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Published On: Sun, Feb 1st, 2015

The politics of fuel price cut (II)

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By Boniface Chizea

The extent of the subsidy included in the importation of petroleum products has been mindboggling. As has been observed above at some point in time the amount of this subsidy was of the magnitude of one trillion Naira annually well in excess of the capital budget for the year. It was therefore little wonder that the level of scam that had been uncovered in the importation of petroleum products is scandalous. Even in the determination of the landing cost of the product using PPPRA template all manner of cost heads have been included as this is seen as another veritable opportunity for rent seeking behavior.

Why should we for instance including bridging cost in such calculations so that the products will supposedly be sold at the same price across the length and breadth of this country? What sense does it make to attempt to sell the products at the same price in the town through which the products are imported as well as far flung off places? And what is frustrating is the fact that products when available are often sold at a premium outside the urban centers amounting to a complete misapplication of such provisions.

President Jonathan attempted to remove the subsidy at the end of the year 2011 but such a move was vehemently resisted leading to total lockdown of the country with unprecedented rallies and protests witnessed across various towns in the country particularly at Abuja and Lagos which had the clear potential and danger of possibly bringing down the government.

But this is a God sent opportunity to remove the subsidy and completely deregulate the downstream petroleum products market in the country seamlessly even with general elections round the corner. But the deregulation recommended here must be of the root and branch type not the one we have been informed we currently have in the diesel and kerosene product markets for some time now. In spite of the free fall in the price of oil, diesel which is a byproduct and which is supposedly deregulated had remained static at the same high price of N 150 per liter.

Kerosene on the other hand is supposed to be sold at N 50 per liter but not many people get the product at that price. In appreciation of this fact and as some have alleged because of the need to score electoral points the NNPC recently embarked on a scheme which it tags Kero-Correct with a view to making kerosene available, accessible and affordable at all NNPC Mega Stations and affiliated stations throughout the country. Therefore something must be wrong with this manner of deregulation. It must be noted that the deregulation we canvass here is the one in which the public sector will have no part to play except to regulate and control the market.

It bears emphasizing here that deregulation does not connote absence of any regulation otherwise the bottom line is that customers will be taken to the cleaners as it is currently being experienced in the diesel and kerosene product markets.

We have heard sentiments expressed by some legislators to the effect that in view of the crashing price of oil that the SURE-P budget of about 103 billion Naira in the budget 2015 is dead on arrival. One would wish to sound a note of caution as the SURE-P programmehas a life of its own. It has a board and accompanying institutional arrangements and considering the laudable projects such as lifesaving health related programmes aimed at increasing life expectancy; HIV/AID mother to child transmission counterpart funding, the fight against malaria and inoculation programs; there are also many beneficial infrastructural development programs embarked upon leveraging on the SURE-P budget and not forgetting some targeted job creation programmes such as Graduate Internship Scheme, Women and Youth Community Service Scheme which have so far impacted the unemployment situation in the country, it would be wasteful to terminate SURE-P prematurely.

Therefore whatever we do no efforts must be spared in avoiding any measures which would undermine the existence and continued relevance and effectiveness of the SURE-P. And we must also seize this opportune moment to terminate the subsidy regime in the country forthwith and open up the product market to aggressive participation by the private sector through for instance the setting up of refineries which Dangote has promised he would pioneer come 2017 to commence the termination of petroleum product importation in the country.Concluded

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


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