Deregulation properly construed would mean market
determined prices for fuel; thus competitive pricing and improved customer
service would prevail. Furthermore, our comatose refineries would be
rejuvenated and investors would also be eager to establish new refineries with
the assurance that their survival and profitability would not be dependent on
market manipulations or distortions by the Authorities. Petrol smuggling would
also cease to be an attractive venture and the Treasury will be bolstered by
the plug on such leakages. However, the oppressive inflationary impact of
deregulation since inception seems to be the exact opposite of popular
expectations; for example, instead of lower prices, pump prices conversely
remain on a continuous rise with a debilitating impact on the Nigerian patient!
The NLC is however buoyed by vibrant public support to insist that the promised
palliatives are too minimal and not likely to restore the patient to good
health. Consequently, we have both the next of kin and an enamoured doctor
killing the patient, whom they both love so dearly, slowly with love, as the
patient’s health meanwhile, continues to deteriorate. How can both the federal
government and the NLC be so right in their aspirations, but wrong in the
diagnosis of the problem! Undeniably, the NLC and the Federal Government share
similar aspirations, in their quest for improved social welfare, that would
restrain inflation, and support a progressive economy which is efficiently
driven by market forces and competition. Furthermore, Nigerians also expect
that new refineries will come on stream, to properly coordinate domestic
supply, so that surpluses can be gainfully exported. Evidently, both NLC and
government also desire the same basic objectives, of increasing job
opportunities with diversification and expansion in industrial capacity;
regrettably, the pursuit of these objectives seems to have taken different
tracks and yet neither party is anywhere nearer the declared objectives. In
general, the following factors have been canvassed by all and sundry as mainly
responsible for rising prices: these are poor shape of refineries, additional
cost of imported fuel, corruption and smuggling, increasing crude oil price and
the price of the naira vis-à-vis the US dollar. After thorough examination of
these major factors, it will be obvious that even if our refineries are working
at full capacity and new refineries are built, the local price of petrol in a
deregulated scenario may only be cheaper than the cost of imported fuel by not
more than 10-20%! The cost difference will be the additional cost of
transporting crude oil to Europe or elsewhere and the cost of shipping back to
Nigeria and domestic port clearing the charges of refined petrol. The potential
savings in cost from relatively cheap local labour may also be nullified by
cost of provision of own infrastructure, particularly high cost of power, and
high cost of funds. We cannot deny that corruption and smuggling indirectly
affect petrol price, just as inefficiency in public service and lack of
accountability could also lead to indiscrete resource allocations with attendant
market distortions and higher prices. The cross border smuggling of both crude
and imported petrol will similarly affect prices at different levels; however,
although massive smuggling of crude oil may help to stabilize or lower
international crude oil prices, but cross border smuggling of imported PMS
instigates a bloated local demand and also represents an open substantial
subsidy to the economies of our ECOWAS neighbours; but these factors by
themselves, do not explain the geometric leap in domestic fuel prices from less
than N1/litre to its present oppressive level of over N50/litre. However, the
welfarist argument that Nigerians should enjoy lower prices for their natural
resource endowment may jeopardize the advantages of a free market mechanism and
all the benefits of attracting foreign investments into refineries, with
competitive product pricing and improved customer services. Besides, the cost
effects of an open ended subsidy to stabilize petrol prices in a climate of
steadily and readily depreciating naira will have a catastrophic effect on the
survival of existing public refineries, as they would most certainly go under
if, for example, the NNPC continues to absorb daily subsidy values in excess of
N350 million (over N150 billion annually) as reported by the Group Managing
Director recently. This burden would ultimately sound a death knell on the
prospect of private investment in our refineries! However, it would not be
inappropriate to expect that even if international crude oil prices are rising,
the expected upward push in domestic fuel prices will be cushioned by a
stronger valued naira vis-à-vis the dollar (the crude oil value denominator),
since the additional dollar revenue which automatically accrue to us from
rising crude oil prices would also increase our foreign exchange reserves
positively, and this should be reflected in a stronger naira exchange rate;
Thus, ultimately, domestic fuel prices will either stabilize or even fall in
response to a stronger naira. Technically, even though Nigerians will be able
to buy fuel more cheaply even when crude oil prices rise, smugglers of petrol
will, however, be put out of business, as the stronger naira will reduce
smugglers’ margins and make the business unprofitable! Thus the stronger the
naira, the lower in fact will be the local prices of fuel products.
Furthermore, a 10-15% petrol tax per litre can be added on fuel prices, while
the revenue collected can be dedicated to critical areas of need such as
education, health, transportation and provision of infrastructure. So it is
clear that the single most important factor in the determination of local fuel
prices, is actually the naira exchange rate. In a deregulated market, local
fuel prices have no choice but to move in sympathy with international crude
prices, but appropriate and sensible management of the foreign exchange inflow
from the increasing dollar revenue will determine the naira exchange rate and
consequently the price also of local fuel products. SAVE THE NAIRA, SAVE
NIGERIANS!
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