Komolafe what happens oil 100 dollars

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This Day

So, What Happens If Oil Price Hits $100?

By Kayode Komolafe, 08.30.2005

Wednesday, August 31, 2005

Even as an intellectual exercise, the arguments for and against periodic
increase in fuel price must be boring to many sharp minds by now. The reason is
not far to seek. Officially, no fresh perspectives are offered in the
formulation of energy policy in the last six years beyond the mantra of
deregulation. Unfortunately, by its poor policy articulation, government has
unwittingly equated deregulation with whimsical price fixing in the eyes of the
public. Since the official argument remains unconvincing, the resistance to
increase in fuel has also been sustained.

The official reasons for price increase have ranged from the socially
insensitive to the incredible. Lagos Lawyer, Chief Gani Fawehinmi, in his
characteristic meticulousness, has taken the pains to remind us of some of these
reasons in a publication tracing the chronology of fuel price increases.

In 1978, among the reasons the military government of General Olusegun Obasanjo
gave for increasing fuel price was the needless driving of vehicles by people.
That was years before the slogan of “appropriate pricing” came into the lexicon
of the debate. Much later, price hike was blamed on smugglers. At a point it was
the lack of maintenance of refineries or under-utilization of their capacities.
Now, even all refineries are working at 100% of their capacities, it is the
rising international price of crude oil that is ironically making Nigerians pay
more for fuel. And the excuses for abdication of governmental responsibility
continues ad nauseam.

But there is no boredom in the air. If anything, the atmosphere is again replete
with palpable tension. It just happens that the issue is not being sorted out
only at an intellectual level; it is a debate that inexorably goes to the
streets out there to be settled. In the last five years, the nation has been
subjected to the cycle of fuel price increase being followed by mass protests.
Meanwhile, the social convulsion arising from the resistance has taken enormous
toll on human lives and the economy. Productive activities have been paralysed.
Lives have been lost during protests. Many have been brutalised by the police
and some have been unjustly incarcerated. Do the policy-makers sometimes pause
to weigh these moral and quantifiable costs of poor policy articulation? Can the
economy and the society continue to afford this because the government is
obstinately committed to removing a phantom subsidy on domestic fuel
consumption?

It is distressful to note that the nation may be repeating the cycle in the next
few days as different class interests are gearing up to resist the latest round
of price increase. The National Executive Council of the Nigeria Labour
Congress(NLC) is meeting today in Abuja and it is expected to give a strike
notice. Another labour centre, the Trade Union Congress (TUC) has already issued
its own ultimatum just as other non-governmental organisations are mobilising
for the protest. Lagos Lawyer, Chief Gani Fawehinmi, has lent his own formidable
moral weight to the protest by calling for mass action. The widespread
solidarity to be engendered by such an action would again show the futility of
employing a crippling legislation to blunt the weapon of strike.

Significantly, the two chambers of the National Assembly have also raised their
voices against this latest price increase. As an arm of government, they have
legitimately given vent to the people’s feelings.

However, all this outrage expressed by the people would likely be dismissed as
“populist” by those wielding enormous statistics to make technical arguments.
Yet, whatever data supplied by government’s agencies such as the Nigerian
National Petroleum Corporation (NNPC) can only be technical input into the
making of a political decision on fuel price. The variables involved in this
fuel price matter are just not within the control of a technical agency of
government. The questions thrown up by it are deeper issues of the political
economy.

Unfortunately, the neo-liberal economic orthodoxy which currently shapes policy-
making would not let President Olusegun Obasanjo see this matter holistically.
Policy makers are just contented with their one-sided view of reality as they
proclaim deregulation and market forces fundamentalism. They reckon that the
toll it takes on human welfare could easily be discounted in the name of
reforms.

Believing in the efficacy of their economic pill, market fundamentalists
conveniently ignore the other side of the equation that the economy that they
are reforming is hurt by exorbitant fuel price. Manufacturers and others in the
private sector who have also rejected the price increase are definitely no
economic illiterates. Neither are they fundamentally opposed to market forces.

Globally, there is an anxiety for the economies of even industrially developed
nations about rise in fuel price. Discussing this anxiety on the consequences of
higher oil prices on the world economy, The Economist Newspaper says in its
current edition that: “The price of oil almost affects cost of almost
everything… The most important prices in the world economy are the price of
oil and the price of money, and they are linked”. Everywhere else high fuel
price is a problem; but in Nigeria fuel price hike is presented as the solution
to economic problem.

That is why the socio-economic variables involved in this debate are beyond NNPC
and the Petroleum Products Price Regulation Agency (PPPRA). Yet, these factors,
are by no means, imponderables. They are issues that have been consistently
raised from well-informed quarters since Obasanjo began his deregulation of the
downstream sector of the petroleum industry.

For instance, the administration and its economic managers have no answer yet to
the gross illogic of a major exporter of crude simultaneously importing fuel for
its domestic consumption. It might make some sense in a period of emergency, but
to do that for years after the government has declared a policy of deregulation
is economically indefensible and politically unjustifiable.

Besides, there is the current mystification about building new refineries. Yet
in the life of the Obasanjo military administration which was in power for less
than four years two refineries were built in this country. Now, in six years,
not even one can be built !

Beyond that, however, is the argument that even if there are additional
refineries, crude oil must be sold to these refineries at international price
for which neither NNPC nor PPPRA has any control. These agencies have no control
over Iraq or global terrorism. They have no control over the growth of the
American or Chinese economies which , according to The Economist, “are drunk on
oil consumption”. What economic injunction says that crude oil must be sold to
local refineries at international price is another question policy-makers are
yet to answer.

The President who doubles as Minister of Petroleum should be worried about this
queer economics of oil. It ought to be clear by now that the arguments for the
current increase in fuel price are simply not sustainable.

A policy that bases the local price of fuel on international price is a
precarious one indeed. In November 2001, a barrel of crude oil sold for only
$18; it has now risen to $70. What will those formulating energy policy in this
country ask consumers to pay for a litre of fuel if tomorrow the price of crude
oil jumps to $100 a barrel at the international market ?
 

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