The Group MD of the NNPC and Minister of State for Petroleum, Dr. Ibe Kachikwu, on Christmas Day announced that the Federal Government was not ready to totally deregulate the petroleum market. He added – quite surprisingly – that the price for petrol at the pumps will be N85.00 by the January 1st, 2016. Since I have learnt to watch from afar, I wondered at how that was going to be possible, given that at the time that was said, the ‘real’ price of petrol in Nigeria was at least N140.00. Abuja gives people illusions. Anywhere else you visit in Nigeria, you get the fuel – at the filling stations – at anything between N140 and N250. In most of the South-West, the pump price of N87 is retained for everyone’s view, while the differential is paid by the buyer after the sale. With the black market boys, it’s usually a different ball game.
A day later, and while visiting another refinery – Kaduna this time – Dr. Kachikwu made to overturn what he was quoted as saying the day before. This time he talked about price ‘modulation’. The ‘grammar’ is much, but he said they have learnt how to make prices move with market fluctuations. Kachikwu also stated that he does not want to take a position on whether the government will stop paying subsidies, but that they will continue setting prices. I say all of this is unnecessary, for several reasons.
Let me clarify. I had written a few weeks ago, in a well-publicised article titled “The Hunt For Nigeria’s Magical Fuel Subsidies”, in support of President Buhari’s apparent reluctance to remove fuel subsidies. I joined President Buhari in asking if there were any subsidies in the first place. I quoted the Ministry of Finance and PPPRA (Petroleum Products Pricing Regulatory Agency) from their 2011 submissions to the effect that the final cost of fuel at the pumps in Nigeria was determined up to 80 percent by the global price of crude. My argument was that the price of crude has kept dropping – from $110 per barrel when the argument was made, to $37 as I type – a 67 percent drop at least. Yet the subsidies kept increasing so to speak – or at least never disappeared. The Minister of State recently stated, at the NNPC town hall meeting a week ago, that the subsidy for this year 2015 is at least N1 trillion. I believe him. I saw the list of companies and the subsidies they collected in the newspapers recently, and my heart sank.
So if we have had a 67 percent drop in crude oil price, and the PPPRA is still quoting the landing cost of fuel at N93, leaving a subsidy still, of N6.50 per litre, multiplied by say 40 million litres a day consumption, the nation will still have to pay at least N270 billion this year.
Now even if we wake up in this country – all 170 million of us (father, mother, children, grandmothers and grandfathers) – and all we did was drank fuel for breakfast, lunch and dinner, we could not have incurred the kind of bill these smart fuel importers have imposed on us. I recall speaking with the MD of one of the oil companies – an importer – and in his words “this our industry is not for saints’. That is to put it mildly.
So if we have had a 67 percent drop in crude oil price, and the PPPRA is still quoting the landing cost of fuel at N93, leaving a subsidy still, of N6.50 per litre, multiplied by say 40 million litres a day consumption, the nation will still have to pay at least N270 billion this year. And it could be more than that. The magic never stops
First of all, how was the N1 trillion Kachikwu spoke about arrived at, in a year in which crude oil prices trended down constantly? He himself stated a couple of days back that the subsidies were ‘magical’, if I may use my earlier terminology. Hear him:
“So, I don’t want to be involved in this controversy of subsidy or no subsidy and whether it is provided in next year’s budget or not. What is critical is two fold: the amount we spent in the past providing monetary subsidy is huge without accounting for it and the amount of corruption involved in it which we have not been able to track.”
…government should totally hand-off the price of petroleum immediately and wind down the PPPRA and even the PEF (Petroleum Equalisation Fund)…
Still the same Kachikwu has now been convinced that Nigeria consumes 40 million litres of fuel every blessed day, as against his assertion while he was being confirmed by the Senate that his calculations showed that the figure was more like 25 million litres. So he is a very difficult man to quote.
As I typed this, I received an alert that fuel price has now been reduced to N86.50kobo, from N87.00.
My own take at this point is that government should totally hand-off the price of petroleum immediately and wind down the PPPRA and even the PEF (Petroleum Equalisation Fund), for the following reasons:
- There is no better time, than now, to so do. Crude oil price is crashing still, and may remain low for quite a while. Whereas no one can actually predict the direction – because very few human beings are privy to the dark room where these trends are being determined by those who run the world, a pragmatic view tells us that the this is the time countries like ours are being made to pay for the years of a surfeit of petrodollars;
- Government totally deregulated diesel and the PPPRA has no purview on the diesel market. The market for diesel has stabilised at around N150 per litre, and buyers and sellers are very comfortable at that level. If we allow petroleum prices to float now, the worst that will happen is a spike to N140 (the average black market price), and then demand and supply forces may stabilise prices. The workings of everyone that understands the market, show that, really, the landing price should be below N80 today. Let us dare these oligopolists! The downside is if crude oil prices increase again. But this is still the best time to get out of that subsidy nonsense;
- Again, it bears repeating that our resistance to fuel price increase in January 2012 was really because we knew that we were being conned. With all the arguments mounted by Dr.Okonjo-Iweala late in 2011, and of course by the then Governor of CBN who was coopted as the poster-boy (the great debater that he is), Nigerians wanted to get to the bottom of what really went on in that market. That was how we found that Okonjo was talking of N1.3trillion paid out as subsidies for 2011, while the CBN stated that it was N1.7trillion. The Accountant General had N1.6trillion, while the PPPRA had a different figure entirely. At the end of the day, the real figure was N2.3trillion for 2011. Alas none of the people who were involved have been punished in any way. In fact, almost all the companies featured in the recent list of beneficiaries of N407 billion were paid out by NNPC for the same purpose – subsidy. Some Nigerians are sitting on untold trillions through this means;
- For price equalisation throughout the country, for which the PEF exists, the fact is that prices have not been equal for ages. And what is more, businessmen are importing fuel from Niger Republic already for sale up north.
I doubt though if the government will summon the courage and political will to do the needful immediately. This is the time to jettison political considerations and the age-long deceptions.
I think there should be other things to do with money than throw it at these people, for the purpose of petroleum. Let them ground the country if they want. We know that the barriers are high and that they can sabotage other entrants – including the government – on the high seas. The biggest favour Buhari can do Nigeria – and himself – right now, is to totally get out of that market. Let petrol sell like rice in the market. The only items worth subsidising are things we really produce here, whose proceeds remain in the country. We can subsidise crude oil, for example – for local refineries at its cost plus a generous margin vis a vis international prices – but never imported petrol. I doubt though if the government will summon the courage and political will to do the needful immediately. This is the time to jettison political considerations and the age-long deceptions.