Sylva: Fuel Subsidy Removal Inevitable

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Timipre Sylva

The Minister of State, Petroleum Resources, Chief Timipre Sylva, in this interview sheds more light on issues surrounding the increase in the pump price of petrol. Emmanuel Addeh provides the excerpts:

Can you give an overview of the recent rise in the pump price of petrol?

This is at the core of our daily lives. So every Nigerian is somehow affected one way or the other by this policy direction and I believe that today there’s a consensus that this policy direction is a necessary one. Successive governments in this country have all desired to achieve deregulation. Some lacked the political will, at other times, the time was not very appropriate because the product you are talking about is very sensitive to the price of crude oil. When you say PMS, it is refined from crude oil and therefore whenever the crude oil price goes up, we will understand that the price of the refined goes up because the price of the fixed stock goes up. The derivatives from that fixed stock is also bound to go up. Therefore when the price of the fixed stock went down, this government was able to transfer some of that joy to the public. And we have never minced word that when the price goes up, we will be seeing some movement at the pump which is what is happening today.

We all know Mr. President’s alignment with the poor people in Nigeria. He has always been on the side of the poor people. And left to the president, I am very certain that we will never have increased pump price.
For this to happen, we must understand that this was an inevitable policy direction especially at this time of covid-19. Covid-19 saw oil prices at the zero zone, something that has never happened before. Some countries had to pay people to evacuate their crude oil, meaning they were selling their crude oil at minus.

Here in Nigeria, the price of our crude went down to less than $10. At that time our earnings were not able to support such, so it became inevitable because subsidy itself is a very tricky thing. We were subsidising at two ends, it’s like we were burning our candles at both ends. You are subsidising at the pump and subsidising the foreign exchange that is used to import this product. So, if you put all the subsidies together, it came to more than N1 trillion every year and who were we subsidising?

Years ago, all the controversies about subsidy, all the claims that people were making, no poor man was making any of those claims. It was the same rich people that were feeding fat from the subsidy. So, at the end of day, the rich people are the ones that benefit and the poor people continue to lose from even subsidy.

Thinking through it at this point, against the background that this country cannot continue to afford this subsidy of over a trillion naira, we decided that it was time to deregulate.

So, in essence, what would the removal of subsidy mean for Nigerians and the government?
What that meant was that government stood back from the business of importing and supplying products at the pump. And we feel that market forces should take over and demand and supply should take over. But government will now have to play its traditional role of protecting the consumer, so that nobody profiteers on the consumer.

So, today I can say that we and the people are on one side. We have to watch keenly so that the marketers will not charge the public too much. So, we are on the same side right now. So, when people begin to blame government for higher prices, it’s not the right thing, because maybe they don’t understand that at this point, we are no longer fixing prices. That’s what deregulation means. We are no longer in the business of fixing those prices. We have stepped back and we are allowing market forces to determine the price at the pump.

Does it mean that the pump price of fuel will continue to rise or will it keep fluctuating?

If you noticed, when the international price of crude oil went down earlier in the year, it reflected at the pump and when it goes up, it also reflects. It’s the same crude oil we are talking about. It is about the economic survival of this country and at the end of the day, I am sure all of us want this country to survive. There are certain things our country can ill-afford at this time, look at where the price of crude oil is and we were able to achieve $45 through a lot of pains and cutting of our production. We have cut our daily production to 1.412 million bpd and that’s from over two million, almost half your earnings.

Before now, we were talking about 2.6 million bpd at crude oil price of over $100. We have seen that in this country, but not in this administration. So, what is available to government has reduced considerately in terms of foreign exchange earnings and you know that crude oil accounts for over 90 per cent of our foreign exchange earnings. Where do you get the dollars to continue to import this product that you are selling at a loss? I believe it will come with a few pains initially. But when we get over this, we will all be happy that we took this decision for the survival of this country.

Is government providing alternatives since it seems the price of fuel is skyrocketing?

Government also realises that this policy will come with some pains to all of us, even myself. If you have been reading the papers, you must have seen that I have already surrendered my vehicles to be converted to LPG, CNG because what government is trying to do is to introduce cheaper and cleaner fuels and we are very serious about it.

The roll-out will be very soon, towards the end of this month or next month to give an alternative to the consumer. So that if you go to the filling station today and the price of PMS (petrol) is too high, you can switch and buy LPG, CNG which will be cheaper. These are some of the alternatives to ensure our people do not collapse under the weight of higher pump prices.

Now the unfortunate thing about Nigerians is that we politicise everything. The same political party which was in government a few years ago, trying tooth and nail to achieve deregulation is the same party outside government that is now advocating subsidy. They are now criticising what they wanted to achieve themselves.

Is the government providing palliatives for the citizenry to cushion the impact of the rise?

We have become very used to the word palliatives.
On the issue of palliatives, we have had a lot. We have had the PTF (Petroleum Trust Fund) palliatives, but it doesn’t exist today. Today, I don’t think there’s any government that has introduced as many palliatives as this government, the N-Power, Trader Moni, school feeding etc, but we think that the solution to this thing should be a little bit more sustainable. And the sustainable solution is to create another kind of fuel that’s cheaper and cleaner. So, we are achieving two things at the same time, cheaper and cleaner fuel. We are introducing the LNG, LPG and CNG, which are cheaper fuels.

If you create a toll gate, you must also create a route which may not be as comfortable but an alternative so that people will have a choice. In this case we are introducing a better and cheaper fuel. In the end, I do not think that people will even feel the increase because by the time you get used to gas to fuel your car at half the price of petrol, you probably won’t think of petrol anymore. Let us allow this policy to mature. These are just the teething problems. Down the line, Nigeria will be happier for it and this country will survive better economically.

Please, let us not be fixated on this initial pains. It’s like a child who needs a surgery to survive. You can avoid the pain of the surgery or allow the pain and allow the child to survive.

We are together in this. There’s no need to talk about new palliatives. The CBN has introduced more funds to more sectors than has ever happened in Nigeria at cheaper rates. These are sustainable palliatives that will outlive this administration.

Nigerians are confused that there appears to be no template for determining the prices, what is your take about that?

That question is almost taking us back to regulating the price. What we do not want to do is to go back to regulation because that gives the impression that the PPPRA is still fixing prices for the next month.
So, we are now like umpires on the same side. We watch the price. If the price goes beyond our in-house estimate, because we take into consideration everything it takes to land this product in Nigeria and we use that as our template to watch the price. We are also introducing a complaint box in the ministry of petroleum. If a marketer is raising prices beyond a certain rate, you report to us. We have become the police.

Because our duty now is to ensure the public is not cheated. We are now on the same side to police the marketers and retailers to ensure they do not profiteer from the public. If we now have to go back giving you that month-on-month template, then I am afraid that will be are suggesting we go back to the regime we are coming back from.

What is your take on the disparity between the PPMC-announced prices and the pump price that the public buys this product?

What the PPMC announces is the ex-depot price. That’s not pump price. PPMC is now a commercial importer like others. So, if I import a product at X dollar and I can afford to sell at Y dollar according to market forces that is what the market situation requires. So, if a retailer buys from a wholesaler, what concerns you and I is the pump price, not the ex-depot price. Our own concern is more with the consumer.

If you think the pump price is being inflated, the PPPRA is there, you have to report. Then we become the police. The PPMC is a commercial venture and will sell at a profit. If any marketer feels it’s too expensive they approach another one.

Earlier, you mentioned the gas use plan. What form will the gas roll-out programme take?

It’s a national project. We are not looking at a pilot programme. It’s one that will grow on a daily basis, starting with NNPC filling stations nationwide. NNPC owns filling stations across the nation. At the same time, some privately owned filling stations too are now joining the programme. They have requested to be admitted to the programme. So, in addition to the NNPC filling stations, we will have the skid-mounted gas , CNG, LPG, LNG very soon.

Very soon, the DPR will ask filling stations to upgrade or their licenses will not be renewed. So, you upgrade your filling station to include dispensing gas or it will not be renewed. If we grow very fast, within a short time, we would have the capability in every filling or most of them across Nigeria. This programme will create a lot of job opportunities. There will be conversion kits sold everywhere. A company has even approached us to install the conversion kits in Nigeria. We are hoping that going forward, people will start importing those cars with that capability from the factory. So, the conversion is for the transition period.

Is there a pilot scheme on the workability of this plan?

We have started a pilot scheme with the conversion of Keke Napep, tricycles in Port Harcourt and it’s working very well. Their colleagues are clamouring for it, it’s less noisy, even for generators. These are opportunities that will come with the launch of the programme.

Being that a regulated market created all kinds of bureaucracies, what will be the new role of PEF and PPPRA post-deregulation?

I said we are now on one side. You need a strong policeman on your side and that’s the role of the PPPRA and even PEF because without the existence of PPPRA how do you police these people who will profiteer on you.

We are now on the same side. Without the existence of PEF, somebody will take petrol from Port Harcourt and go to Maiduguri and decide to sell at N500 per litre whereas someone in Port Harcourt can still buy it at that time for about N50 per litre. We still require the policing agencies, so to say. But PPPRA and PEF will not exist in the same way, because we are now in the process of passing the PIB. PEF and PPPRA will be brought under one umbrella or what we call the authority and will help police the pump price of petrol so that nobody will profiteer on Nigerians. They still have a role not very different, but it will be a different colour completely. But they will no longer exist as PEF or PPPRA but under another body called the authority.

How much have you saved since deregulation?
We announced at the same time in March that we had taken out the budgetary provision on deregulation which was around N500 billion. That’s already money saved and moved to other areas. We rebased the budget because oil prices were coming down and one of the things that was unnecessary was provision for subsidy. We also took out the foreign exchange differentials because the official and parallel windows were merged. That means that we also took away that window that was subsidising foreign exchange.

With that, you can see the country already saved up to N1 trillion from deregulation. That’s why these savings will only begin to show later on, maybe in the budget for next year when we know we don’t have to bother with subsidy provision. It will show up through capital projects. We are experiencing the initial bumps and teething problems which I think we can surmount. If we had subsidy, the money would be increasing and we won’t be able to determine where we are because if the oil prices should top $100 per barrel, you can imagine how much will be spent on subsidy. It’s something that all Nigerians should have consensus around. It’s something we have to do for the collective survival of our country.