By Michael Eboh
President of the Nigerian Association for Energy Economics, Professor Wumi Iledare, Monday, disclosed that cheap petroleum products prices is negatively affecting the country and is also making the country’s economic inefficient.
Addressing newsmen in Abuja, as part of activities to mark the Fourth NAEE World Energy Day Celebration, Iledare warned that the energy sector cannot be governed with patronage and sentiment, adding that doing so might have dire consequences for the country.
He explained that the Federal Government can intervene in the petroleum products market instead of regulating the industry and fixing prices.
Some of the intervention measures, according to him, might include the use of fiscal tools, such as an increase in taxes paid on each litre of petroleum products and by allowing a parallel market for the sale of the commodity.
He said, “You cannot govern the energy sector with patronage and sentiment. You can govern electricity tariff on the basis of sentiment and patronage, but you cannot do that with petroleum products. Has the price of diesel gone to N300 per litre. I want to challenge anyone to look at the rate of change of diesel price and look at the change in exchange rate. And also, look at the change in import duty.
“Petroleum Products in not a public good because of two basic reasons: Rivalry in consumption and exclusion in consumption. You can exclude somebody from buying petroleum products and your consumption affects my consumption in petroleum products and that is why price must be right.
“When the price is low, people buy more than they need, because it is not based on their ability and willingness to pay; it is based on the fact that the government feels that they must have it. Economic goods have rivalry in consumption, public goods does not.
“Actually, you find out that cheap petroleum price is affecting the economy far more negatively. When you spend a quarter of your budget annually to subsidise what you are burning in a tail pipe, the economy will be affected. Petroleum subsidy had not in way grown this economy. In fact, it has rendered the economy inefficient, in my opinion.”
Iledare further called for a review and amendment to the 2005 Electric Power Sector Reform Act with respect to sections on institutions and governance, as well as market reform, stating that this would usher in a new era for improved energy access in Nigeria.
According to him, there is need to avoid overlaps among energy regulatory and policy institutions and the Nigerian Electricity Regulatory Commission, NERC, must be allowed to function as an institution with zero tolerance for political interference.
“NERC must be apolitical. Lessons can certainly be learnt from the apolitical nature to a large extent of the regulatory authority of CBN to regulate financial institutions in Nigeria with its absolute power to manage money supply in the economy. Although, there are still some disturbances in the conduct of financial market in Nigeria, they are a far from the huge disturbances in the electricity market,” he added.
The NAEE boss stressed that, as a matter of urgency, the disparately scattered energy policies among ministries, departments and agencies of government, MDA, should be streamlined into a single legal framework for easy implementation and regulation.
He said, “Institution empowerment to govern the energy sector in a transparent and accountable manner is important. Without transparency, energy access will be impaired and economic growth impacted. Transparency in energy resource management helps improve macroeconomic environment, strengthen institutional oversight and ensure efficiency in the energy sector.
“Further, the critical gap between rural and urban energy access should be addressed as urgently as possible through sustainable pricing regimes that guaranties reward for investor risks and sustainable access of consumers to power. In addition, if energy poverty is to be minimized for economic growth, then a balanced energy supply mix is inevitable.
“Regionalized energy market structure is critical as a global best practice. Sentiments and patronages as the basis for allocating economic good, such as energy services will always lead to market failure and inefficiency in energy service delivery.”