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New year and unresolved issues of the past

By Adisa Adeleye

AS Nigerians celebrated the New Year with joy and gratitude, even in the midst of security threats, they still think seriously about the unresolved economic and political problems of the past year. The New Year has opened with problems of the Economy (principally the issue of removal of fuel subsidy), Boko Haram and other security threats and mass unemployment.

The government appears to have solved the problems of fuel subsidy in its own crude way by the recent increase in petroleum prices at the stations. The old price of N65/litre has now given way to the new price of N141/litre in Lagos. The latest price range has caught many analysts by surprise because of the mixture of price increase intention and deregulation policy of the downstream sector of the oil industry.

In theory, deregulation needs not lead to increase in price, or it may lead to such situation in the short period until adjustment is made. Therefore, a distinction would have to be made between the attempt to increase price on the part of the government and the deregulation of the downstream which is very essential to the growth of that sector of the oil industry. Thus, since 1999 under the government of the ruling party, pump price of gasoline has risen from N20 per litre to the present price of N141/ per litre.

In theory, deregulation of the downstream sector would mean non government interference in the refining, procurement, supply and distribution of petroleum products. There would be no place for any government agency like PPRA to announce changes in price of petroleum products.

Before government intervention in the downstream sector of the oil industry in the 1970s as I have noted in this column many times, prices of various petroleum products were agreed with government agencies by the local oil companies. On local products, each company would buy crude oil, refine to specification at the refinery (owned by government, BP and Shell but managed by BP) and pay agreed processing fees.

Each marketer was allocated a time limit to evacuate its products into its own storage tanks in its depots throughout the country. From each depot, petrol products were supplied to retail outlets.

The price fixing by oil marketers was based on ex refinery cost (cost of crude and processing fees, handling charges-depot maintenance and equipment, government tax (where applicable) and transportation cost. There was no government intervention in this process except by defending the interest of Nigerian motorists against exorbitant prices of certain essential commodities.

Therefore, real deregulation would not allow for any subsidy if the oil marketers are allowed to source for their supply without any hindrance. It may be possible for all marketers (especially those with international connections) to refine cheaply additional products to meet their local market.

The present curious government policy of raising prices to allow for private investors would only allow for the emergence of dubious petroleum dealers which now adorn our new highways. It was assumed that on the 1st October, 2003, deregulation had taken place with the prices of gasoline rising from N39.50 to N42 per  litre.

Under real deregulation, government has nothing to do with the running of the refineries. The source of supply of petroleum products should normally be the responsibility of the marketers who would also be responsible for distribution of such products. Any government could participate in joint ownership with private interest with the running of such outfit left entirely in private hands.

If government is sincere about real deregulation, why would it be setting up committees to manage dividends of ‘subsidy withdrawal‘ when there should be no subsidy if motorists would now pay in full the cost of imported products?

I have reasoned before in this column, and still hold the view that price of crude oil supplied to local refineries should be attractive enough to allow for private investors to come in for local refining and production of refined products for export market. Under such arrangement, consumers would gladly accept the real price of products which may even be higher, but under full capacity utilization of the four old refineries and the new ones.

Therefore, the government is enjoined to make up its mind on whether to constantly increase the prices of petroleum products as a means of increasing its revenue or embarking on full deregulation by taking off its hands in the control of the downstream sector.

The present situation of increasing the price of PMS under the cover of subsidy removal is a clear indication of lack of vision or dismal failure of policy (or no policy) in respect to the downstream sector. If it could be asked what happened to the deregulation of petroleum prices in 1998 and 1999? The implication is widening of trust between government and the people.

The Kolade Commission just announced would not be necessary in a fully deregularised downstream sector except it would recommend for the reconstruction of dilapidated necessary oil support infrastructures. The present art and act of confusing subsidy and deregulation looks like a sure way to disaster even when it is agreed that deregulation is a progressive economic policy.

Another problem carried over from the past year has to do with the present economy which is noted to be growing at about 7.4% under a tightened monetary stance and above 10% inflation rate.

The problem of the economy in respect to high import rate and low capacity utilization in the manufacturing sector is associated with inability to widen the sources of supply of commodities at home. If the present effort is doubled in widening the sources at home, the propensity to import would be reduced and the local manufacturing industry would continue to expand.

It is a question of fiscal expansion in a tightened monetary environment. It is agreed that an exchange rate of N155 to 1$US and costly banking lending rate would not encourage economic growth or reduce unemployment; nor inadequate power supply in a terror-stricken environment encourage political and economic stability.

The new focus on agriculture as contained in the new budget would, if seriously implemented, lead to the agricultural revolution which people envisaged. The incentives given to those engaged in serious agriculture like tariff reduction on imports and cancellation of duties on agricultural implements would go a long way to make farming attractive.

But it is often forgotten that in Nigeria, agriculture belongs to the peasantry, and any measure that would transform agriculture has to do with peasant farming. Some believe that the Federal Government should work with the Local Governments, which are the agencies nearer to the peasant farmers.

It is being suggested that the glory of peasant farming lies in easy loan to take care of land cultivation, provision of seedlings, weeding and harvesting. After planting the seeds and harvesting of crops, the peasant farmer needs ready market.

In an attempt to aid agriculture which is fully recognized in the 2012 budget, it is necessary to avoid precipitate action. The cassava bread is a novelty and should be handled with the greatest care. The cassava production should be well entrenched before the assault on wheat begins.



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