By Victor AHIUMA-YOUNGORGANISED
Labour in Nigeria has said the only reform the nation needs in the downstream sector of the Petroleum industry, is a comprehensive reform that will confer the maximisation of benefits of oil on the national economy and one that will revive domestic refineries, encourage the establishment of new ones across the country and reduce dependence on imports.

Under the umbrella of Nigeria Congress, NLC, Labour argued that domestic products pricing must not be based on import price parity to confer on the domestic economy a competitive advantage based on the resource in which the country is richly endowed.

In a presentation to the House of Representatives’ Ad-Hoc Committee Hearing on Operation of the Subsidy Scheme in the Petroleum Sector, Congress listed revival of domestic refining through existing refineries and promotion of new refineries, re-institutionalisation of a policy of differential between the price of crude for domestic consumption and for export and Promotion of Competition as ways to ensure that Nigerians derive maximum benefits from downstream sector. According to NLC “We believe there is a genuine need for a reform of the oil industry. In the upstream today, Nigerians know that crude is being stolen.

However, to concentrate on the downstream for now, we support a comprehensive reform which will confer the maximisation of benefits of oil on the national economy. There is need to admit that the existing reforms are not working and that a more comprehensive programme of reform needs to be agreed among all stakeholders.

We recommend a reform agenda that will seek to revive domestic refineries, encourage the establishment of new ones across the country and reduce dependence on imports. It is also our contention, that domestic products pricing must not be based on import price parity so as to confer on the domestic economy a competitive advantage based on the resource in which the country is richly endowed.”

”We believe that our domestic refineries must be made to work. Appropriate incentives need to be worked out to attract new investment in refining. While domestic refining by itself is not sufficient to guarantee product price stability, there are clear gains to be derived from domestic refining as opposed to imports.

There are the overall gains in employment and general economic activity. There are also the obvious savings in freight and insurance costs. In addition to these, domestic supply of products will relieve the destabilizing pressure of import dependence on the exchange rate.

It is worth emphasizing that a reform policy based on importation of refined products is inherently destabilizing for the domestic economy. Importation necessarily puts pressure on the exchange rate of the naira. Since the exchange rate is one of the two major determinants of the domestic price of petroleum products in an import based reform regime, a destabilizing mechanism becomes automatically a feature of the system.”

Continuing, NLC said, “As long as the domestic prices of products continue to be tied to the international price of crude, the crisis will remain.

It is in recognition of this that we propose a re-introduction of a modified policy of guaranteed crude price for domestic consumption. Rather than returning to the fixed guaranteed price as earlier operated, we propose a price band within which the price of crude for domestic consumption can fluctuate.

In this regard, we agree with the spirit of the proposal put forward in the Senate Committee on Employment, Labour and Productivity report to the Senate on the 7th of October 2004. This proposal involves setting “a price modulating band for crude to be processed in Nigeria for domestic consumption”.

“As for the specific band, we propose the cost of extraction and delivery to the gates of refineries X as the floor and X+Y as the ceiling, where y is the target inflation rate set by government policy in the current year. The adoption of this mechanism will ensure a stable price regime that will allow economic actors make plans.

It should be emphasized that the guaranteed price should not be on offer to only NNPC, but to all refiners and to the limit of the crude actually refined for domestic consumption.

Given that in the short run, there are no domestic refiners, tenders should be opened for the domestic crude for potential refiners to bid with clear timelines on domestic refining. In the short term, which should not exceed two years, bid winners will be allowed to arrange off-shore contract refining.”

NLC added that “the downstream sector as presently constituted is characterised by industry dominance by NNPC and general monopolistic tendencies. Recommendations need to be made on how to open up the sector to competition. We need to design strategies for opening up monopoly assets and infrastructure (such as import receptacles, storage depots and pipelines) to competitors, who must of course pay economic fees.

It needs to be recognised and emphasized that the implicit subsidy implied by the guaranteed crude price scheme need not undermine competition and deregulation. Examples abound the world over where subsidies continue to be provided in deregulated and competitive environments. The agricultural sectors of the economies of the United States and other Organization for Economic Cooperation and Development, OECD, countries are competitive and deregulated.

Yet, agricultural subsidies continue to be provided daily. In like manner, a number of drug subsidy schemes exist in various countries of the world. Yet, the pharmaceutical industry remains deregulated and competitive.”