WHY WE SAY NO TO DEREGULATION

Introduction

Over the last many years, the Nigerian government has emerged with one policy after another ostensibly to reverse the increasing economic downturn and lead to economic prosperity for the people. The country has gone through Structural Adjustment, Economic Liberalization, Deregulation of external trade, Privatisation and Public Sector Reforms. Beginning with the Abacha regime but intensified under the Obasanjo government, the government began the process of introducing another policy: deregulation of the downstream petroleum sector, or more specifically, the deregulation of the pump prices of petrol, diesel and kerosene. Against the background of the resistance of the Nigerian people led by the NLC and the Labour Civil Society Coalition (LASCO) to deregulation of petroleum products' prices, the government decided on a policy of frequent increases in the prices of petroleum products. Thus between January 6, 1978 to May 27, 2007, the various Nigerian regimes increased fuel prices a total of 18 times. Most of the increases occurred in the 1999-2007 period when petroleum products' prices were adjusted upwards sometimes even twice in one year.

These frequent price adjustments inflicted untold hardships on the poor and ordinary people in Nigeria who constitute today 70% or some 98 million of Nigeria's estimated 140 million people. Even when the market for crude oil collapsed and the price of crude dropped from USD147 per barrel to below USD40 per barrel, the Nigerian government reduced the pump price of fuel from N70 to N65; that is by only N5 or 7%. In the meantime, the government quietly deregulated the prices of diesel and kerosene. While oil prices were tumbling in the international market and consumers in many countries in Europe and America were seeing huge reductions in the pump price of diesel oil, the price of diesel oil and kerosene kept increasing in Nigeria following their 'full deregulation'. This phenomenon clearly demonstrates that whatever arguments are advanced by the Nigerian government, deregulation cannot and does not reduce the hardships faced by the Nigerian consumer; it only increases it. The situation with diesel oil and kerosene after their 'full deregulation' is indicative of what will happen when the most important of the petroleum products – fuel oil – is fully deregulated as the government has now decided to do.   

The arguments of government are that (i) it needs to deregulate because it cannot sustain the current subsidy (ii) it wants to reduce the level of distortions or corruption involved in oil transactions and (iii) Deregulation will offer more benefits to Nigerians because the fuel 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 constant availability of the product. Let us examine each of these arguments.

The Subsidy Argument

The key questions in the subsidy argument are (i) how much does government actually pay out in subsidies and for what? To whom are these subsidies paid? What makes up the cost structure of the subsidy or what makes up or contributes to the subsidy? In answer to the first question, the government claims that it pays out more than N1trillion annually as subsidies for petroleum products and that the amount of subsidy has increased dramatically over the years. The question we should ask is where do the figures of government come from? We know that they are not provided by any department of government. The government admitted this in a recent meeting that involved ministers, governors and the President. The government not only admitted that it does not have its own data on subsidies but confessed that it gets its figures from oil marketers! Oil marketers? Oil marketing companies whose doctrine is profit at any cost?

More worrying is the claim that the amount government spends is increasing. To expose the fallacy in this claim, we only need to know what is subsidized and what quantity of the product is subsidized. At the beginning government claimed it was subsidizing three petroleum products- diesel oil, kerosene and fuel oil. In the last two years, government withdrew the 'subsidy' from diesel oil and kerosene. The situation now is that only fuel oil is 'subsidised'. Is it not surprising that government should claim that the amount of subsidy is increasing even when only one of the three products is currently being 'subsidised? The fraud in the claim can be further exposed when we look at the quantity of Premium Motor Spirit (PMS) that is consumed in Nigeria. The data shows that the amount of subsidy claimed by government cannot be supported by the quantity of PMS consumed.  

The whole 'no-more-subsidy' argument of government collapses when we look at the components of the subsidy. This is where the nation is daily ripped off and where a government that ought to be ashamed because it is unable to protect the interests of its people cannot be allowed to get away with its irresponsibility and even complicity. The main elements of subsidy arise from (i) production costs (ii) demurrage and landing costs. Although the demand for PMS is about 31 million litres per day, the combined production of the three refineries even if they were producing at 100% of installed capacity would be around 18 million litres. However, owing to government's own ineptitude, these refineries now produce about 6 million litres leaving a huge demand gap of some 25 million litres.

To meet this demand gap, government contracted companies in Spain, which is not an oil producing country, to refine petroleum products for the Nigerian market. Given the fact that Spain is not an oil producing country, the costs of refining there are higher than what obtains in countries that have a domesticated technology for refining oil because they produce crude oil. These higher costs are passed on to Nigerians as 'subsidy'. Is this the fault of the Nigerian people?

After being refined in Spain, the refined products are then taken by marketers and imported into the country. Demurrage which is the cost incurred by reason of transaction delays in the ports of a country are normally charged by the importer for the duration in excess of the number of days agreed for evacuating the product. In the case of oil imports into Nigeria, the shipping companies or the marketers (it does not matter who since they are all together in the conspiracy) charge demurrage from the time the products leave the country of importation rather than from the day the ship arrives in Nigerian ports. This fraud which forms a huge part of the cost of subsidizing petroleum products has not only been known for years to government, it has been maintained in the interests of the profits of marketers.

Moreover, when the ships carrying products arrive in Nigeria, they cannot berth close to the jetties where the products can be evacuated because the ports are shallow and need dredging to allow the ships in. To overcome this problem, smaller boats are used to offload the products and the products are then ferried to the jetties for evacuation into tanks. The government has been aware of the need to dredge the ports for a long time so that the additional costs of paying smaller boats to evacuate and ferry the products (which then also add to the total cost of demurrage) can be avoided. Rather than invest in the dredging of the ports, the government prefers to deregulate in order to swell the profits of marketers! Deregulation will not remove these costs; it will increase the costs which will then be passed on to the hapless Nigerian.          

Corruption

It is not tenable for government to anchor its argument for deregulation on the need to reduce distortions or corruption in the system. All Nigerians are aware that corruption is mainly perpetrated by those in government. The audit of the petroleum accounts undertaken under the NEITI shows that the Nigerian government does not know how much oil is produced and sold; neither does it know how much revenues accrue to the country from the sale of oil. When it comes to disbursement and application of oil revenues, the story is the same; all the processes are underwritten by corruption.

The Benefits of Deregulation

Each time government adjusted the price of petroleum prices upwards, it was prefaced with the huge benefits that would arise from the increased revenues that would accrue to government. The people were told each time that roads would be constructed or rehabilitated, that health facilities would be improved and that educational institutions would be better funded. However, the opposite of what was promised happened in each case: roads became worse, the health system did not improve and the educational institutions also became worse. After eighteen times of being deceived, the Nigerian people can no longer be taken for fools.    

The idea that deregulation will lead to lower fuel pump prices is ridiculous; the fraud behind the argument can be assessed by what has happened to diesel and kerosene which have been fully deregulated. Kerosene is now so much out of the reach of ordinary Nigerians that many Nigerians have gone back to using fuel wood for their energy needs. This has increased the rate of deforestation and desertification with both contributing to global warming. In spite of the fact that the international price of a barrel of crude is now about one quarter of what it was in June 2008, the high price of diesel remains unchanged. The price of diesel oil has remained high averaging over N120 per litre in 2008. If the price of PMS is deregulated, consumers can only expect to pay more and not less even when the international price of a barrel of crude has reduced. Therefore, the fictional benefits for the consumer will never occur; rather, marketers and government policy makers will be smiling to their foreign bank accounts while ordinary Nigerians will be wallowing in hardship and pain.   

The Position of the NLC

The position of the NLC is not new; over the years as government has sought to implement various externally dictated and directed policy measures, the NLC has urged patriotism on the Nigerian government asking it to reject measures that were designed to do great harm to Nigerians and the country.

The NLC has always opposed and remains opposed to the deregulation of the oil and gas sector in general and of petroleum products in particular. This opposition is simple commonsense and a deep patriotic commitment to the defence of the country's interests.

The Way Forward    

NLC believes that the alternative to deregulation can be established in a number of measures that include:

Cancellation of demurrage on petroleum products in transit

The charge of demurrage on products in transit is fraudulent, it must be cancelled.

Dredging of the ports

We have also seen that an additional cost is added to petroleum products' prices because of the way in which products have to be evacuated at the ports. This cost will be totally eliminated if government provides for the dredging of the ports. This measure will also reduce the amount that government pays in subsidies to marketers.

Independent verification of the transaction costs claimed by marketers

We are aware that government does not have its own information about the transaction costs of the oil marketers that form the basis for the submission of oil marketers to government for the payment of subsidies. Government should authenticate transaction costs that make up the landing cost of a litre of petroleum products.

Rehabilitation and Expansion of Nigeria's refineries

The clearest path of honour for government would be to rehabilitate and expand refining capacity in Nigeria. The NLC maintains that it is the height of irresponsibility for government to spend trillions on subsidy while neglecting the one and only sure way to ensure that petroleum products are available in the required quantity and at lower costs in Nigeria.

The NLC is convinced that public ownership of the refineries is in the best interests of Nigeria. Let private initiative build its own refineries.

NLC demands that the Nigerian government must take definitive, determined and transparent measures to rehabilitate the refineries. It must also take measures to build more refineries as has happened in the Middle East where more than 100 new refineries are being built and are expected to come on stream in 2010. These countries are planning not only to meet local demand but also to export finished products because they are aware that more revenue is earned on processed crude.

Resumption and Intensification of Efforts to Curb Corruption

Since government claims that deregulation is meant to remove corruption from the transaction costs in petroleum products, the onus is on government to resume and intensify efforts to curb corruption. These efforts, however, cannot be through the deregulation of oil prices; they will be seen in the determination with which government actually pursues corrupt public and private officials in the various spheres of national life.

End To End Audit of The Operations And Activities of The Oil And Gas Industry

If the government really wants to shore up its revenue base, it needs to undertake an end to end audit of oil and gas industry activities. The first audit undertaken of the revenue side of the industry under NEITI showed large loopholes in the public accounts of oil revenues. The second audit which has also just been concluded is no different in its conclusions.

Reduction Of The Dependence On Oil And Gas Revenues And Diversification Of The Economy

The NLC is shocked that government is still focused on oil revenues as the major source of funding its business. Its obsession with the deregulation of the oil and gas sector and of petroleum products prices not only speaks to this focus; the fact that it cannot think outside of this box shows that it has failed to grasp the crucial challenge of the modern age. This challenge is how to create less dependence of the economy on oil revenues.

Conclusion

All over the world, in the face of the collapse of the neo-liberal ideology with its focus on liberalization, privatisation and deregulation, enlightened governments are redefining the scope and role of government in society. Even the USA, the self-anointed leader of the free market and neo-liberal ideology, has found to its eternal sadness that the best value is delivered to society and its members when governments regulate rather than allow the market to regulate itself. In the USA as in England and over much of Europe, governments are nationalising leading private businesses and regulating various other conditions in the market.

The deregulation of the oil and gas sector in general and of petroleum products in particular will not only increase this burden; it could well turn out to be the last straw that will break the back of the ever patient Nigerian "camel".

We call on government to withdraw from the policy of deregulation.

We call on Nigerians to join our patriotic marches and rallies to convince President Yar'Adua and his government not to embark on this catastrophic road.

Say No to deregulation!

Say No to Privatisation of our refineries!!

Government should make our refineries to work!!

Government should establish joint partnership with oil majors to build more refineries in Nigeria!!!

Say No to importation of fuel!

Let us call off the bluff of the blood sucking oil cabals!!!