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Published On: Thu, Jan 29th, 2015

Politics of fuel price cut

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By Boniface Chizea

In what should be regarded as going against the trend, an announcement was made by the Minister for Petroleum Resources and current President of OPEC January 18, 2015 (a Sunday of all days) that President Goodluck Jonathan has approved a reduction in the pump price of PMS from N 97 per litre to N87, a drop of 10 Naira, representing a reduction of about 10.3 per cent. It must be stated here clearly that most compatriots were long in expectation of this reduction in pump price as reductions have taken place in almost all other countries across the globe in reaction to the cascading fall in fuel price. If therefore there were any matters arising therefrom it was the fact that the reduction came a bit late in the day and as some have argued that considering the extent of fall in price of crude oil of about 50 per cent over the period commencing from June, 2014 when the fall started till now; that a commensurate reduction in pump price was expected. But as has been explained severally such sentiments have not taken fully into account the implication of the subsidy on imported petroleum products. And therefore what the drop in price first impacted was essentially a reduction in the amount of subsidy which this country had borne against wise counsel in this regard.

This development, therefore, gives the rationale for a massively reduced provision in the 2015 budget of 200 billion for the payment of subsidy. Following the announcement it was indicated by the relevant authority that a subsidy of N 2.84 per liter was still being sustained and you cannot put wonder what sort of rationale informed this level of reduction. It was generally felt that an opportunity should have been seized of this development to eliminate the subsidy which had attained scandalous levels of about one trillion Naira per annum; several billion Naira in excess of the capital budget. It has since been announced that subsidy of up to N 3. 64 per liter is still being retained after the Petroleum Products Pricing and Regulatory Agency (PPPRA) suddenly removed its pricing template from its website to replace it with a not so detailed template which had the effect of making the whole process less transparent than it had been hitherto.

As should be expected, marketers have taken their time in responding to this cut in price as most filling stations still displayed the old price justifying such a stance with the selfish logic that they will comply only when the existing products have been sold. But the increase would have been automatic if the price adjustment had been upwards as it had been the case lately underscoring the selfish mindset of our businessmen. The Department of Petroleum Resources (DPR) has had to wield the big stick by taking the drastic step of sealing up some of the stations that were in default thereby effectively stopping such stations from dispensing PMS to customers. One only hopes that DPR will intensify its monitoring efforts to guarantee compliance by all concerned marketers and to checkmate attempts to manipulate the meter to take advantage of the customer and unethically continue to earn unmerited high profit.

We cannot decry enough the shame of the fact that Nigeria which is probably the eight largest exporter of crude petroleum in the world still goes ahead to import refined products for domestic consumption because of utter mismanagement of the petroleum sector in the country. The four refineries in the country are notorious for operating well below installed capacity despite routine huge turnaround maintenance expenditure. One is also at a loss to rationalize why the Kaduna Refinery had been configured to refine imported heavy version of crude which the country does not produce! What is even more is the fact that the country proceeded to allow the public sector to import refined products in a manner that is rife with all manner of scams and malpractice in the process doing considerable damage to the unflattering image of a corrupt nation which has been tagged to this country. But all Economist are unanimous of the view that subsidy is not advisable as it represents a veritable misallocation of resources and what is a very important consideration is the common knowledge that such subsidy payments never get to the intended beneficiaries as could be attested to from the experience of the country in all sectors in which subsidy had been extended be it to Agriculture or petroleum products or for that matter any other areas where subsidies, waivers and discounts have been allowed.

Dr. Boniface Chizea, CEO, BIC Consultancy, wrote in from Lagos


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