After Trillions Spent on Corrupt Fuel Subsidies, FG Finally Bites the Bullet

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  • IPMAN, MAN, LCCI back move as labour kicks
  • Depots suspend loading of petrol

Our Correspondents
After the trillions of naira spent by successive administrations sustaining the corrupt and hugely inefficient fuel subsidy regime, wednesday the Muhammadu Buhari administration finally summoned up the courage to remove the subsidy on petrol, stating that it would now sell for not more than N145 a litre.

However, despite its best efforts to get the buy-in of the major labour unions, which for decades had thwarted the attempts by previous administrations to remove the subsidy on petrol, the Nigeria Labour Congress (NLC) warned that it would resist any attempt to “foist or force the increase on Nigerians”.

The government, nonetheless, got the support of the Manufacturers Association of Nigeria (MAN), Lagos Chamber of Commerce and Industry (LCCI) and Independent Petroleum Marketers Association of Nigeria (IPMAN), who all backed the decision, saying it was inevitable under the current economic climate.

Announcing the decision to increase the price of petrol wednesday, the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, who briefed State House correspondents, said: “We have just finished a meeting of various stakeholders presided over by His Excellency, the Vice-President of the Federal Republic of Nigeria.

“The meeting had in attendance the leadership of the Senate, House of Representatives, the governors’ forum, and labour unions (NLC, TUC, NUPENG and PENGASSAN).”

He said the meeting reviewed the current fuel scarcity, supply difficulties in the country, and the exorbitant prices paid by Nigerians for the product.

“These prices range on average from N150 to N250 per litre currently,” he said.
Kachikwu revealed that the meeting also noted that the main reason for the current problem was the inability of importers of petroleum products to source foreign exchange at the official rate due to the massive decline of foreign exchange earnings resulting from low oil prices.

“As a result, private marketers have been unable to meet their approximate 50 per cent portion of total national supply of petrol.

“Following a detailed presentation by the Honourable Minister of State for Petroleum Resources, it has now become obvious that the only option and course of action now open to the government is to take the following decisions:
“In order to increase and stabilise the supply of the product, any Nigerian entity is now free to import the product, subject to existing quality specifications and other guidelines issued by the regulatory agencies.

“All oil marketers will be allowed to import petrol on the basis of forex procured from secondary sources and accordingly, the PPPRA (Petroleum Products Pricing Regulatory Agency) template will reflect this in the pricing of the product.

“Pursuant to this, PPPRA has informed me that it will be announcing a new price band effective today, 11th May, 2016 and that the new price for petrol will not be above N145 per litre.
“We expect that this new policy will lead to improved supply and competition and eventually drive down pump prices, as we have experienced with diesel.

“In addition, this will also lead to increased product availability and encourage investments in refineries and other parts of the downstream sector.

“It will also prevent diversion of petroleum products and set a stable environment for the downstream sector in Nigeria,” he said.

Kachikwu also said that the government shares the pains of Nigerians, adding: “But as we have constantly said, the inherited difficulties of the past and the challenges of the current times imply that we must take difficult decisions on these sorts of critical national issues.
“Along with this decision, the federal government has in the 2016 budget made an unprecedented social protection provision to cushion the current challenges.

“We believe in the long term, that improved supply and competition will drive down prices.
“The DPR and PPPRA have been mandated to ensure strict regulatory compliance including dealing decisively with anyone involved in hoarding petroleum products.”

PPPRA Announces New Price

After Kachikwu’s briefing, the PPPRA later weednesday confirmed the new pump price for petrol, saying that in the new pricing template, which it reviewed, fuel stations in the country would now sell the product at a maximum of N145 per litre.
The new pump price is N58.50 higher than the previous price of N86.50 per litre, PPPRA said, noting that the downstream sector was still under the government’s price modulation policy and not deregulated.

It also indicated that there was no subsidy for the importation of petrol, adding that the price would reflect extant market realities.

PPPRA also stated that petrol marketers would henceforth be allowed to independently source foreign exchange to import products into the country, and advised retail stations owned by the Nigerian National Petroleum Corporation (NNPC) to sell at pump prices below N145 per litre.

In the statement from PPPRA, signed by its acting Executive Secretary, Mrs. Sotonye Iyoyo, it said: “Statutorily enshrined in the PPPRA Act No 8, 2003, is the responsibility to moderate pricing for the industry. In performing this role, the PPPRA commenced a petroleum products price modulation framework on the 1st of January, 2016, with the aim of ensuring a ‘fit-for-all’ approach that seeks to serve the interest of the Nigerian consumers, marketers and the economy.

“In furtherance of its mandate to ensure the efficient supply and distribution of petroleum products, the PPPRA hereby announces, effective immediately that the new price band for petrol shall be at a maximum of N145/litre. However, NNPC retail stations on the outskirts of major cities are advised to sell at price lower than N145/litre.”
Giving reasons for the price review, PPPRA said: “This review became imperative in the face of extreme difficulties faced by petroleum product importers in sourcing foreign exchange.

“To meet the consumption demand of the nation, importers will henceforth be permitted to source their foreign exchange requirements from the secondary sources.”

Like the minister, PPPRA said it was conscious of the difficulties Nigerians had been going through in the last few months “and to ameliorate this situation, we shall continue to modulate pricing in accordance with prevailing market dynamics, thereby ensuring fair value to all citizens”.

It was also gathered that the template would be reviewed on a monthly basis as against the quarterly basis, which was what obtained in the past.

Labour to Resist Deregulation

However, NLC has vowed to resist the removal of the subsidy regime. Its Secretary General, Dr. Peter Ozo-Eson, in a statement yesterday said that the increase was disingenuous and smacked of high handedness on the part of government.

Distancing itself from the decision, it added: “The unilateral increase in the price of petrol today (yesterday) by government represents the height of insensitivity and impunity and shall be resisted by the Nigeria Labour Congress and its civil society allies.

“With the imposition on the citizenry of the criminal and unjustifiable electricity tariff hikes and the resultant darkness and other economic challenges brought on by the devaluation of the naira and spiraling inflation, the least one had expected at this point in time was another policy measure that would further make life more miserable for the ordinary Nigerians.”

Ozo-Eson described the increase as the most audacious and cruel in the history of product price increase as it represented not only an 80 per cent hike, but was tied to the parallel market exchange rate.
“Furthermore, the process through which government arrived at this is both illogical and illegal as the board of the PPPRA was not duly constituted.

“In our previous statements and communiques, we had stressed the need for reconstituting the boards of NNPC and PPPRA and wean both away from the overbearing influence of the Minister of State for Petroleum Resources who has assumed the role of a sole administrator.

“The allusion to the fact that this increase was arrived at after due consultation with stakeholders is not only ridiculous and fallacious, it goes to show that the brief meeting held today during which government was advised to shelve the idea until at least it meets with the appropriate organs of the congress was in bad faith,” he said.

NLC demanded that the government must reverse the price of petrol to its previous price, stating: “We would want to put everybody on notice that we shall resist this criminal increase with every means legitimate.

“Already an emergency NEC meeting has been scheduled for Friday, May 13, 2016 to decide on the next line of action. Meanwhile, our affiliates, state councils and civil society allies are requested to commence mobilisation immediately.”

NLC sources informed THISDAY that even though it was informed by the government at yesterday’s meeting with Osinbajo and others on the plan to remove the subsidy on petrol, it was yet to respond to the overtures seeking its support for the new policy.

Also, Ozo-Eson told THISDAY that labour leaders were invited to a meeting at the State House, but the letter did not specify what the meeting was all about.

“Of course, we received a letter from the Office of the Vice-President for a meeting. We attended the meeting and a presentation was made by the Minister of State for Petroleum Resources, Dr Ibe Kachikwu.
“We listened to the presentation, but said that we have to reach other organs of NLC, as it is our organs that will decide what direction we will take,” Ozo-Eson said.

Asked if labour endorsed any of the proposals put forward by government, the NLC secretary general said: Of course not, we are yet to respond to the overtures and presentation. We have to critically look at every item.”
The NLC chief scribe maintained that before any decision was arrived at, the people’s interest must be paramount, and that labour would not rush into any agreement with government on deregulation and petrol pump price hike.

IPMAN, MAN, LCCI Back Policy

Labour’s position, notwithstanding, IPMAN, MAN and LCCI backed the federal government on its decision to end the subsidy regime on petrol, stating that it was long overdue and had become inevitable under the prevalent economic climate.

The Vice-President of IPMAN, Alhaji Abubakar Maigandi, said yesterday in Abuja that the decision would help to end the persistent petrol scarcity in the country.

“This is a good development; the best that will happen is complete removal of the subsidy.
“The price they put is a good one, but the best thing is to leave the market open so that people will decide what they want to sell after importation,” he was quoted by the News Agency of Nigeria (NAN) as stating.

He assured Nigerians that petrol would be available with this development, adding that the association was ready to continue to support government’s effort.

Also, the Director-General, LCCI, Mr. Muda Yusuf, said the decision by the federal government to liberalise the petroleum downstream sector was inevitable given the acute resource constraints that the country was faced with.
Yusuf, in a statement yesterday, also pointed out that over-regulation of the sector and the subsidy regime had put enormous pressure on government finances and on the country’s foreign reserves.

According to him, it was evident that the policy was not sustainable, stressing that the review was in the long-term interest of the economy and the people.

“Petroleum subsidy management has been characterised by serious transparency issues for several decades. There are two components of the subsidy phenomenon.
“The first is the actual subsidy, which is the differential between the pump price and the landing and other costs of fuel.

“The second (and more disturbing component) is the blatant corruption inherent in the fuel subsidy regime.
“For several years, the Nigerian economy suffered severe bleeding from this phenomenon; with subsidy payments in the one trillion naira threshold, and even more.

“In an economy with a huge deficit in economic and social infrastructure, it was simply scandalous. It is in the overall interest of the economy and citizens for it to be discontinued,” the LCCI boss said.
He maintained that one of the critical elements of the oil and gas sector reform, particularly the downstream sector, was the complete deregulation of the sector.

He added: “This will create a number of advantages for the economy. It will free resources for investment in critical infrastructure such as power, roads, the railway projects, and in the health and education sectors.”

MAN, in its reaction, also threw its weight behind the federal government’s decision to end the subsidy regime.
President of MAN, Dr. Frank Undemba Jacobs, told THISDAY that it was a correct decision to deregulate the price of petrol, because most members of his association had been paying well above the official price for months.

“I think it is a good decision to deregulate. Actually we have been advocating the deregulation of the product for some time now, so it is a step in the right direction.

“In the short term, prices will go up, but if the government can hold the price at a maximum of N145 per litre, it will be of benefit to manufacturers because most of our members especially outside Lagos and Abuja have been paying over N160 per litre of petrol.

“If you look at diesel which was deregulated a long time ago, you will see that the product has since stabilised at a lower price. The same thing will happen with petrol.

“The forces of demand and supply will eventually lead to fair and stable pricing,” he said.

Marketers, Depots Suspend Loading

Meanwhile, as news broke that the price of petrol had been increased, oil marketers and depot owners, who were surprised by the announcement, suspended loading, insisting that buyers must pay the difference between the old ex-depot price which they had paid before the announcement and the new price.

Instead, they insisted that all new loadings must be based on the new price, irrespective of the fact that some of the buyers had paid for the product several weeks or months ago.

All the major marketers — Oando, MRS, Conoil, Mobil, Total, Forte Oil, and NIPCO — had loaded petrol before the announcement, while independent marketers that loaded included Aiteo, Bovas, Capital Oil, Folawiyo, MRS, Rahamaniyya and Sahara Energy.

However, PPPRA’s pronouncement on the price review came on the heels of a letter written by the agency to oil marketers and depot owners on Tuesday, informing them of a stock taking exercise.

The letter informed the chief executives of the companies that the exercise, which was mandatory for all the companies and depots, was to re-affirm the agency’s collective resolve at ensuring transparency in subsidy management.

However, by 7 am wednesday, text messages were sent to the CEOs informing them that the exercise had been cancelled.

THISDAY gathered that the stock taking was aimed at determining the quantity of petrol in the tanks, which will be sold at the new price and the quantity already sold by the marketers, which would attract subsidy payment.

But in the absence of the exercise, marketers who had not sold their imported products still at the depots might claim that they had sold the petrol in order to claim subsidy, yet still go ahead to sell at the new price.

A similar exercise was carried out on January 1, 2012 during the failed attempt by the administration of former President Goodluck Jonathan to remove subsidy.

TWELVE REASONS WHY DECISION IS RIGHT

01
Trillions of naira have been spent by successive administrations sustaining a corrupt, largely abused regime that has ended up in private pockets, creating overnight billionaires who continue to walk free

02
Petrol subsidies over the years have caused supply disruptions and engendered inefficiencies in their management

03
Under the current low oil price environment, dwindling oil revenue and shortage of foreign exchange, deregulation would partly reduce the pressure on the naira and foreign reserves

04
With deregulation, importers of petrol can source for their dollar requirements from autonomous sources, which would ease pressure on the naira and foreign reserves

05
Diversion of products will be minimised, as there will be no incentives for marketers to divert petrol to markets where they are guaranteed higher prices

06
The removal of subsidies will attract critically needed private sector investment in the downstream oil sector and lead to the construction of new refineries

07
As greenfield refineries come on stream in the medium to long-term and NNPC partly privatises its plants under whatever arrangement it chooses to call it, Africa’s largest oil producer would transit from an importer of products to a net exporter of products and end the export of jobs to other jurisdictions

08
The end of subsidies will end crude oil swaps and other opaque trading arrangements that have cost Nigeria billions

09
Savings made by government will be used to develop critical infrastructure that would create jobs, and funds redeployed to subsidise productive sectors of the economy such as agriculture, textile manufacturing and SMEs (wise countries subsidise production, not consumption)

10
With deregulation and the attendant competition, marketers and NNPC will be forced to adopt best practices in order to remain in business

11
Competition will also guarantee that prices will inevitably stabilise and drop over time; US shale oil and new oil discoveries in other parts of the world mean that oil prices are unlikely to ever rise to $100 a barrel, which has a knock-on effect on the price of refined products

12
Realistically, the official pump price of petrol has largely been enjoyed by dwellers in major cities in the country. In the hinterland, where up to 60 per cent of Nigerians still reside, petrol, when it is available, is normally sold way above the regulated price