Fuel Price Hike: FG’s Hard Sell Policy

After announcing the decision to deregulate the petroleum sector and the resultant hike in price of petrol, which many consider as inflicting more pains on the people, one major task before the federal government now is how to make the citizenry understand the gains of the policy, Shola Oyeyipo writes

When the Minister of State for Petroleum, Dr. Ibe Kachikwu, announced the ‘guided deregulation’ policy in the petroleum sector on Wednesday, May 11, 2016, the thinking of the federal government was to increase and stabilise the supply of petroleum product, create level playing field for any Nigerian entities to import the product subject to existing quality specifications and other guidelines issued by regulatory agencies and ultimately reduce the price of fuel.

However, marketers will be allowed to import the product on the basis of the forex they procured from secondary sources and that was what brought about the N145 new price for petrol. The reason is simply because the marketers are unable to get the needed forex to import the product from the primary sources.

Previous increases in the price of petroleum product in Nigeria have always been met with stiff resistance by the people because of direct impact it has on livelihood. Hence, while some see the gains of the policy and are supporting it, the labour body and other civil society groups are already spitting fire and brimstone, vowing to shut down the country if the government does not revert to the N86.50 initial price.

Minutes after the announcement, the NLC General Secretary, Dr. Peter Ozo-Eson, described the increase as “insensitive.” He said NLC will resist it. The NLC position is that the decision is cruel at about 80 per cent increase and the fact that it is tied to the black market exchange rate was unacceptable. Therefore, the NLC has given government a-four day ultimatum to reverse its decision or face the wrath of workers.

Their Trade Union Congress of Nigeria (TUC) counterpart, in a communique signed by the President, Comrade Bobboi Bala Kaigama and Ag Secretary-General, Comrade Simeso Amachree, has also given the federal government five days ultimatum, which expires tomorrow, to abolish the new petrol price regime and revert to old pump price. The TUC has vowed to interface with the NLC and its civil society allies to plan massive protests against what it also called “insensitive” fuel price hike.
The National Association of Nigerian Students (NANS) was even more aggressive in its approach to the issue as it threatened to go violent with the federal government over the announcement. They vowed to shut down strategic government agencies in the oil sector, in particular, the Nigerian National Petroleum Corporation (NNPC), Petroleum Products Pricing Regulatory Agency (PPPRA) and Department of Petroleum Resources (DPR).

National Assembly member representing Kogi West senatorial district, Senator Dino Melaye, joined the league of critics of the policy. Though he is of the All Progressives Congress (APC), he sent a passionate appeal to the National Chairman of his party, the Chief Odigie Oyegun, to ask the President Buhari-led federal government to reverse the pump price.
“If after seven days from Monday, there is no reversal, I will mobilise Nigerians from all walks of life for the mother of all protest,” he wrote on his Facebook Page last Thursday. This is not what we promised Nigerians. The time is not right and the negative effects will be unbearable. A word is enough for the wise,” Melaye said.

Former National Secretary, Labour Party (LP) and Executive Director, Egalitarian Mission for Africa (EMA) Mr. Kayode Ajulo declared this period as mourning period for Nigerians, stressing that: “Increasing fuel price at this critical time in our fiscal history smacks of crass insensitivity and absolute disregard for the wellbeing of our people.” He said at a time like this Nigerians must rise as one and refuse to be hoodwinked into penury and extinction.

The Ekiti State Governor, Dr. Ayodele Fayose said President Buhari and the ruling APC were playing Nigerians Advanced Fee Fraud (419) over the removal of fuel subsidy and increment of pump price from N86.50 to N145 per litre. He described the action as “wickedness taken too far.” He asked: “Was the federal government paying up to N58.50 as subsidy on one litre of petrol before now?” He therefore enjoined Nigerians, especially the labour movement to resist what he called “wicked act of President Buhari and his party.”

The Executive Secretary, Nigeria National Summit Group (NNSG), Mr. Tony Uranta also condemned the price increase when he said that the increase runs contrary to all acceptable tenets of human existence, noting that “It is unfathomable that a government that came in with promises to make life better for the people has now worsened the alleged woes.
According to him, “Nigerians are over burdened by the current economic situation and adding the increase in fuel pump price may cripple the nation, especially small businesses that are the bedrock of any nation’s economy.”
Like others, he called on all Nigerians to come out en-masse against the decision and that the NLC must be very careful in its dialogue with the government on the issue.

So, as things stand, the federal government faces a rather stiff opposition with labour and other Nigerians, hence the urgent need to enlighten Nigerians about why it took the decision many consider as injurious to well-being.
Though the Minister of Information and Culture, Alhaji Lai Mohammed has been rallying support for the policy, but the inauguration of the Advertiser Association of Nigeria (ADVAN) Marketers Conference in Lagos last Friday, May 13, 2016, presented him with yet another opportunity to enjoin Nigerians to allow the policy stay. He said it was designed to put an end to the problems in the petroleum sector.
“Many have been asking why this (petrol price hike) would happen at this time and what triggered the decision concerning the new framework for petrol products supply, distribution and pricing. I can tell you that that decision is inevitable, if we are to end the crippling fuel scarcity that has enveloped the country, ensure the availability of the products and end the suffering that our people have been subjected to.

“The unavailability of forex and the inability to open letter of credit have forced marketers to stop product importation and imposed over 90 per cent supply on the NNPC since October 2015, in contrast to the past where NNPC supplies 48 per cent of the national requirement The truth is that the NNPC does not have the resources for, nor is it designed to meet this increase in supply. The result is the crippling fuel situation across the country. Pushed to supply 90 per cent of the products required for domestic consumption, the NNPC has continued to utilise crude oil volumes outside the 445,000 barrels/day allocated to it, thereby creating major funding and remittance gaps into the Federation Account,” he explained.
He also reiterated that contrary to widespread interpretation of what happened as the removal of subsidy, “There is no provision for subsidy in the 2016 Appropriation.” He said the erstwhile petrol price of N86.50 gives an estimate subsidy claim of N13.7 per litre which translates to N16.4 billion monthly but that there is neither funding nor appropriation to cover this.

He said: “Unless immediate action is taken to liberalise the petroleum supply and distribution, the queues will persist, diversion will worsen and the current prices will spiral out of control,” but that “Under the new price regime, the PPPRA and DPR will be further empowered to ensure a level playing ground and strict compliance with market rules by all stakeholders and consumer protection.”

In summary, according to him, the new pricing regime will solve the recurrent fuel scarcity by ensuring product availability across the country, reduces hoarding, smuggling and diversion of products substantially, stabilises price, ensures market stability and improve fuel supply situation through private sector participation and also create labour market stability, which will potentially create additional 200,000 jobs through new investments in refineries and retails and prevents potential loss of 400,000 jobs in existing investments.

Vice President, Prof. Yemi Osinbajo, in a short article by him after observing the issues generated by the debate, noted that “The most important issue of course is how to shield the poor from the worst effects of the policy.”
He hinted that President Buhari is “probably one of the most convinced pro-subsidy advocates,” but shedding light on the policy, Osinbajo said: “First, the real issue is not a removal of subsidy. At $40 a barrel there isn’t much of a subsidy to remove.

“What happened is as follows: our local consumption of fuel is almost entirely imported. The NNPC exchanges crude from its joint venture share to provide about 50 per cent of local fuel consumption. The remaining 50 per cent is imported by major and independent marketers. These marketers up until three months ago sourced their foreign exchange from the Central Bank of Nigeria (CBN) at the official rate.

“However, since late last year, independent marketers have brought in little or no fuel because they have been unable to get foreign exchange from the CBN. The CBN simply did not have enough. In April, oil earnings dipped to $550 million. The amount required for fuel importation alone is about $225million! Meanwhile, NNPC tried to cover the 50 per cent shortfall by dedicating more export crude for domestic consumption.

“Besides the short term depletion of the Federation Account, which is where the federal government and states are paid from, and further cash-call debts pilling up, NNPC also lacked the capacity to distribute 100 per cent of local consumption around the country. Previously, they were responsible for only about 50 per cent which is partly the reason for the lingering scarcity.

“We realised that we were left with only one option. This was to allow independent marketers and any Nigerian entity to source their own foreign exchange and import fuel. We expect that foreign exchange will be sourced at an average of about N285 to the dollar, (current interbank rate). They would then be restricted to selling at a price between N135 and N145 per litre.

We expect that with competition, more private refineries, and NNPC refineries working at full capacity, prices will drop considerably. Our target is that by Q4 2018 we should be producing 70% of our fuel needs locally. At the moment, even if all the refineries are working optimally they will produce just about 40% of our domestic fuel needs.
“This is therefore not a subsidy removal issue but a foreign exchange problem, in the face of dwindling earnings,” Osinbajo clarified.

But as labour poses for showdown, checks have shown that the average Nigerians is still waiting to know how the policy positively affects them. Not many are aware of the import of the new price regime on them, except that it brings hardship. The people need to be told that as in the case of mobile phones, with the policy, time will come that competition is expected to drastically push the price of petrol down.

QUOTE

As labour poses for showdown, checks have shown that the average Nigerians is still waiting to know how the policy positively affects them. Not many are aware of the import of the new price regime on them, except that it brings hardship. The people need to be told that as in the case of mobile phones, with the policy, time will come that competition is expected to drastically push the price of petrol down.