Painful But Necessary

Finally, it happened. What the average Nigerian has dreaded for a long time, an official hike in fuel prices, came to pass on Tuesday last week when the Federal Government announced an 80% hike in fuel prices. Petrol prices officially increased from N86.50 a litre to a maximum of N145 per litre. Minister of State […]

Finally, it happened. What the average Nigerian has dreaded for a long time, an official hike in fuel prices, came to pass on Tuesday last week when the Federal Government announced an 80% hike in fuel prices. Petrol prices officially increased from N86.50 a litre to a maximum of N145 per litre. Minister of State for Petroleum Dr. Ibe Kachikwu announced the hike which he said was decided at a meeting chaired by Vice President Yemi Osinbajo. He said stakeholders present at the meeting included National Assembly and trade union leaders.
Kachikwu said, “The meeting reviewed current fuel scarcity and supply difficulties in the country and the exorbitant prices being paid by Nigerians of N150 to N250 per litre. The meeting also noted that the main reason for the current problem is the inability of importers of petroleum products to source foreign exchange at the official rate due to the massive decline of foreign exchange earnings of the federal government.  As a result, private marketers have been unable to meet their approximate 50% portion of total national supply of PMS.” Government therefore decided, he said, that any Nigerian entity is free to import fuel subject to existing quality specifications. Also, all oil marketers are allowed to import fuel on the basis of forex procured from secondary sources. Finally, PPPRA adjusted its template and the new price for PMS “will not be above N145 per litre.”
Kachikwu said other things, that the measure would lead to increased product availability, encourage investment in refineries and prevent diversion of petroleum products. He said in the long term, competition would drive down prices. The official announcement left some questions unanswered. For example, Kachikwu did not use the word “deregulation” to describe the new policy; he however compared it to the situation in the diesel market, which has been deregulated for many years now. Also unexplained was the policy to allow marketers to import fuel with forex sourced from the black market while government caps the price of petrol at N145 per litre. Since no subsidy will be paid to importers, it is unreasonable to stop a marketer from selling petrol at any price, provided he can find buyers.
Deregulation of the downstream petroleum sector came as a rude shock to Nigerians because the ruling All Progressives Congress [APC] and President Muhammadu Buhari personally have for years denied that fuel was being subsidised. First as opposition party and later as ruling party in the past year, President Buhari and APC propounded the idea that “fuel subsidy” was nothing but a PDP scam and that oil can be sold cheaply once corruption is banished and local refineries are fixed. After a year in power, Buhari and APC have come to the painful conclusion that the reality is more complex than that. It was such a painful volte face that the announcement was timed to when President Buhari was out of the country.
But there is no escaping the political fallout. For one, the timing of the announcement was very bad for Nigerians, coming in the midst of power shortages, irregular salary payments, almost no capital spending, high unemployment, galloping inflation and sharp depreciation of the naira. No wonder it sailed into a storm of criticism. Transition Monitoring Group [TMG], a coalition of many civic groups, condemned the new policy and said it exposed President Muhammadu Buhari as an “insensitive and out of touch” leader. National leader of the Peoples Redemption Party (PRP) Abdulkadir Balarabe Musa said the measure would inflict more pains on Nigerians and urged the Federal Government to reverse it.
Fiery Lagos lawyer Mr. Femi Falana issued a statement titled “The illegality, immorality and insensitivity of fuel price increase.” He said Buhari pledged during the campaign that if elected President, his administration would not remove fuel subsidy. He said the decision was made without any public debate or consultation and government took the Nigerian people by surprise. He also said the decision to increase the price of petrol “is illegal and contemptuous” because a Federal High Court had declared it to be contrary to the Price Control Act and the Petroleum Act.
To compound matters, the day after the announcement, the naira fell from 321 to 341 against the US dollar at the parallel market. Analysts said the fall was due to pressure on the parallel market as oil importers rushed to it to get forex. The biggest trouble for the new policy is however expected to come from the labour front. The powerful oil sector unions NUPENG and PENGASSAN supported deregulation after a meeting in Port Harcourt but the two central trade unions, Nigeria Labour Congress [NLC] and Trades Union Congress [TUC] have given government until Tuesday to reverse the new policy or face a crippling national strike. Labour’s stance is consistent because it has opposed every upward movement in fuel prices under many military and civilian regimes in the last 30 years.
Still, everything considered, we support total deregulation of fuel prices as the most rational choice in a very bad situation and we urge our fellow countrymen to give it a chance. This is not because we at Daily Trust are happy to pay more for fuel. We have however maintained this position consistently since January 2012 when the Jonathan regime attempted but failed to deregulate the downstream petroleum sector. We urge the Federal Government to immediately unroll the promised palliative measures and we also urge it to seriously address labour’s demand for a new minimum wage. Clearly, Nigerian workers cannot survive on the current wage given huge rises in fuel and electricity prices as well as inflation and naira depreciation.