September 29, 2009

FG, marketers hold crucial talks on deregulation

By Omoh Gabriel
LAGOS — THE Federal Government held a consultative meeting, yesterday, with major stakeholders in the oil and gas sector of the economy preparatory to the removal of petroleum subsidy later in the year.
The meeting, Vanguard learnt, the first in a series, was schedule between the Minister of Finance and oil marketers in the country.

Discussions, it was learnt, started at about 4:00 pm and dragged well into the night and were said to be centred around the impending subsidy removal; how it would affect fuel importation into the country and its implication for the economy. The meeting chaired by the Minister of Finance, Mansur Mukhtar, was attended by major and independent marketers. The outcome of the meeting was not immediately known as the meeting was still on at press time, yesterday.

The proposal of oil sector deregulation before the government is based on the current indicative price of the Petroleum Price Regulation Agency, PPPRA, that the price of PMS should be around N98.2 per litre.

The government, it was learnt, is considering that the price of PMS be allowed to increase within the range of N89.78 per litre to N93.73 per litre, depending on the location, coastal or inter land, reflecting cost-saving measures recently approved by the government and additional measures derived from the reports of two consultancy outfits on the review of the PPPRA template.

The proposal from government, officials insist, will be a once-and-for-all liberalisation of price based on the fact that phased subsidy removal could be affected by political constraints, costs of negotiations when time for review is due, which will not give the right signals to potential investors in downstream refinery sector arguing that the cost components of fuel products are quite dynamic, creating a “moving-target” situation.

Vanguard had reported that as part of its plan to fully deregulate the downstream sector of the petroleum sector, the Federal Government has outlined some palliatives to cushion the effects of the petroleum subsidy removal on the people.

The envisaged sectoral interventions are meant to cushion the immediate, medium and long term effect of the subsidy removal.

According to government’s planned deregulation programme, it will intervene in the economy through the rehabilitation of the railway, power, textile, support to development financial institutions for lending to the real sector of the economy, with particular focus on Small and Medium Enterprises, low-income housing and for export-oriented industries.

The envisaged strategic interventions, according to government thinking, would help address infrastructure bottlenecks, unemployment and enhance growth potential of the economy through the diversification of the economic base of the country.

The Federal Government, it was gathered, believes that the implementation of these measures would begin by the fourth quarter of 2009 which it regarded as very important.

The envisaged interventions, it was learnt, would cost about N124.3 billion which the President has to seek funding for through a supplementary appropriation bill to be sent to the National Assembly.

The Federal Government, it was further learnt, hopes that it would support ongoing mass transit efforts by states and local governments, especially those in urban metropolitan areas in a bid to ameliorate the pains that the envisaged deregulation would visit on Nigerians.

Government, it was gathered, believes that reduced ownership cost of means of transportation in the country should reduce the upward pressure on transportation fares when the subsidy is eventually removed. The Government, it was also learnt, is at the moment considering the budgetary implications of its intervention plan on transport.

According to sources, government’s strategic intervention plan it is to invest in National Railway Networks and support/invest in Metro Rail projects.

Vanguard gathered that this government is expected to reduce the current pressure on roads and government’s maintenance expenses. It is felt that migrating Nigerians from road transportation to rail will reduce the demand for petrol and that inter-city rail will further reduce the cost of transporting goods, especially food products.

Rehabilitating the railway as a palliative may have a relatively long term effect, but may be tough to sell as an immediate palliative measure.