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Our Government and Organised Labour are once again for the umpteenth time in about five years embroiled in what may best be described as an unending petrol price control war, which was ignited over two decades ago with the drastic devaluation of the naira and increasing product prices. 

In his second term in office, former President Obasanjo floated the kite of deregulation to put an end to the endless attrition. We recall that the government had considered the existing N350bn subsidy on petrol prices at that time to be unsustainable and consequently accepted the advice of local experts as well as the IMF to completely withdraw any form of subsidy so as to engender a free market in the downstream sector of the petroleum industry.  The arguments in favour of deregulation were truly unassailable; indeed, the argument recognized the reality that market dislocations, price distortions and parasitic supply chain often accompany monopolistic markets everywhere!

In other words, prices of market offerings would be higher than normal as the monopolist controls market supply and prices for maximum profit.  Of course, the situation could be expected to be much worse if a government agency (as opposed to private corporation) is the monopolist.  Indeed, we can safely conclude that no government monopoly in any sector has succeeded in offering competitive and superior services to the Nigerian public!

Thus, we recognize the failure of Power Holding Company of Nigeria, Nigeria Airways, Nigeria National Shipping Lines, Nigeria Telecom (NITEL); the list is endless!  Indeed, in spite of the lucrative, substantial and captive markets available to all the above state-owned monopolies, they have all failed in meeting the expectations of Nigerians for competitive prices and better services.  Indeed, most of these government monopolies have become moribund in spite of huge government subventions to supplement revenue derived from products and services offered!

In the above event, it would require more than courage for anyone to vouch for best practices and the survival of any government trading parastatals without additional funding support to prop and cover up the ‘worst practices’ which have become their hallmark!  Indeed, this scenario has become fully evident also in the domestic market for fuel, where Nigeria National Petroleum Corporation (NNPC) monopoly of the downstream oil sector requires additional subsidy of over N600bn annually to stay afloat.  Indeed, government sources lament the over N2,000bn burden that government paid to private oil marketers in the last 2 – 3 years.

We note that no other subsector attracted so much funding in the budgets for the period 2007 – 9!  Inexplicably, in spite of this huge subvention, fuel scarcities continue to persist, differential pricing similarly exists nationwide, and the direct benefit of allocating over 25% of federal revenue each year for oil subsidy remains unclear, especially as other vital sectors such as education, health, transportation, etc, receive relatively paltry allocations that would virtually make it impossible for our country to attain the  minimum standards of welfare defined in the United Nations’s Millennium Development Goals!  Indeed, the subject of subsidy has become a great embarrassment to our government, such that in spite of the huge value of subsidies, no actual provision was made in the national budgets of the last three years!  The relevant question here is, from which account, and with whose authority was the annual subsidy value deducted from the federation account?

Our lawmakers, whose turfs have been violated by such executive unilateral impunity, surprisingly, do not seem to care, and have never queried such withdrawals without legislative approval!  The apparent main focus of members of the Legislature seems to be in the magnitude and speedy disbursement of constituency project allocations, which many concerned Nigerians have alleged to be also without constitutional backing!

So, in spite of the recognized faults in the system of budgeting allocation of resources to sustain a terminally sick NNPC at the expense of other vital sectors; why would ‘Organised Labour’ oppose deregulation of the downstream sector and the unbundling of the unwholesome monopoly of NNPC with the resultant expectation of annual savings of over N600bn which could fund welfare improvements elsewhere in the economy?

Furthermore, why would Labour recognize that the current NNPC monopoly breeds and sustains corruption and yet insist that the defective and anti-people structure of this market be retained?  If one was not aware of the antecedents of the leadership of Organised Labour, it would be easy to conclude that only self-interest would restrain the support of Labour for a the process that would bring down prices, provide better services and release or inject additional billions of naira revenue into the economy to address our infrastructural inadequacies and improve the welfare of the masses which the NLC/TUC represent.

Even if Labour opposition may suggest anti-people posturing, this perspective will be grossly incorrect!  Labour, without a doubt, is sincere in its apprehension that deregulation will not bring down prices and stem inflation with salutary impact on all income earners including that of its members, as per government’s promises!

Labour recognizes that the concept of deregulation is ideal, but they have learnt over the years to take government promises with a pinch of salt!  In this particular instance, they intuitively know that something is amiss in the simple equation of deregulation = lower prices, but they cannot place their finger on the missing link!

In any event, historical experience  has demonstrated that local fuel prices rise whenever crude oil prices rise, and they cannot yet see what government can put in place to stem this sympathetic relationship between rising crude and local petrol prices, and recognise that not even deregulation as presently construed has the capacity to change this framework.

An end to NNPC monopoly and introduction of market determined price regime may be expected to attract more importers and indeed serious investors in the provision of additional private refineries; but, it would be out of place to supply our crude oil to such refineries at a price below the current world market price for the commodity.  Any attempt to do this would be akin to reintroduction of subsidy through the backdoor!  Indeed, the potential abuses of such a system would create a bigger hole in our pockets than the erstwhile N600bn allegedly corruptly paid to fuel importers in the present regulated market.

In addition, the attraction of cheaper petrol prices would lead to a huge leap in estimated domestic demand as our expansive boarders become porous outlets for servicing and subsidizing the fuel needs of Chad, Benin, Cameroon, Niger, Togo and other neighbouring countries.

With the above scenario, Labour’s demand that the four existing refineries be enhanced to produce at full capacity and that more refineries be built is obviously not the answer.  Yes, more refineries may mean more fuel availability, but may not necessarily bring down prices, especially when international crude prices rise.

Indeed, it is curious that in spite of Labour’s awareness of the hundreds of millions of dollars ‘wasted’ on turnaround and other maintenance projects in our four refineries, the production stream still remains epileptic, and yet Labor insists that more good money (which could build new refineries and/or provide infrastructure) be further wasted on refurbishment as we have done over the years!  Surely, the intention of Labour is not to encourage and sustain corruption, but the truth is that Labour is perplexed on how to put its best foot forward without becoming a victim of its own advocacy with regard to deregulation.

Well, this is not really surprising as Organised Labour’s traditional strategies of ‘reduce price/increase wages or we go on strike’ has worn thin and the futility of extended strike periods and subsequent capitulation as a result of public restiveness after prolonged deprivations and government’s token concessions have also dawned on Labour.  Meanwhile, there does not appear to be any constructive or solid palliative that would put a lid on fuel price hikes when crude oil prices rise in a deregulated market.

Nonetheless, the possibility of petrol prices exceeding over N150/litre becomes more real with imminent economic recovery in Europe and America and crude oil prices once again approaching $100/barrel mark!    So, the question of how deregulation can keep a lid on domestic fuel prices even when crude prices rise and fortuitously increase our reserve base is still left unanswered as there is no panacea to such a prospect!

What should Labour do?  Well, it is clear that Labour would have to think out of the standard box of strike action.  Labour would require to take a closer look at the workings of the economy and the result of a monetary framework that guarantees that increasing dollar revenue creates problems of excess liquidity, high interest rates, high unemployment, rising domestic fuel prices and spiraling inflation.

Next week, we will conclude this article on “‘Wetin’ Concern NLC/TUC with Forex Market?” and open a new vista of opportunity that would stabilize or indeed reduce petrol prices whenever price hikes occur in the international crude oil market.



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