Politics Of Fuel Subsidy …Why Is Nigeria’s Pump Price Static

With all its beauty, one of the biggest disadvantages of democracy is the decision on an issue by a presumed majority that lacks the requisite knowledge to decide properly. In Nigeria, where, more than half the population is illiterate, it is very easy to politicize thorny issues as long as the gullible majority is manipulated against government.
In the past four or so years, the freedom of expression often enjoyed in a democracy remained high, with all manner of views and actions that should have earned more knowledgeable handling. But because virtually everything in Nigeria, within the past two or so years, has been politicised, rarely has a reasonable common-ground been achieved on matters of important national interest.
One of such issues was the highly political public protest against deregulation of the downstream sector of the petroleum industry. Fondly remembered as the takeover Lagos’ protest which saw Nollywood stars and top musicians daily entertaining the jobless and gullible citizenry for free, the message was that government intended to remove subsidy on petroleum products and how that would affect livelihoods and the common man in particular.
Even the literate few, who ought to educate the illiterate many on the advantages of deregulation, played on the gullibility of the masses and ended up demonising the government. In the end, the unions, over-night civil society groups and countless other make-believe lovers of the masses, arm-twisted government into fixing the pump price of fuel at N97.
That was in spite of the fact that government explained that fuel marketers were shortchanging the country, to such extent that required urgent deregulation as was done in the telecommunication sector. With such exercise, prices of petroleum products would be determined by market forces and not left static while government continues to fund the greed of independent marketers.
With such deregulation, prices of refined petroleum products, especially the pump price of fuel would have been all time low by now, since the cost of crude has fallen below $50 per barrel. But trust Nigerians. They like to win every bet, whether head or tail. They are now asking questions, albeit, belatedly why prices should not fall.
They are asking why prices of petroleum products should fall in the United States of America (USA) and even nearby South Africa and Uganda, while Nigeria’s remain static. They have forgotten that what the Nigerian government wanted to do was what the affected countries did long ago without any, ‘Save Our Country’ strike by anyone.
Today, they are the better for it, … the worse. So, why can’t the price of petrol fall as it did in other lands?
Firstly, what Nigeria exports predominantly is crude oil while, it imports refined petroleum products to augment the little produced by our ageing refineries. Essentially, marketers either buy the finished products or refine the crude in other lands where, due to deregulation, it is much cheaper to refine than do so in Nigeria.
Under the subsidy regime, government undertakes the transportation cost, including other handling and insurance charges, explains Director of Communications at the Petroleum Equalisation (Management) Fund, PE(M)F, Mr. Goddy Nnadi. He said even when the products arrive Nigeria, there are other factors that go into the process which eventually further increase the cost, adding: “someone has to pay for all that, and thus, your prices remaining where they are in spite of what we find in other societies.
“Basically, Nigeria imports refined products, so she pays the cost of the crude which has come down globally now, and she also pays for the refined products, including the transportation and the inefficiencies that crop up in the system.
“All these combined, do not give Nigerians the real price of the product.”
“Also, issues like large vessels bearing refined products being unable to get to the ports due to their sizes and markets having to use smaller vessels to bring the products, bring added cost which would have been borne by marketers, if the sector had been deregulated, but borne by government.
“Another is the familiar issue of pipeline vandalisation. With the state of such pipelines which ought to transfer crude to the refineries, other more expensive modes of transportation have to be explored. Essentially, these are extra costs, which are very unnecessary but also add-up to the final cost of the product.
“If these extra costs are removed, then a reduction in prices of petroleum products will be feasible,” Nnadi explained.
The alternatives are to make local refineries work optimally and also encourage establishment of private refineries.
Unlike Nigeria’s refineries which are mundane and too capital-intensive to maintain and run, there are more modern refineries that are cost-effective that are used in other countries where public policies are friendly.
This, perhaps, accounts for why none of the many granted licenses to establish private refineries has taken off, while Nigeria’s existing refineries continue to operate below capacity.
To encourage the kind of competition that force down prices in the tele-communication sector, experts insist that deregulation is the solution. In such a case, price of petroleum products would be determined by market forces, like the fall in price of crude oil, determining price of fuel in South Africa and Europe.
Under such scenario, government needs not pick bills of marketers who, due to their inadequacies, incur more expenses in the name of subsidy.
Instead, what government ordinarily spends on such marketers could go into updating existing refineries or even building new ones, and through such competitive environment force down prices of products.
A situation whereby, Nigeria imports refined products at exorbitant prices while, her crude’s price slums below $50 per barrel, cannot automatically affect the pump price of petroleum products.
Rivers Chairman of the Trade Union Congress (TUC), Comrade Chika Onuegbu captured the scenario aptly when he said the fall in crude oil price did not automatically translate into fall in the pump price of petrol because in Nigeria, prices are fixed.
This means, even if the cost of refining petroleum products rises beyond N100, Nigerians must continue to pay N97, because government pays marketers the difference, while the fall in crude becomes a disadvantage because government’s earnings, sourced from the sale of crude to pay for extra cost of refined products, would not be available.
This, in short is the layman’s explanation to an otherwise thorny national issue. Many educated Nigerians knew all these but would rather incite labour and the jobless many against any form of positive reforms. They would rather repeat the familiar refrain, ‘government wants to remove fuel subsidy’ and will provide a long list of countries subsidizing the product for their citizens.
They would argue why Nigeria should import fuel when there are three refineries.
Basically, the orchestrated protests against deregulation were not against subsidy removal but against the Federal Government, mainly for cheap political gains. But here we are.
One expects those who pioneered the Lagos protests against deregulation to speak now against the static fuel price even when the price of crude is on a free fall. One expects political parties to articulate better alternatives to the present regime of fixing prices of petroleum products, but that’s what the parties are reluctant to dwell on.
So, here we are left behind by time and conventions of a trade in which, we ought to be major players, still wandering in the wilderness, with many more questions than answers.
My Agony is that those over-night socio-political elite, who, riding on the large crest of Freedom of Expression, manipulated the gullible citizenry to believe that government was indeed an uncaring demon, for insisting on deregulation, are not in a hurry to comment on the state of the industry, and why Nigerians are yet to experience any fall in pump price of petroleum products.
Perhaps, now is the time to champion the total removal of fuel subsidy and let the market stabilize on its own!
But in spite of all the challenges catalogued above, the Federal Government last night slashed petrol pump price from N97 to N87 per litre.

Soye Wilson Jamabo

Okonjo-Iweala, Finance Minister and Allison Madueke, Petroleum Minister