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| Chief Anayo Nwosu |
Thank
God that President Buhari didn’t miss the second opportunity to remove the
subsidy on prices of petroleum products. The first opportunity was in his first
few months in office when crude oil prices dipped so low that the landing cost
of imported petroleum products were lower than the pump prices.
You
could recall that Nigeria virtually imports all its refined products needs
therefore, when the prices of crude oil which is the raw material for
production of fuel fall, the prices of refined products would fall. A reversal
is the case when the international prices of crude oil rise.
Right
now, with crude oil prices falling again, the total cost of importing a litre
of fuel is lower than the price you pay at the filling stations; meaning that NNPC/PPMC are making profit from
selling the petroleum products to you currently. You must have noticed a
reduction in the pump prices of petrol some months ago and of recent. It is the
NNPC’s response to falling cost of importing fuel.
Understanding the
new federal government’s policy on fuel pricing
Few
days ago, PPPRA that is the federal government’s agency charged with regulation
of petroleum products’ pricing has quietly removed “government’s hand” in
determining how much fuel is sold to the public and the price at which it is
sold. This means that fuel prices will rise and fall based on market forces and
based on the quality or type of the product on sale but within approved quality
range.
Like
the Nigerian Communications Commission (NCC) for Telecoms and Nigerian
Electricity Regulatory Commission (NERC) for Power, PPPRA would later become
visible in ensuring fair play between consumers and players in the petroleum
products’ market. The final removal of oil subsidy means in a practical sense
that if fuel prices rise, government will no longer fix a price and absolve the
cost above the fixed price which is called “Fuel Subsidy”. Any state can
inherit perfidy by subsidising fuel consumption in their space. It’s their
business.
The implications
of fuel subsidy removal
Below
are key implications of fuel subsidy removal:
(a)
Fuel would be sold at different prices in different locations in Nigeria.
Meaning that those living around the ports of import or the refinery would pay
less while those that live farthest would pay the highest for a litre of fuel.
(b)
There would be a lot of investors to build refineries in Nigeria because the
biggest impediment to investment has been removed. They can recover their cost
by fixing appropriate prices for their products.
(c) A
lot of government agencies in the value chain of petroleum products pricing,
maintenance, distribution especially the Petroluem Products Equalisation Fund
would have to go. There is nothing to equalise. Everyone would have to bear the
burden of geography and enjoy efficiency.
(d)
Petroluem Products Marketing Company, an arm of NNPC that currently does the
patriotic duty of the sole importer of petrol in Nigeria due to market
impediments of access to foreign exchange over the private Oil Marketing
Companies would soon be like NTA, NITEL and National Arts Theatre in the face
of competition.
(e)
The decade long smuggling of fuel and quick money making across the Nigerian
borders would reduce. The incentives have been dealt a blow. Most oil marketing
companies based in the north and near the borders would naturally fizzle out as
profit would thin out because the risk of smuggling would be higher than the
profit.
Immediate
beneficiaries of subsidy removal
(a)
The immediate beneficiaries of this subsidy removal are Nigerians as huge funds
used for oil subsidies which is more than budgetary allocations to Education
and Health combined would be freed up. Nigeria will develop more than we are
doing right now.
(b)
Dangote Refineries. They will become a monopoly as they are nearly becoming in
cement. Their proposed installed capacity can service entire West Africa. But
Lekki axis will become like Apapa as fuel tankers would make a mess of
Lekki-Aja-Epe environment.
(c)
The people who live around the ports and the modular refineries like those in
Lagos, Port Harcourt, Warri, Calabar and Onne will pay cheaper for fuel than
others.
(d)
The pressure on Naira, our currency would ease if investors build more
refineries for local consumption and for export. Excessive demand for FX to
import fuel puts pressure on the CBN hence affecting amount of FX available for
other importers.
(e)
The federal government would now meet the credit conditions or pass the test of
international lenders that have wondered in disbelief our wisdom in retaining
Oil Subsidies which reduces the government’s capacity to service its existing
and proposed loans and that has trapped the capital for our development.
Good news to
owners of fuel-sensitive cars
Ask
motor mechanics, most big or expensive cars break down more often due to
consumption of low grade fuel. Petrol quality is a measure of its Octane
Rating. Some are of Premium, Medium and of low quality grades. And some are
criminally adulterated.
If I
were a smart filling station owner in Lagos, Onitsha,Benin, Port Harcourt, Kano
and Abuja, I would reserve a pump for a high grade fuel for big and sensitive
cars and the big men would pay for it. It is cheaper to buy good fuel at a
higher price than to spend a fortune in replacing their cars’ fuel pumps and
sensors.
Conclusion
Some
opponents of this government would say that the Federal Government’s removal of
fuel subsidies is to meet one of the conditions set by foreign lenders before
being allowed to draw down approved loans. Even if that is true, there is
Security problem impediment. No lender would give long term loans to a borrower
that may not live to repay the loan. The widespread security problems in the
country also limit Nigeria’s access to low cost foreign loan and foreign direct
investments. The interest rates charged on loans all over the world are a
function of country risks beside capacity to repay.
The
removal of the fuel subsidy came late but it came at a time when Nigeria cannot
function economically with it in existence. A huge quantum of corruption would
die a sudden death with the removal of fuel subsidy. Many civil and public
servants would not be happy with what the government has just done. Did anyone
notice that many people in government are yet to show any excitement over this
most important achievement of Buhari government? Why should they? Your guess is
as good as mine.
On a
selfish note, I will now quietly drive down to Apapa every weekend to fill my
tank. It’s a 10-minute drive from my house.
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