Deregulation: FG or Labour, who’ll win?
We are aware that there would be pain, but these will be temporary and the whole nation will be the better for it.” In a follow-up to the President’s statement, the House of Representatives also said they’re backing the Federal Government on the deregulation, while insisting the policy remains the only panacea to ending the […]
We are aware that there would be pain, but these will be temporary and the whole nation will be the better for it.” In a follow-up to the President’s statement, the House of Representatives also said they’re backing the Federal Government on the deregulation, while insisting the policy remains the only panacea to ending the crisis in the supply of petroleum products to consumers in all nooks and crannies of the country. If there is one common denominator that has characterised the return of democracy in Nigeria, it is deregulation.
In the last ten years of democracy, Nigerians have lost count about how many times organised Labour went on strike over deregulation. It is beginning to look like the success of the Presidency of both Umaru Musa Yar’adua and that of President Abdulwahid Omar of the Nigeria Labour Congress will be determined by deregulation. The regime of Yar’adua began in May 2007 with an inherited last-minute fuel hike by former President Olusegun Obasanjo. Interestingly, the regime of Abdulwahid Omar as NLC President also began with a major strike over that increment which led to the reduction of the price from N75 to N65.
From all indications, neither government nor Labour is willing to shift ground.
The arguments
The Federal Government argues that over N1.2 trillion was spent on petroleum products subsidy payments in the period 2006-2008, and the 2009 subsidy payments are projected to be about N600 billion. These, they say, could be used to finance 45,000 km of roads, 15,000 megawatts of power and 615,000 blocks of classrooms. The bulk of the subsidy, government argued, is being funded from our reserve for the rainy days. This, they say, makes the system unsustainable and has the potential to cripple government’s finances. Fuel subsidies are not reaching the intended beneficiaries, as the administration of the subsidy regime is beset with shortages, black market activities, leakages and corruption.
NLC on the other hand argued that the deregulation policy will inflict untold hardships on the poor and ordinary people of Nigeria who constitute more than 70 percent of Nigeria’s over 140 million people. “The flawed position of government which argues that it needs to deregulate because it can no longer sustain the huge subsidy that it pays out for fuel or that it will through deregulation reduce the level of distortions or corruption involved in oil transactions and that it will offer more benefits to Nigerians because the oil market will become more efficient and the resulting benefits will be passed on to Nigerians in the form of lower product prices, better quality of service and ease as well as have constant availability of the product, are all fallacies”.
They argued that these are fallacies that have been peddled by successive governments right from the military era up to the eight years of former President Olusegun Obasanjo under whom oil prices were increased for a record number of eleven times. “Previous attempts at deregulation which peaked at the full deregulation of kerosene and diesel products clearly demonstrate that whatever the arguments advanced by the Nigerian government, deregulation cannot and does not reduce the hardships faced by the Nigerian consumer; it only increases it. We therefore need no prophet to tell us what will happen when the most important of the petroleum products – premium motor spirit (PMS) or petrol – is fully deregulated as the government has now decided to do from November 1, 2009”, NLC said.
Peter Esele, the former President of Petroleum and Natural Gas Workers of Nigeria (PENGASSAN) and current President of Trade Union Congress (TUC) told Weekly Trust that the problem is not deregulation itself but the concept of deregulation being pursued by the Federal Government. “You see, we reached an agreement with the government that before deregulation, certain things must be put in place. We agreed that the government should make Port-Harcourt, Warri and Kaduna refineries functional.
“We also talked about the expansion and seaports and the repairs of the pipelines, which have become moribund over the years. Part of the subsidy that government talked about is given to marketers in the form of bridging which could be avoided if the pipelines are working. You don’t need trucks all the way from the North coming to Lagos to carry products. The situation in the seaports where vessels stay at the high seas for more than 90 days while incurring demurrage of about $25-$30 dollars is completely unacceptable. This is so because ports are congested and too small for vessels to barge,” he explained.
Esele further argued that even the subsidy figures being bandied around by government need to be properly clarified. “We don’t know the processes government used to arrive at those figures. They never told us who got what. They keep talking about using the subsidies for infrastructure without being specific. I mean something measurable, achievable and time-bound. This government’s concept of deregulation is import-driven while we want a deregulation that is based on local refining capacity that will create employment and have multiplier effect on the economy”.
Way forward
Daniel Eloboma, an oil expert, said the problem of the oil sector is lack of information, accountability and transparency.
“It is sad that not much is known about what goes on inside the most important foreign exchange earner in the country. Observers believe that the majority of the country’s crude oil is stolen by foreigners due to illegal activities going on at the country’s exclusive economic zone. Nigeria produced about 1.9 million barrels of oil per day in January, according to OPEC figures, but as many as 100,000 barrels of crude oil are being stolen or smuggled from Nigeria every day, representing 5% of national production, according to estimates from Shell.
Shell confirmed that the theft of oil in Nigeria, Africa’s largest oil-producing country, ranged from 20,000 to 100,000 barrels per day but may have peaked at more than this. At today’s price of more than $45 a barrel of benchmark Brent crude, this equates to between $300 million and $1.6 billion (£1.1 billion) a year.”
He said stolen Nigerian crude is usually exported by barge for refining in other parts of West Africa. “Local oil smugglers in Nigeria earn up to $2,000 to $3,000 per shipment. Stolen oil is delivered to larger, seagoing barges for onward export. There is evidence that it is shipped to as far as Brazil and Eastern Europe. A lot of people have died in this illegal activity.”
Nigeria, according to him, has proven reserves of 36 billion barrels – the seventh highest in the world – but the industry has been wracked by violence, corruption and crime, particularly across the volatile Niger Delta region. “Nigeria needs to resolve the social issues in the region and come down heavily on crime. Government agencies cannot claim ignorance of the perpetrators of this crime,” he said.
Eloboma said there is a need for transparent revenue payment practices, open and competitive contract bidding, active monitoring and participation by the civil society. “The Extractive Industry Transparency Initiative (NEITI) should be re-invigorated so that the government should fully be committed to extend that work to the petroleum sector,” he concluded.
Mr Kingsley Mba, an energy economist and a former staff of Total Nigeria Plc, told Weekly Trust that deregulation in its real form is not a bad concept but the challenge facing Nigeria must be addressed first. “We have the problem of weak infrastructure. We don’t have refineries that are effectively and optimally working up to full capacity. Is it with private refineries and reserves that we want to deregulate? All these are pre-requisites to deregulation just as it is done elsewhere in the world. “Let the government put the structures in place, then continue to sell the ideology to the stakeholders and the general public at large before they deregulate. Corruption elements in the oil and gas industry have to be properly checked. If not, the problem would worsen as the effect of everything would bounce back on the masses due to the absence of subsidy that would accompany the policy,” he said.
Making their position known, one of the main contenders in the debate, the Major Marketers Association of Nigeria, feared that the issue may make their operating capital to be trapped in the failing Petroleum Support Fund (PSF) arrangement, thus the body has been calling on the government to clear off the backlog of their audited claims before embarking on deregulation in the sector.
In the same vein, Comrade Jocknom Bello Shamaki, an independent petroleum marketer, said the present scarcity has a lot of factors attached to it. He told Weekly Trust that the situation has to do basically with hoarding of the product, adding that the hoarding in itself is caused by the actions of the government. “In as much as responsible marketers don’t second to hoarding of petroleum products, the fact still remains that most of our members, the major marketers inclusive, still have their backlog of unpaid claims with the Petroleum Equalisation Fund.
“The suspension of the PEF has worsened the situation. At the moment, most marketers are scared that their outstanding monies might not be paid anytime soon and most of these monies are loans from banks. You know the situation of banks in the country now, so imagine how stiff they would be on the marketers’ necks,” he said.
Shamaki further revealed that the PEF suspension, delay in payment as well as the backlog, have made some marketers to use the option of hoarding, supplying black marketers as a way of reducing their losses. “The landing cost is almost N73 and the government does not want to pay for the other part of it or delay the payment unnecessarily and make it to pile up. Meanwhile, the same government is expecting the marketers to sell the product at N65 or clamp down on them, so who would pay for the remaining N8?
“The marketers are businessmen thus cannot run their businesses at a loss. As I am speaking with you, I have my money hanging with the PEF for almost a year now and my case is the same with many marketers.”
Goddy Nnadi, Head of Public and Governmental Relations of PEF, told Weekly Trust that they have cleared all payments to marketers up to September 2009. “Prior to 2008, I can tell you that we owed marketers so much dating up to seven years. But as at 2008, we updated our computer system. We got N17.4 billion from the government and paid all outstanding debts that had accumulated for seven years. We have paid claims up to September 2009. Right now, we pay claims twice a month. Our plea is to NNPC and the marketers to pay us our monies so that we can continue to meet our obligations,” he explained.
Meanwhile, the Federal Government yesterday, Friday November 6, accused an unnamed cabal for sabotaging its efforts to deregulate the downstream oil sector. The Minister of State for Petroleum, Odein H. Ajumogobia (SAN), said those in the cabal are feeding fat from the billions of naira subsidy in the downstream oil sector at the expense of government and ordinary citizens every year. Ajumogobia condemned the present regime of importation and marketing of products, describing it as a vicious cycle which only benefits a few group of people.
In a release from the Ministry signed by the Chief Press Secretary of the ministry, Florence Bolokor Mohammed, the Minister stated further that the same reaction being presently witnessed on deregulation should be expected from marketers and Nigerian motorists any date, that is, in case December or January is rumoured again. He therefore assured that the government will not hesitate to inform Nigerians through the appropriate channels once a consensus is achieved.
“He assured that the deregulation policy would not bring any lasting hardship to Nigerians even as he disclosed that the government has not fixed any specific date for the take-off of the policy. In an apparent response to the fuel queues that have resurfaced in some cities over the purported planned deregulation of the downstream sector of the oil and gas industry, the Minister disclosed that the artificial scarcity being presently faced by motorists is due to the attitude of panic buying by motorists and the hoarding of the products by some marketers arising from the rumoured November 1 take-off date of the deregulation policy.
Ajumogobia said the government is still consulting with stakeholders, the civil society and the Nigeria Labour Congress (NLC) amongst varying interest groups in order to build a consensus, explaining that President Umaru Musa Yar’adua is favourably disposed to constructive advice and is keen on ensuring that all stakeholders including other interest groups are carried along in the process that would lead to a final decision on the implementation of the policy.
Nigerians await with cautious optimism the outcome of the so-called ongoing dialogue with Labour. What is certain is that Labour has vowed to resist government’s concept of deregulation.