fuel not for poor man Agbodo

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August 29, 2005

Fuel: Not For Poorman


AFTER about one year of relative peace, labour and government are back in the
trenches over the same old issue- appropriate pricing of petroleum products. One
is eternally disposed to price increases while the other drives in the opposite

It is the dialectics of thesis and antithesis, which has, however, refused to
synthesize at an acceptable price level after so many years. The situation has
not been helped by the new-found economic theory of deregulation. The theory
says everything including in some cases, life, is a privilege which should not
be indiscriminately spread across aboard.

In simple terms, it means a man does not need a car if he cannot afford the cost
of fuel or does not need fuel if he cannot afford a car. It is the concept that
calls some people rich and others poor. The rich are those who can afford car
and fuel at even infinite price while the poor are ever comfortable with a stay
of the status quo.

Under deregulation, everything under the sun yields to the forces of demand and
supply. It is not a friendly concept because it makes the rich comfortable and
the poor uncomfortable. But in this matter of fuel, the rich may also cry in the
very long run.

The Nigerian brand of deregulation is curious. It is plugged into a highly
sophisticated international economic system such that what happens in the United
States, for instance, where per capita income is more than $40,000.00 applies
exactly to situations in Nigeria where almost everybody lives below the poverty

Today, the cost of oil even in the slums of Ajegunle in Lagos is denominated in
dollars. Yet no Nigerian, except two or so federal ministers earn their income
in dollars. When prices of crude shoot-up in the international market, Nigeria,
a major exporter of crude oil smiles. It brings more money to the national
treasury at constant production output.

It brings money to build infrastructures and expand the productive base of the
economy. Money for social schemes such as provision of good hospitals and
schools. If this were so, Nigerians will never complain but join their
government in praying for constant increases in international oil prices. But it
is hardly the case.

Instead, when prices go up (it is now about $67.4 dollars per barrel) only the
Nigerian government gains on all fronts. The people which the government is
instituted to serve lose in equal measure. After earning more money selling
crude in the international maeket, government usually returns home to invoke the
theory of deregulation to collect more money from the hapless people of Nigeria.
This is the practice that has put petroleum prices on an upward swing since the
advent of President Olusegun Obasanjo in 1999.

Obasanjo has increased fuel prices more times than all the other federal regimes
put together since independence in 1960. Between 1999 and now, pump prices have
been increased 10 times. This represents a breath-taking frequency of almost
twice every year. When he left as military head of state in 1979, petrol was
about 20 kobo per litre. The naira was N0.75 to the dollar. Twenty years later
when he reincarnated as civilian president, petrol stood at N22 per litre and
the exchange rate a mournful N80 to a dollar.

Bad as it had seem, it was a beautiful scenario from hindsight. In just six
years of operating the economy, every measurement of value has crashed
irretrievably to the base degree under Obasanjo. Meanwhile the oil market has
over time assumed horrifying attributes. First, there is a sustained fallacy
called petroleum subsidy which government so recklessly invokes to advantage
each time it faces cash crunch and feels like making more money from the
domestic market.

It is an Orwellian setting where subtraction works up to addition of figures.
The more subsidy that is removed, the higher the people pay for fuel. Still,
nobody knows b y how much exactly government subsidizes local consumption of
fuel. One estimate released by the Nigeria National Petroleum Corporation
recently put the figure at a staggering N650milliomn daily. President Obasanjo
calls this “burning of money.”

When it is convenient, the government raises the anthem of subsidy. Other times,
it plays the ostrich and dumps the responsibility of price determination on the
door step of the Petroleum Products Pricing and Regulation Agency (PPPRA) and
products marketers. This is what the federal government through minister of
information, Mr. Frank Nweke (Jnr) has just done. When resistance to the
rumoured increase of petrol price to N65 became obvious even from the National
Assembly, Mr. Nweke came on air to announce that the federal government, the
biblical Pontious Pilate, had no hands in the arrangement. He said the rough
deal was strictly between the PPPRA and major operators in the down stream

The PPRA is being accorded a larger-than-life status because it suits government
this time around to bring it in to do an undertaker’s job. It is an agency
created by government to give illusion of spontaneous dynamics in the oil
business in Nigeria. The control and regulation levers are still within the grip
of the federal government.

Put simply, the PPRA does not have the power to cause any major upheavals such
as dramatic changes in petroleum product prices without recourse to the federal
government. In fact, the agency, like the NNPC, is neither here or there in
matters regarding petroleum pricing. Also, to say that the federal government is
in charge is to go beyond the given circumstances. The buck starts and stops on
Obasanjo’s desk. To bring in NNPC, PPPRA or even the entire federal structure,
which should include the National Assembly, amounts to passing the buck.

It is Obasanjo that increases fuel prices perhaps based on off shore advice from
the West. What is more, the rare feat of achieving three quarters cancellation
of Nigeria’s debt has emboldened President Obasanjo. At least, he can argue that
more succour will come the way of the country if Nigerians are made to pay more
for fuel.

Dr. Edmund Daukoru, minister of state petroleum resources told The Guardian in
Abuja that deregulation is like a moving train which cannot be easily stopped.
“We must deregulate and what we can perhaps negotiate is the speed and frequency
” he said adding “to stop it totally in this global economic system will sound

At the Senate screening session of ministerial appointees last month, Dr.
Daukoru repeated the point before members of the Upper House some of whom asked
him to comment on the state of the four refineries in the country. He told the
Senators that the Turn Around Maintenance (TAM) of the refineries was going. He
added that some of the investors who won licences to build private refineries
were set to roll out.

The minister however agreed that some gain of between N5 and N10 would be made
on the two -way freight on the importation of finished products if all the
refineries come on stream.” He insisted that “even at that, there will be
importation in the short-run to bridge the gap in domestic consumption.” At full
capacity, the four refineries which can only produce about 17 million litres per
day will leave a shortfall of about 23million litres in daily domestic
requirement which is put at 30 million litres.

The only thing that matters in the economics of deregulation is the profit
point. Thus, if in the long run investors come in with more refineries, the gain
will still remain marginal as investors who buy crude at international rate will
insist on selling the refined products at the same rate. This is the danger in a
completely deregulation oil economy. Succour can only come through direct
government intervention or a downward shift in world market parametres. That is,
at worst, the Nigerian government may decide to sell crude oil at less than the
international market price to local refineries to reduce landing cost at home.

Next month, the ordinary session of OPEC oil ministers will hold in Vienna,
Austria. The agenda, as always, revolves around the disturbing rise in crude
prices in the world market. OPEC has tried all the tricks in the books including
increasing the production quotas of member countries to no avail. It has been
explained that the pressure in the Middle East occasioned by the US-led military
campaigns in Iraq coupled with a sharp rise in global energy demand are
responsible for the skyrocketing oil prices.

It makes the picture clearer. That is, until there is relative peace in the
Middle East, the hub of global oil trade, the world market will remain volatile.
It is not something Nigerian or even OPEC can solve on its own. There is the
growing fear that the West especially the US which feels most this suffocating
oil price regime may be forced to research into alternative sources of energy.
If this happens, the Nigerian government which depends 90 per cent on oil will
suffer most while the ordinary people will laugh last because fuel will go for
almost nothing in Nigeria.

Until then, the Nigerian Labour Congress (NLC) has begun mobilisation for a
showdown with government. NLC’s President, Mr. Adams Oshomhole has described as
“bulls***” talks of deregulation and determination of domestic prices by
conditions in the international market. “You don’t use a cartel logic to
determine the lives of your citizens,” he said to one reporter. He stressed that
if OPEC turns itself to a stumbling block, the country can pull out the cartel
and produce crude according to its capacity and not as dictated by OPEC.

Oil workers under the umbrella of National Union of Petroleum and Natural Gas
Workers (NUPENG), and Petroleum and Natural Gas Senior Staff Association of
Nigeria (PENGASSAN) have threatened to ground the economy if government goes
ahead and increases pump prices.

Each time government revisits the fuel price issue, there is always a ready-made
argument: money to make life better for Nigerians. But immediately the increase
is done, Nigerians are forgotten until it is time for another increase. That is
why instead of improvement, there is degeneration in almost every department of
national life.

The 2005 budget was predicated on a price of $30 per barrel of crude. At $67.40
as at last Friday, the subsisting price is more than double the projected price.
But at home, the boom has not meant better road networks, improved power and
water supply, good health care, improved funding for education, agriculture,
etc. Instead, Finance Minister, Mrs. Ngozi Okonjo-Iweala is always talking of
improved foreign reserve as if that in itself is food that can be eaten. The
federal government is now stupendously buoyant as it talks big of paying off the
London and Paris Clubs of creditors the outstanding six billion dollars after
the celebrated debt reduction.

This is why the NLC is angry. If the price of petrol increases but the mass
transit system is made effective and efficient for instance, the impact the will
be deeply absorbed without too much brouhaha. The economy runs on generators as
organisations and individuals have learnt to put NEPA on standby in critical
hours. This is the reality which does not support frequent increases of prices
of petroleum products in Nigeria. In the absence of steady power supply and
almost everything else, fuel is central to the continued running of the Nigerian
economy. A disequilibrium in its flow or cost induces a multiplier that sends
all facets of the economy gasping for breath.

Elsewhere , the methods and expectations are different. The people are put in
the centre of all economic considerations. For instance, in Norway, investments
in the oil economy is done on behalf of government by Statoil, the state owned
oil company. The Norwegian oil policy allows government to spend only four per
cent of returns on oil investment. The rest is reinvested to expand the
socio-economic base for future generation of Norwegians.

The thinking over there is that oil is an exhaustible resource and it is only
wise to start thinking of a Norway without oil even now so that adequate
preparations can be made for an oiless future. Evenso, oil is not the main thing
in Norway, fishing remains the number occupation and the mainstay of the
Norwegian economy.

In Nigeria, It is chop and quench policy. Instead of using subsisting resources
to arrange the future and provide hope of a better tomorrow , the future is even
mortgaged by the profligacy of the current generation. Oil is projected to dry
up in the Niger Delta Basin in another 30 years . Gas is put at 100 years. If
Nigeria with cheap oil money is this choking and ugly , a Nigeria without oil is
better imagined than witnessed.


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