LCCI, TI Demand Clarification on Subsidy Removal

  •  Ask FG to come up with deregulation regime • Seek equitable access to foreign exchange

Gboyega Akinsanmi

The decision of the Nigerian National Petroleum Corporation (NNPC) to unilaterally remove fuel subsidy came under scrutiny yesterday as the Lagos Chamber of Commerce and Industry (LCCI) and Transparency International (TI), among others, asked the presidency to clarify terms for the removal.

The pressure groups, also, questioned the resolve of the NNPC on the subsidy, expressing worry on which legal regime “is this declaration made enforceable since the Petroleum Industries’ Bill (PIB) is not in-sight anytime soon.”

The groups raised these issues in separate interviews with THISDAY yesterday. They all expressed support for the removal of subsidy or under recovery regime in the petroleum downstream sector, but demanded appropriate deregulation regime to encourage dispassionate competition in the sector.

On April 7, the Group Managing Director of the corporation, Mallam Mele Kyari disclosed on an Africa Independent Television (AIT) programme that the era of subsidy in the petroleum downstream sector had gone forever.

Specifically, on the programme, Kyari said: “There is no fuel subsidy anymore in Nigeria. It is zero subsidy forever. There will be no resort to either fuel subsidy or under-recovery of any nature. NNPC will play in the petroleum marketplace, just like another marketer in the space. But we will be there for the country to sustain the security of supply at market price.”

Subsequently, in a statement by its Group General Manager, Group Public Affairs Division, Dr. Kennie Obateru, the NNPC announced officially that the removal of subsidy in the petroleum products and its decision to hand over the management of refineries to an independent body.
Consistent with the resolve of the NNPC, the LCCI agreed that the deregulation of the petroleum downstream sector of the petroleum industry was long overdue, which it argued, would herald positive development.

However, LCCI’s Director-General, Dr. Muda Yusuf argued that NNPC’s pronouncement on the subsidy removal was not sufficient for the sector’s deregulation, thus calling for policies that would deepen investors’ confidence in the process.

He cited the price modulation framework, which according to him, was “quite inconsistent with a regime of deregulation. There is no such thing as price modulation in the business of diesel or aviation fuel, which had been deregulated before now.”
LCC’s director-general explained that the call to end price modulation framework “is, of course, not to diminish the significance of a regulatory framework for investors in the sector. But regulation is not about price fixing.

“What is paramount in all of these is to ensure a level playing field for all players, especially regarding equitable access to foreign exchange for fuel importation, pending the time local refineries would come on stream,” he clarified.

Yusuf explained the significance of creating “a strong competition framework that is fair and non-discriminatory. There is perhaps no better mechanism to prevent consumer exploitation than an unfettered competition.

“This is one of the most important roles of the state in a market economy. The recently created Federal Competition and Consumer Protection Commission [FCCPC] has a major role to play in this regard.

“Rather than policing operators and fixing prices, the federal government should ensure a regime of unfettered competition with many players. All institutional structures that are inconsistent with this strategy should be abolished.”
In order to create liquidity in the sector, LCCI’s director-general proposed a short-term tenure of promissory notes to oil marketers, which according to him, had become imperative to defray outstanding subsidy payments.”

He argued that taking such steps “will unlock huge private investment potentials in the downstream oil sector especially in petroleum product refining. This will reduce importation of petroleum products and ease the pressure on the foreign exchange market as well as the burden on our foreign reserves.”

With the tumbling oil prices, Transparency International (TI) and its contact organisation in Nigeria, Civil Society Legislative Advocacy Centre (CISLAC) urged the presidency and the National Assembly “to take a more decisive action in a bid to reform the petroleum downstream sector.”

TI’s Representative in Nigeria, Mr. Auwal Musa pointed out diverse accountability issues, which according to him, were responsible for the hemorrhage on revenue flows and oil production that have earned the country’s oil sector a not-too-favorable reputation both locally and internationally.

Musa, also Executive Director of CISLAC, agreed with the NNPC on the subsidy removal, but expressed concern about the pronouncement due to the dearth of legal regime to give clear direction for the deregulation of the downstream sector.
He, therefore, sought to know on which law “is this pronouncement made enforceable since the Petroleum Industries’ Bill (PIB) is not in-sight anytime soon.”

Aside, TI’s representative asked: “What is the implementation plan to implement this detailing how the effects will be cushioned by the government to avoid acute negative effect on the citizens and impending push back?

“Who else is consulted on this decision so as to prevent unilateral decision which is going to be refuted by other administrative stakeholders in the sector and makes it un-implementable?” he rhetorically asked.

On these grounds, Musa urged the presidency, the National Assembly and the Ministry of Petroleum Resources “to wade into this issue and provide more clarity on this very crucial decision at this critical stage in our Nation’s economy which is still as at now largely dependent upon this sector.”

He proposed that the federal government should take advantage of the COVID-19 and its effect on the oil price as an imperative “to diversify the nation’s economy and invest in other sectors which provide added larger value and more disposable revenues to the underemployed and vulnerable.

“This is a wakeup call for all Nigerians to fight against the frivolous waste in the governance process. The continuous mismanagement and corruption of the extractive sector is eroding substantial investments in sustainable development.”
With this development, he urged the presidency and legislature “to implement a substantive cut in the cost of governance and channel these funds to sustainable development projects, which would benefit the poor as opposed to the elite, which is a disproportionate recipient of Nigeria’s common wealth.

“In times of crisis, projects that have no economic benefits should be terminated. Proper cost-benefit analysis before engaging in any project is the only way to reduce inefficiency and promote value for money,” he suggested.