Why Buhari Must Reject IMF-World Bank Advisory on Increase in Petroleum Products Prices

Gbenga Olawepo-Hashim warns President Muhammadu Buhari against any increase in the prices of petroleum products at a time like this, as it will be suicidal to the ruling All Progressives Congress

We are again back to the debate of whether to increase the prices of petroleum products or not in what some people call subsidy debate.

Expectedly, most political leaders and those who aspire or pretend to want to lead Nigeria in 2023, have all kept their mouths shut because it is politically risky to speak.

It is, however, not in my character to keep quiet on a matter so fundamental as this.

We were in this situation early in the administration of President Olusegun Obasanjo in 1999 when prices of petroleum products were suddenly increased without any consultation with the Peoples Democratic Party (PDP) National Executive Committee of which I was a vocal member.

Led by our Deputy National Chairman, Alhaji Iro Dan Musa, Harry Marshal (Vice Chairman South/South), Abubakar Magaji (Vice Chairman North Central), Emmanuel Ibeshi (National Publicity Secretary) and I (Deputy National Publicity Secretary) on behalf of ourselves and other NEC members, addressed a press conference and urged the President to reverse the price increase.

Workers led by Adams Oshiomhole were already on strike. And when the party spoke, President Obasanjo backed down.

As I was not afraid to ask Obasanjo to reverse himself 22 years ago, so I will be very upfront with Mr. President and leader of my party, President Muhammadu Buhari GCFR, He does not need to listen to IMF and World Bank on this particular matter.

Firstly, the possibility of spending a maximum of USD4 billion at current price levels on petroleum products over a 12-month period that Nigeria could earn about USD 30 billion from oil exports ((@60USD per barrel based on daily export estimates) is not the biggest headache in Nigeria finances, but expending about USD10 billion on debt servicing.

Debt servicing obligation is the biggest elephant in the room that IMF that functions most of the times, as agent of creditors to weak nations, does not want to talk about. At best, the noise about “Petroleum subsidy” is diversionary.

Secondly, the size of what is called subsidy could have even been exaggerated as the value of crude allocated for domestic consumption (415,000 barrels per day) which is swapped, should stand to the credit of local petroleum product account after deduction of OPEX and average unit CAPEX costs.

When this particular sum is accounted for, the so-called “subsidy cost” will be relatively smaller than the costs bandied about.

This could just be refining costs per litre usually very marginal ,plus freight, insurance and other handling costs. The Natural Resources Governing Institute in a 2015 report, recommended what to do with the Domestic Crude Allocation (DCA) so we can have clarity on product accounting.

The arguments surrounding Petroleum pricing are not new. Since the regime of General Yakubu Gowon, which moved the price from 6 kobo to 8.45 kobo in 1973, prices of petroleum products have been increased periodically for about 30 times, even when local refineries were working.

It was only during Umaru Musa Yar’Adua’s Government that petroleum products were never increased.

Any time oil price goes up in the international market, there is always a need to hike domestic price of products. Any time international oil price falls internationally, it is an occasion again to hike the domestic price of petroleum products because the value of the nation’s currency will fall.

Oil is a Strategic National Commodity for Nigeria as it is for all oil producing countries; the policy surrounding it must be well thought out relative to other matters in the economy.

For instance, diesel and petrol are not just products that end up in the tanks of cars and lorries for transportation. These products are the fuel for the tiny generator at the barber’s shops, tailor’s shops, the corn mills, rice mills, local clinics, hospitals, bakeries, small scale industries, telecommunications facilities, banks etc.
Petrol and diesel are fuel for self generated power in Nigeria because Nigeria generates less than 5% of what it should be generating from the grid.As its energy from petrol and diesel is over 150 percent of grid costs.This already makes the energy costs of an average producer both in the formal and informal sector one of the highest in the world .Specifically the increase being recommended in
PMS prices will affect informal sector more because PMS is the fuel for small generators.It will also hit the working class hard!

Petrol and diesel fuels 90% of economic activities in Nigeria. Any increase in the prices causes significant distortion in the economy and whatever gain to the treasury will be wiped off by the losses it will cause to the economy and the net balance will be negative.

You do not have to be a Havard trained economist to comprehend this simple analysis. Any time petroleum prices goes up, the people feel it everywhere around them immediately, and that is why anger and reactions to such increases are usually spontaneous.

In April 1988 when prices of products were increased by 2.5k from 37.5k, workers’ strikes broke out in Kano Jos and then Lagos, Ogun, Oyo, Ilorin, bank workers shut down the banks nationwide and then nurses went on strike, followed by street protests organised by students of tertiary institutions.

In 1994, the reactions to the whopping increase by the”technocratic” interim government of Ernest Shonekan swept that government out of power. The reactions to the increases in petroleum products prices under Jonathan’s Government are so fresh in the minds of most Nigerians that it is not worth elaborating upon.

In the 1980’s and 1990’s the Brethen woods institutions put weak third world countries under undue pressure on the management of their economies based on their national debts through ruinous advisories and conditionalities that are not applied on similarly indebted developed nations whenever they want to offer assistance. The US , the world most indebted country with a national debt of over 100% of her GDP does not get such advisory from the IMF.

So, the difference is political power not economics.

Right now, most Western countries in the COVID era are printing money to subsidise their people. So, the conversations we should be having is how developing countries can also enjoy some concessions, not how to take any little support for the people away.

At the domestic level, we need a conversation on a national strategy for economic development, not on how to tinker with the price of petroleum product or value of the national currency which has been an unhelpful path we followed biannually since 1986.

Nigeria economic managers, especially those who have appropriated the titles of technocrats for themselves and their acolytes in the media and the market fundamentalists of the “Chicago school” need to demonstrate more creativity in their postulations than rehashing policies whose outcomes have been rounds of colossal failure after three decades of application in Nigeria.

Let us be honest with ourselves; the people that have been decorated with titles of technocrats are not usually people who have won academic prizes to validate their brilliance or originality. They are usually people outside core economics background and with little knowledge of political economy.

Their only validation is appointments by Bretten woods hawks or some stint in third word finance agency or ministry of a third world country accompanied by just any degree from an Ivy League institution.

Brilliant prize winners such as Jozef Stiglitz, an Ex-IMF economist and Nobel Prize winner in Economics, disagrees seriously with Brethen woods orthodoxies.

The truth is that fuel price increase is a needless headache we do not need at a time like this. There are many expenditure items on the public budget we can knock off instead of what is called petrol subsidy. It will be political suicide for our great party to contemplate increase in prices of petroleum products at this time.

I believe the leader of the party, President Buhari will not take the bait!

*Olawepo-Hashim is a former Presidential Candidate and Lord Max Bellof Prize Winner in Global Affairs. He was also trained in International Petroleum Management in Boston Massachusetts, USA

QUOTE

As I was not afraid to ask Obasanjo to reverse himself 22 years ago, so I will be very upfront with Mr. President and leader of my party, President Muhammadu Buhari GCFR, He does not need to listen to IMF and World Bank on this particular matter.
Debt servicing obligation is the biggest elephant in the room that IMF that functions most of the times, as agent of creditors to weak nations, does not want to talk about. At best, the noise about “Petroleum subsidy” is diversionary