them sparingly. We can see Mayors (Governors), and even their Prime Ministers, inside trains and buses. This way, they use the services they provide and are able to assess their efficacy. The story is different here. Government hardly exists for the poor.

The other issue is how this pans out from today. I bought fuel in Minna about a month ago at N300 per litre. In Kaduna three weeks ago it was N230. Those guys are not going to listen to this ‘NOT MORE THAN N145’ business. Will petrol stations selling above N145 in most places in Nigeria suddenly reduce their prices? I doubt it. When Kachikwu came with ‘price modulation’ I said it was meaningless then, but the crowd of cheerleaders, cheered him on. Then they ran into a sandbank and have had to now ‘deregulate’. But is this full deregulation? Why should government have anything to say about prices in a full deregulation regime? Regulation should be about quality, but we know – in a country where PPPRA and co issue certificates of delivery for empty tankers and tankers laden with water – that no one will regulate any quality. All sorts of fuel will make it into Nigeria. From red, to pink, to yellow, to colourless PMS. We are used to all that. But if the NNPC says nothing about prices, do our wonderful importers and marketers want to sell PMS at N2,000 per litre?

I pity the poor in Nigeria. If fuel has moved from N3.00 in the time of Obasanjo, to N65 under Yar’Adua, to N97 under Jonathan (whom we fought to a standstill for trying to move it to N140) and now N145 without debate, BY HOW MUCH HAVE PEOPLE’S SALARIES GROWN? Even for we business people, how much have our charge-out rates grown? How much can a trader or manufacturer mark up his goods? I just feel like living standards are dropping; a helpless, sinking feeling like it will all catch up with one soon enough.

We get charged by the banks anyhow these days. Stamp duty nibbles at our money like rats, Fashola’s people have increased electricity bill by 45 percent – and they charge you whether they give you light or not; transport costs for those who go public has gone up by 300 percent in the last few years (chances are it will have been up by at least another 50 percent this morning). Are we being thrown to the dogs? Already, there has even been more scarcity after the announcement, for whatever reasons. Meanwhile the VP says we should expect an increase in VAT to 10 percent anytime soon. Ee de joo?!

Maybe. I had written before that the Buhari government was performing a dangerous chemotherapy on the economy. I advised that they should try and infuse nutrients rather than the one way street of pains and more pains to the people. Who listens? Again I repeat; it is evident that the closer one is to government the less possible it is to see reality and feel the people’s pulse. The ordering of policies – however necessary they are – is a bit reckless. A carrot-and-stick policy should have some carrots. Where are the carrots here? All we see is the stick. Poor Nigerians are being made to feel like they are the cause of Nigeria’s malaise. All we hear is how we should bear more and more pains, because ‘Baba is working hard for all of us’. The budget was eventually signed less than a week ago, and disbursements have not been made. And now this? Inflation, which has been galloping, will gallop some more, eroding the livelihood of salary earners. And we say people should not be corrupt? It is more painful if we consider the fact that those who have been ‘lucky’ to wangle their ways into government are still living in Byzantine opulence, with their entire lifestyles – including the fuel they put into their many state-sponsored luxury cars – being paid for by these same poor Nigerians.

My recommendations are that government should help tackle these powerful cartels – if they can. Governments have never done well in that department though – the reason why NONE of the 2011 subsidy scammers are anywhere near jail and are still hobnobbing with the high and mighty. Government should also take the provision of public transportation more seriously – beyond these three-legged rickshaws and buses that break down every two years. Abuja, where I live, is a quintessence of the lack of imagination in this regard. There is no reason why Abuja cannot have a London-type bus system today, which serves as example to other states. Also, NNPC still has a great role to play in this new regime. It is NNPC that should serve as the reference for Nigerians. If crude oil prices have led to a crash in PMS prices worldwide, NNPC should be able to bring in its own fuel and sell at moderate prices and still make a profit. There is no reason why NNPC cannot sell at, say, N80. If NNPC is honest, the market will correct itself. But if the massive corruption it is known for persists, Nigerians might as well soon be buying at N1,000 per litre. The inimical relationship between oligopolists and Nigerians is manifest in the fact that diesel price has remained high in spite of fluctuations in crude oil prices. Things go up here and never come down.

Then the government has to ask itself if it makes sense for Nigerians to buy fuel at the same price in every area. So what is the role of the Petroleum Equalisation Fund going forward? Niger Republic sited a refinery close to our border in Katsina State. Many Northern states should naturally obtain their requirements from there – or Cameroun – rather than rely on what comes in through Lagos. I believe deregulation should be done properly. Government should lay off price setting. I am not even sure if government should be concerned with hoarding – as it says it will now be going around enforcing. Let anyone who wants to hoard, hoard. Mind you, this PMS thing is ‘spirit’. If you store too long, it escapes. NNPC can intensify its efforts, and probably government may coopt a few well-structured marketers to work with it in selling at transparent prices devoid of the usual ripping off that Nigerian businessmen love to do.

Then there is the problem of foreign exchange – the real basis upon which government has now bailed out. The government is broke, admittedly. But it is risky to leave us all to the vagaries of the ‘unofficial’ market. If powerful players manipulate that market, and we end up buying dollars at exorbitant rates beyond the current N320, that could have debilitating effect on fuel supply, inflation spirals and everything else. Again, the government is playing a very dangerous economic strategy; and it is worse that this government abhors debate. It just does things and expects Nigerians to live with it. This is one downside of the Buhari government, why some believe that he holds Nigerians in disdain. This is the reason why today, we are complaining of low electricity generation because of the activities of the pipeline vandals. Even government officials bellyache about vandalism, as if it is not their roles to placate the people and ensure these adverse reactions don’t happen in the first place. Buhari may be recovering monies stolen in previous regimes, but sometimes, I feel he is losing what is more than money; goodwill, our unity, the people’s unalloyed support, and what have you.

The morning after, Labour is doing its usual dance. We saw all that in the days of Oshiomhole, whom many thought was solidly on the side of the people but who ended up proving that he was just another bourgeoisie. NLC threatens a strike. They may end up crippling the economy for poor people for a few days. And it usually takes months for businesses to come back after each strike. We hear labour leaders usually do that to collect money from government. Let them spare us the wahala, if they are already in on this. The real problem with labour is that their leaders are exceedingly rich – on the subventions of the poor workers – such that whatever they say and do is but a charade. Still, government should step up and own the narrative. The people are suffering much. All stick, no carrot.

by Tope Fasua

Tope Kolade Fasua is a Nigerian ex-banker, entrepreneur, economist and writer with 28 years of work, business and policy analysis experience. He is the founder and CEO of Global Analytics Consulting Limited, an international consulting firm with its headquarters in Abuja, Nigeria, and footprints in the United Kingdom, USA and United Arab Emirates. Fasua has authored numerous columns on newspapers and six books. He currently keeps regular columns on policy analysis issues with Premium Times and Daily Trust newspapers.

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