Deregulation Apologists and the Looming Social Tension
12/22/2011 9:16:45 PM -
For upwards of three months, I have resisted the temptation of being dragged into the contentions about deregulation because I know there is nothing to deregulate. If the Nigerian budget is foisted on the masses and constitutes a parameter for the passing the 2012 budget, then the decision seems to be irreversible. As we canvass for the implementation of deregulation of the downstream sectors of the petroleum industry. This also implies that the so called subsidy removal for petroleum products will implemented. In fact, Nigeria's petroleum industry has become an enigma- difficult for even adepts to unravel. A moral crisis is looming and one cannot help but to join the fray.
Way back in 2004, the GMD of NNPC, Mr. Funso Kupolokun averred that the goal of the Nigerian government in adhering to the principles of privatization and liberalization is influenced by the successes of other countries in doing the same. He noted that deregulation was intended to dismantle the natural monopoly of the state owned enterprise by privatizing and deregulating price controls. This would creation of competition in the downstream sector by encouraging more companies to get involved and eventually supplying the market at competitive pricing levels. Again, the argument is that it would reduce the cost government spends on subsidizing the sector which runs as high as $1.5 billion annually, and can consequently use the resources freed up to handle the socio- economic and welfare needs of the Nigerian people. The wise men at the saddle of the economy also argued that deregulation would boost in Foreign Direct Investment to the Nigerian economy and reduction in transportation costs of products and people.
For me these are the same stale arguments that have created a class or thieving compradors and hawks in the oil industry. The Jonathan administration has decided to go ahead with the policy even against widespread disapproval on the part of ordinary citizens. The government though is taking note of other countries that have privatized, particularly those in South America. Summing up all the arguments, the most conspicuous gain of the deregulation exercise will be in savings generated from divesting in the sector, free up government funds for the development of infrastructure. Savings in the downstream sector are defined as the difference between the actual cost of supplying petroleum products to consumers and a benchmark cost corresponding to the procurement of these products from world markets under competitive conditions, ceteris paribus
Sometime ago, those managing the oil sector had said that 'Deregulation' of the Petroleum industry has no alternative. What most Nigerians believe (and I belong to this school of thought) is that the oil industry has had an over dose of deregulation, but what the apostles of deregulation have failed to explain is that deregulation itself is a policy that is predicated on certain assumptions. Deregulation presupposes a condition of full employment or the implementation of some welfare package in an economy where so more than 85% of graduates are unemployed.
There is also the question of how government will stimulate monopolies when the refineries to be to be privatized are natural monopolies. What the apologists of deregulation pontificate that there will be many suppliers in the Nigerian market, and this would encouraging competition and attendant lower costs.
During the Obasanjo era the Petroleum Industry was deregulated to the extent that the pump price of Petroleum products was increased for about six times. Again, the same regime sold oil blocs to the political jobbers, cronies and sycophants under the rubrics of loyalty to the ruling People Democratic Party (PDP). The same compradors class that bought over the oil blocs sabotages the economy by recruiting engaged in oil bunkering. Even the multinational Oil majors are no exception hence it is difficult to know exact how many barrels of oil Nigeria produces a day. This is more so because the British and Asians have vested interest in the legally, informal economy.
The Federal Government has not been able to maintain the existing refineries let alone build new ones. Deregulation within the Nigerian context means handing over the industry to a few, self aggrandizing capitalist hawks who constitute the bourgeoisie class that has access to huge funds to buy-up all the refineries and oil blocs, if the Federal Government implement a harsh deregulation regime, then the price of petroleum products would increase at geometric progression while salaries and wages of workers would stagnate. When there is spiraling inflation, it is only natural for workers to agitate for increased wages and salaries, so rather than bring about macroeconomic stability, the deregulation policy would aggravate the economic adversities of the working class, increase the misery index and stifle the war against corruption and induce sharp practices.
Deregulation would also liberalize oil bunkering since the same money bags who would bury up the refineries, and oil blocs are engaged in sabotaging the economy through illegal bunkering. Illegal oil bunkering would require the recruitment of violent youth or militant, who will protect the oil interest of the comprador class. Thus, deregulation would heighten militancy in the Niger Delta Region and bastardise the gains of the amnesty programme initiated by the Federal Government.
With deregulation, most independent marketers would adopt sundry unorthodox means to circumvent laid down procedure of conducting the crude oil business. while there are year that deregulation would increase the unemployment index in Nigeria and complicate the nations drive towards the achievement of the Millennium Development Goal (MDG) and Vision 20:20:20, deregulation would lead to cut-throat competition among petroleum dealers and further reduce the potency of the economy to compete favourably with other developing nations.
The Nigerian government is aware that it cannot face the problems of the downstream sector in isolation and is well aware of the potential effects on the labor market. It is possible that in the short term unemployment may arise due to price increases and the attendant problem of potential job losses by workers in the refinery, this will be done by investors who aim to maximize efficiency, once they take control. There is also the palpable fear that a reduction in government ownership without the simultaneous liberalization of the labour market will lead to increases not only in temporary but also permanent unemployment. Experts say an abrupt removal of subsidy may cause dislocation to price of gas because with high demand, and not enough supply the price would sky rocket leading as mentioned earlier to labor strikes and chaos.
The accrual to the sovereign wealth fund (S.W.F) as a result of subsidy withdrawal will also augment funds for critical infrastructure. Through infrastructure windows of the S.W.F., Government said it will save 1.2 trillion naira in 2012 alone which would be used for the provision of safety nets for the poor to ameliorate the effects of the subsidy removal.
The four refineries in the country have 445,000 barrel per day installed capacity. But their output is currently epileptic and insignificant. Nigeria requires up to 32 to 35 million liters of PMSS per day. Nigerians will be paying little above N 150 per liter initially if subsidy is withdrawn, before the market competition will ensure price drop.
The deregulation argument is unending, some facile and others fascinating without dept, and not factoring-in the social responsibility angle of government. The Great Omission here implies those things government has failed to do before pushing the neoliberal principle of removal of subsidy too far. Apart from the hardship that would face the masses arising from increase in petroleum products, government has deliberately refused to revitalize those moribund industries to create employment. Nigeria ceased to be an attractive investment destination since 2005 when the world discovered that we cannot power the economy for even 24 hours. This is more so when concerted efforts have not been made to fix our refineries.
Nigerians cannot forget in a hurry that the pump price of petroleum products have been increased for more than 10 times. If subsidy withdrawal becomes effective, it would be the twelfth time fuel price was adjusted between 1998 and 2009. Late Gen. Abacha pegged the pump price at N 11 per liter from 1993 to 1998. Abdusalami Abubaka adjusted it to N 19 per litre. Obasanjo adjusted the price more than 10 times in his 8 years regime 1999 to 2007 from N 19 to N 70 before Late Yar'Adua adjusted it to N 65.00. The bottom-line is that until we weed out corruption from the system, mere subsidy removal will not create the desired Eldorado.
Sometime ago, Chief Rasheed Gbadamosi that opening up the downstream oil sector via deregulation would eliminate the ills of the sectors such as black marketeering, product adulteration and smuggling is not logical because these were the same arguments that justified, the astronomical increase in the price of Petroleum products. So far, there has never been any improvement in the human and physical infrastructure in the country; as investment in education, physical, health and other social infrastructure has nosedived.
Prof. Tam David west, Buhari's Petrol & Energy minister argued against subsidy removal when he said that removal of subsidy is poverty of idea, since the money used to import fuel can build many refineries in Nigeria by Government. He also challenged Jonathan to publish the names of those importing fuel and how much they are paid. He said that Nigeria will go ablaze if he did. The Ministry of petroleum has set no date yet for the removal of subsidy due to opposition from all parts of the Nigeria society. The Government of Jonathan is scared stiff and confused.
Nigerians are scared stiff of deregulation because the money realized from removal of subsidy may still not be found in the delivery of infrastructure for the benefit of the citizens because of the worsening level of corruption and the weak institutions, which cannot tackle the menace head-on. While Federal Government promises to appoint a body that will see to the disbursement of the gains made from subsidy removal, Nigeria labour congress ever skeptical of the Federal Government due to endemic corruption is opposed to this proposal, stating that the Federal Government should build more refineries and stop importation of fuel. Another fear stems from Government attitude to public utilities especially after deregulation. A case in mind is the recent fate of NITEL after GSM licensing. While government professes the gains of these sectors, the problem of corruption remains a daunting challenge.
The template of [PPPRA] Petroleum Products Pricing Regulation Agency as at August 15 2011 the landing cost of a litre of petrol was N 129.21, the margin for transporters and marketers was N 15.49 the expected pump price is N 144.7 while the official pump price today is N 65 per liter this shows that the Federal Government spends N79.70 as subsidy on each liter of petroleum consumed in Nigeria with about 32 Million liters consumed daily. It means the country spends 2.66 billion as subsidy every day.18.2 billion per week and 72.8 billion monthly. According to the presidential letter, a major component of the policy of fiscal consolidation is government's intent to phase out the fuel subsidy beginning from 2012 fiscal year.
If I were President Jonathan's Economic Advisory Team and if I were President Jonathan himself seeking a steady but sustainable economic growth for Nigeria, I would have postponed the implementation of acute deregulation on the basis that the Nigerian masses are already undergoing severe economic hardship: which has manifested in the forms of acute unemployment; poor road and power infrastructure; poor delivery of social services such as health, education and potable water. For the masses, deregulation may turn out to be a sour grape in the mouth or a near-lethal hemlock, which I know the President may be ill-advised to administer. When this is done, government should also be ready for the social tension, protests and irredentism that would be an expression of mass disapproval of a policy that appears to be running amok.
Idumange John, is Fellow, Institute of Chartered Economists of Nigeria, ICEN,