January 30, 2016 - 10:20 PM EST
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Appropriate Fuel Pricing - Between Modulation and Deregulation

The General Secretary of Nigeria Labour Congress (NLC), Dr. Peter Ozo-Eson, in this interview with COLLINS OLAYINKA, explains why the petrol price modulation policy may run into a hitch, among other issues afflicting the sector.

The argument during the electioneering campaign was that N87 per litre was too much and Nigerians should be buying a lot cheaper. But this seems to have changed in the last few months. What is your view on the new arguments surrounding fuel subsidy?

Yes, during the campaign, various chieftains of the ruling all Progressive Congress (APC), one way or the other, including Mr. President, gave indication that the price Nigerians were paying for fuel was too high. They submitted that a proper management of the scheme would ensure the price gets lower. Even when they came to power, those arguments went on and Mr. President told the nation that there were various submissions made to him on the removal of subsidy, which may lead to an increment in price and that he did not accept such advice. First, the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Dr. Ibe Kachikwu initially canvassed for subsidy removal. But when he went to the Senate for confirmation as Minister of State, he changed his position. He then said if the problems he had discovered were fixed, it would ensure that the amount of subsidy would actually be lower and price would also be lower. He argued then that the quantity that was claimed to be consumed daily in

had been brought down from 40million litres per day to around 30 million litres per day.

We know there are shifts in position and that government has further come under pressure from the International Monetary Fund (IMF), even before the visit of the Managing Director of the Fund. There has been pressure on government to remove subsidy. Therefore, what government seems to have done so far is manipulating some little price adjustment, which it is still having difficulty in enforcing. What is really required is to use this low pricing era to redefine the template and indicate what the price would be on that basis. From the policy itself, government has started to change from its stand during campaign, due to pressure. For us in the Labour movement, that is unacceptable because the temporary situation, which we are looking at now, is to say the price, is low and there is nothing to worry about. This cannot be the basis of policies because situations can change tomorrow. Also, in terms of policy, government must be open with Nigerians. We need to have a transparent re-working of the template. The Petroleum Products Pricing Regulatory Agency (PPPRA) is by law saddled with that responsibility, but it also by law constituted in a stakeholders' context, which stipulates that engagement takes place before a change in template is effected. The PPPRA Executive Secretary, who is appointed by government and is directed either by the Minister or the President, cannot on his own fix the template. This is because the stakeholders have not met or reconvened for a long time.

Therefore, there is a violation of the law by government. We need to be careful as a mono-economy country. When a country has a product that is not competitive, the logics of economics require the need for a strong regulatory presence of government in order to protect the consumers. The oil sector is generally agreed not to be a competitive industry. It is at best, an oligopolistic industry. Therefore, a strong regulatory presence is needed to ensure that citizens are not fleeced. We keep talking of how much goes to subsidy and the loss to government, we never spoke about how much oligopolistic entities are able to fleece citizens and that should matter to us as a country. Government is now saying that the template suggests that the landing cost should be around N85 and N86 per litre. Has government followed through what should be the landing cost for diesel using similar template? Why is diesel price still up at a time when crude oil price has collapsed? At best, the variance between the landing price of petrol and diesel should not be more than 1.5 percent. So, if indeed what government is claiming in respect to petrol is correct, then it must bring its regulatory presence to bear on the price of diesel. Again, if what government is saying is true, it means the failure of regulatory presence is allowing the cabal to rip Nigerians off. When one realises that diesel is a major component of manufacturing, the revival and diversification of the economy requires that we handle that matter properly. So, when all these are taken together, what is clear to me is that what government is doing now is nothing but a gimmick, to fool the country into believing that subsidy has been withdrawn. It will not take up to six months before Nigerians would be opened up to the same exploitation that is taking place in diesel. At that time, government would then say it had long deregulated. Government cannot deregulate and allow a powerful cabal or cartel to rip the citizens off. What that means in the final analysis is that there is no government. I think that government must be careful in the way it webs this policy through. NLC thinks that government must be able to plug all the loopholes in the management of subsidy so that government and the people are not ripped off.

The new PPPRA template reviewed the charges and then allow for quarterly review. Is this new system not a sound economics?

The modulatory scheme that government has adopted requires that money be taken into the coffers, when the price is higher and then be able to joggle the finances round, when the price is lower. That is what the modulation system is about. There is nothing new in that policy because NLC had actually sat with government under Obasanjo regime, where the modulation scheme was recommended under the Mantu framework. But in order to kick-start it, it was recommended that a fund would be needed to be set aside in order to start a modulation scheme. Government never established a whitepaper on the matter. The way that fund would be set up was articulated in the report and the amount that would be set aside to service the fund. If that was done, we would have succeeded in building up a robust fund and what is introduced now would have been sound economics because there would be fund to smoothen price volatility. The scenario now is: if today, the tension between

Saudi Arabia
leads to a full-scale war and price of crude shots to about $150 per barrel, there is no fund in the modulation scheme to react. So, any plan to establish a modulation scheme, a reasonable support fund must be built first.

There is also an argument that what you are saying should not be a worry because government can always present supplementary budget to the National Assembly to request money to offset any shock in prices. Is this tenable?

Yes, government can. That is what I am saying that since government did not insert subsidy in the budget, it could have justified it by saying that looking at the projections, it does not think subsidy payment is needed. That is a different policy altogether and it is not the same thing with abolishing subsidy. Going back to the National Assembly shows that subsidy has not been abolished.

It has been said in some quarters that Labour is silent on removal of subsidy and all the associated confusion except for a few press releases. What is the position of Labour in all this?

Well, people think that Labour only speaks through the instrumentality of street demonstration or strike action. When government came up with these confusions, Labour came out clearly to condemn it. We called on government to be open and transparent Nigerians on the issue. NLC also went ahead to convene an emergency meeting of the Central Working Committee (CWC) to deliberate on the issue. It even issued a communiqué and summoned the meeting of the National Executive Council (NEC) slated for January 20 in

. Also, on January 19, NLC convened a stakeholders meeting that included resource persons both within and outside the country, where all the issues were discussed and positions taken. The stakeholders meeting would flow into the NEC meeting, which is on the 20th. We recognise that what government is doing now is pure sloganeering, celebrating the need for the removal of subsidy.

Do you think re-constituting the PPPRA board will help resolve some of the confusions in the downstream sector?

Clearly it would. The logic behind having a board for the PPPRA is to ensure there are debates amongst all the stakeholders on what constitutes the template. The present situation is worryingly opaque, where someone just sits somewhere and determines what is in the template. Government must work within the ambit of the law and until the law that establishes the PPPRA is repealed, reviewed or abrogated, the law as it exists now requires a stakeholders framework to be the guiding determination of PPPRA template. Anything done outside of this is a failure to act within the ambit of law.

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Source: Equities.com News (January 30, 2016 - 10:20 PM EST)

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