There is need to deregulate the downstream sector of the petroleum industry

It was a bleak Christmas in Nigeria as many people across the country spent considerable time running from one filling station to another searching for petrol that was, in most instances, not available. Where it was available, the prices per litre were astronomical. With the cost of transport jerked up and the fuel scarcity yet to abate, the government of President Muhammadu Buhari has come under heavy criticisms. But the conspiracy theory that the scarcity, which has become perennial, was targeted against the celebration of Christmas is untrue and rather unfortunate.

While both President Buhari and Vice-President Yemi Osinbajo have assured Nigerians of the efforts being made to address the situation, we believe there are compelling arguments for ending the regime of subsidy that has over the years become inefficient and dysfunctional. We are also of the strong opinion that properly managed, there are economic benefits to the deregulation of the downstream sector of the petroleum industry as has been demonstrated in the telecoms sector over the last one decade. That, in our view, is the only enduring solution to this problem.

As we have consistently argued, a regime of unbridled subsidy in which a huge percentage of the national budget goes to service the consumption of one single item is not only unsustainable but also antithetical to the development of any nation. Even when subsidies might be necessary as a way of achieving strategic objectives beyond the remit of the market, such subsidies must be targeted and must be effectively implemented. This one unfortunately does not meet either of the criteria. There were attempts in the past to end it, but the political will was lacking.

In June 2014, for instance, the Federation Accounts Allocation Committee (FAAC) urged the Senate to cancel the subsidy because it was “a fraud against the country”. But in rejecting the proposal at the time, the then Senate President, David Mark said: “If we sit here now and say remove fuel subsidy, I think that those who are benefiting from subsidy are very powerful and tomorrow they would influence media reports and create the impression that the Senate is anti-people”.

We agree with the FAAC that there is no justification for the retention of the subsidy regime but the argument given by the Senate is precisely the reason why government dithers on the decision that appears to be the most sensible in the circustance. But the current situation harms rather than help the people.

What President Buhari and his administration must realise is that as long as the subsidy remains, the incentive for private and public actors to game the system will continue to be there. Also, as long as there is default in subsidy payment, which is not inconceivable given the current state of our finances, supply will be constrained, which necessarily pushes pump price many times above the market price, with serious impact on cost and volume of production in the economy and untold hardship on the populace, especially the poor.

It is therfefore our considered view that something has to be done to end the current scarcity. But as a permanent solution, the federal government must muster the requisite courage to overhaul the downstream sector of the petroleum industry which goes beyond periodic hikes in the pump price of petrol. The sector has to be more accountable, transparent and efficient and the only sure way to doing that is total deregulation.