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Fuel cartel and related issues

By Les Leba
The issue of fuel subsidy has generated so much indignation all over the country.  The reason for the heat is obvious; Nigerians readily remember the immediate hikes in the price of virtually every product or service as petrol prices climbed from less than 20 kobo/litre in the early 1980s to the current regulated price of N65/litre.

Thus, for most Nigerians, especially those 80% or more, who eke out a living on the proverbial $2 a day, the prospect of a deregulated fuel price of over N130/litre must be very frightening.  Indeed, Labour’s hard won victory of N18,000 minimum wage might just become a Greek gift.

This much is obvious and Organised Labour have begun pounding war drums to alert workers to prepare to resist any government attempt to force the issue.

Government, on its side, have responded with subtle propaganda, coercion of the Organised Private Sector and assurances that over N1,000bn will become available for infrastructural and social welfare enhancement that would assuage the pains of the impact of rising inflation caused by high fuel prices.

Expectedly, Nigerians have not put much faith on the prospect of such palliatives; they hear such promises every year and have become helplessly resigned to the reality of non-delivery!!

On its side, government has identified the villains in the deregulation and pricing of Premium Motor Spirit (PMS) and kerosene as the oil marketers.  President Jonathan has directly referred to the existence of a cartel, which he claims have successfully truncated government’s efforts over the last 20 years or so, to remove subsidy!!

The Senate President, David Mark, obviously also shares Jonathan’s perspective as he informed the Senate that “My personal view is that there is a cartel and whatever they do, like most of you know, the mafia, it is exclusive to them.  90% of us are not in that circle” while he prodded the Senators “on the need to open it (cabal) up”.

So, the Head of the Executive as well as the Head of the Legislature have presumably exposed who our enemies are and they have also unceremoniously dressed them up in a criminal garb!

‘The mafia’ in general consciousness, does not connote a law-abiding band.  Presumably, public anger should be directed at these economic saboteurs for their brazen intent to keep the rest of us poor, while cartel members continue to feed fat!

But wait a minute, the dictionary defines a ‘cartel’ as “an international syndicate, combine or trust formed to regulate prices and output in some field of business”.  So, we have it, that for the oil marketers to be properly described as a mafia-like cartel, they should have the ability to control price and or output!

Well, the question is, do the oil marketers have such powers?  The oil marketers can indeed influence market supply, by the conscious control of their import volumes, but, they certainly do not have a monopoly on supply as the NNPC remains a major, if not the biggest importer!

Thus, the cartel cannot truly control supply except with the collaboration of the government-owned NNPC!  Indeed, the oil marketers are known to regularly lift fuel supplies from NNPC imports at government-controlled price!

The so-called mafia style cartel probably, also, has very little control on fuel price, as government-owned NNPC also dictates the price.  Thus, the question of marketers hoisting an oppressive price on the market may be a bit farfetched, as NNPC dictates the pump price of petrol and kerosene and ensures that marketers sell at the mandatory controlled price, particularly in major towns and cities.

So, it seems that both Jonathan and Mark may only find the villain in the fuel business, if there was one, in its own agency, the NNPC!

But, wait a minute; does this make the NNPC a mafia-like cartel?  Well, to the extent that the NNPC controls both pricing and output, yes, it could be seen as a cartel in concert with itself!  But, we must not forget that the NNPC has no mind of its own, with regards to fuel pricing.

The current price of N65/litre was not set by NNPC based on commercial cost calculation, but rather, it is a price imposed by its principal, the federal government; in this event, it seems rather odd that both the Executive and Legislature’s pointed fingers at a villainous cabal may inadvertently be pointing back at themselves!!

Indeed, if the actual villains were otherwise, Mr. President would simply have directed the Federal Attorney General and EFCC to investigate and prosecute the members of the perceived cabal if they had infringed any law in our statute books, including any violation of antitrust laws!

In the event, of course, that the practices of the perceived cabal cannot be successfully prosecuted under existing legislation, then both President Jonathan and Senate President Mark would be expected to collaborate to speedily enact laws that would break open the ‘nefarious’ activities of the cartel, if indeed it was so!

But, of course, it will not be expedient for our leaders to indict themselves, it is certainly more politically strategic and diversionary to find a scapegoat to carry the can of woes of subsidy removal or retention!

I have maintained over the past decade or so that a deregulated market space that would also bring down fuel prices (without a kobo of subsidy) will become practical once the monopoly of the Central Bank in the foreign exchange market (similar to NNPC’s fuel monopoly) is broken by paying dollar-derived monthly allocations to the three tiers of government with the instrument of dollar certificates, so that they can approach the money deposit banks directly to exchange their certificates for naira.

Such a framework will improve the value of the naira (amongst other empowering benefits) and reduce the pump price of fuel without subsidy!

In spite of our strident advocacy, government has blocked its ears and prefers to remain fixated on the potential savings of over N1000bn annually from the removal of fuel subsidies, notwithstanding public outcry and Labour’s sabre-rattling and call to the trenches for workers to oppose government’s action.

With hindsight, it would be folly for government to ignore the devastating impact of over 100% fuel price increase on an already severely deprived populace, the outcome of enforcement of such price may be totally unpredictable, more so, when possibility of a devalued naira could further push pump price of fuel beyond N150/litre!

In the event that government stubbornly refuses to countenance the plausible and less risky option of breaking CBN’s dollar monopoly, the least government can do would be to seek out ways of reducing wastages and leakages in the current system.

For example, the estimated subsidy of over N1000bn is roughly equivalent to $6bn, which is a less sum than the over $8bn of crude oil reportedly stolen every year from our reserves.  The earlier ‘Wikileaks’ report on the magnitude of oil theft was lately corroborated by Shell Petroleum in its news bulletins, which reported estimates of 100,000 barrels per day of crude oil stolen from its operations in Nigeria.

The current value of crude theft from Shell alone would approach over $4bn per annum at an average of $100 per barrel; if other joint venture stakeholders together lose an equal volume in their operations, the lost value from such crude theft will exceed $8bn (well above the $6bn expected revenue from fuel subsidy removal, (with over $2bn left over for policing and enforcement of a strict code of compliance in the lifting and export of our crude oil).

It is worth noting that the above estimated figure of $8bn for direct crude theft does not include such issues as under-declaration of actually lifted oil volumes with the complicity of our oversight and regulatory authorities, nor does it include the value of huge leakages to neighbouring countries of a substantial part of the 30 million litres of petrol purportedly consumed everyday by Nigerian motorists and artisans neither does it include potential savings from reducing the excessive cost of governance or the pervasive reduction of inflated government contracts.

Thus, Senator Saraki’s call on the floor of the Senate for a probe of the claim of N1.2 trillion subsidy value for 2011 may be useful in throwing more light on the operations, calculation and payment of subsidies; Nigerians will also be equally interested to know how NNPC accounts for the 445,000 barrels daily allocations (over $36b or N8000bn) for export and local refining and sale!

How much of this humongous sum is paid into the federation account directly by NNPC as required by law?  In the event of evidence of a breach of such a critical constitutional provision, the NNPC Managing Director should be invited for explanation.

A cursory observation of federal budget in the last five years will show regular deliberate under-provision for subsidy payments; however, since the oil marketers have not raised an alarm, we can only assume that the subsidy shortfalls in the budgets have been covered with funds from somewhere, most certainly from NNPC.  This scenario may explain the series of  allegations that NNPC is indebted to the federation account to the tune of several hundreds of billions of naira.

In spite of the good intentions of NNPC in picking up those subsidy bills, we must remember that respect for the rule of law and adherence to constitutional provisions are of great significance in sustaining any democracy.  So, who gave NNPC the directive to pay subsidy values directly without the unconstitutional requirement for legislative appropriation?

We have witnessed similar constitutional violations in President Obasanjo’s unilateral establishment of the excess crude account and his unilateral withdrawal of over $12bn for his yet to be realized power projects.

It is unlikely that transparency and accountability can prevail in our affairs if critical constitutional provisions, particularly with regards to national revenue can be violated with such impunity and no commensurate sanction.

Finally, some critics have also decried the fact that in spite of a regulated price of N65/litre, petrol already sells for above N100/litre in the more remote parts of Nigeria.  It is not clear if petrol marketers still collect bridging funds to compensate for trucking petrol cargoes upcountry.

In the light of the persistence of fuel selling price disparities nationwide, this may be an area for the attention of the Senate and possibly also for EFCC investigations; if there is a cartel in the industry, it may be found in possible collaboration between petrol marketers and the Ministry of Petroleum with regard to indiscriminate payments of the bridging fund without appropriate accountability.


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