RECENTLY, many Nigerians were shocked when the news of a proposed pump price increment broke. Nigeria Governors’ Forum (NGF) — the umbrella body of governors of Nigeria’s 36 states — had emerged from its meeting and released a communique stating that it supports the immediate full deregulation of the Premium Motor Spirit (PMS) market in Nigeria. This would spike the pump price of petrol to between N385 and N408.5 per litre, it said.
Earlier this year, the National Economic Council (NEC) headed by Vice President Yemi Osinbajo set up a special six-man committee to look into the dwindling revenues of states and make recommendations to the council. Led by Governor Nasir El-Rufai of Kaduna State, the committee made its recommendations which the NGF accepted wholesale, hinging the proposed increment on the need to improve the revenue of states.
It proposed that full deregulation of the PMS market will save the country between N70 billion and N210 billion spent monthly to subsidise petrol price at N162 per litre. Governor El-Rufai, while presenting the report, said the monthly savings will amount to a cumulative annual saving of between N1.3 trillion and N2. 2.3 trillion for the country, if petrol sells at N385 per litre. These figures are quite significant given the country’s current revenue and economic challenges. However, the Nigerian Tribune cannot confirm the authenticity of the figures.
Price Fixing, not deregulation
Deregulation of the downstream sector is one issue that has held Nigeria on its jugular for years. It dates back, in the recent past, to the Goodluck Jonathan administration’s partial removal of subsidy in 2012, which would later become its albatross, and the current administration’s theoretical full deregulation announced during the Covid-19 induced oil price crash of last year. Even after last year’s announcement, the current government has continued to pay what it calls under-recovery — another name for subsidy payment.
The failed attempts bring to the fore the issue of the government’s sincerity and the scepticism of some Nigerians as to what would become of their economic plight. So, when the governors announced their proposal, it resonated with some deregulation enthusiasts but did not go down well with some Nigerians, especially on social media. Far more significantly, some experts fear that what the governors were proposing — the increment — is not deregulation per se.
Just last year, the Lagos Chamber of Commerce and Industry (LCCI) warned that the “Price fixing by the Petroleum Product Pricing Regulatory Agency is not consistent with the philosophy of a market-driven downstream sector” and that “it is a contradiction in terms.” In the same vein, the Chairman of the International Energy Services Limited (IESL), Dr Diran Fawibe, recently said that what the governors are proposing is not different from what PPPRA is currently doing.
According to Dr Fawibe, if the pump price of petrol is increased in the fashion proposed by the governors, it would not amount to deregulation but price-fixing to stop subsidy payment. There is more to deregulation than mere jerking up prices of products, he said.
Governors want more money, not deregulation
Full deregulation of Nigeria’s PMS market goes beyond payment of subsidy and increment of petrol pump price, says Prof Adeola Adenikinju, Director, Centre for Petroleum, Energy Economics and Law (CPEEL), University of Ibadan. The Petroleum Industry Bill (PIB) is at the heart of deregulation, he says.
“Let us pass the PIB”, Prof Adenikinju emphasised. “When that is passed, it will provide a holistic framework for the reform of the sector. That’s what the governors should be pushing for not just because they need money now they say they want to increase the price.”
What the governors are proposing is a partial way of looking at deregulation, he said.
One of the major reasons why many Nigerians, including civil society organisations and the organised labour, are sceptical of the increment is the projected ripple impact on the economy and on the ordinary Nigerian. Any upward review of the pump price will worsen the already bad situation and trigger worsened inflation which has consistently increased since the first quarter of last year, save for the first of this year.
Food prices have seen heightened inflation believed to be the worst in four years. These and many others contribute to the fear of Nigerians. But the governors have a plan — a measure to cushion whatever negative impact the proposed increase would have on Nigerians.
As part of the proposal the committee submitted, the governors want to purchase about 113 commuter buses to be distributed across the states and major cities in the country. This, they say, would help cushion the negative effects of the increment, given that the transportation sector would be hard hit, which would then ripple to other sectors of the economy.
A great proposal it seems but this brings to mind a similar scheme in the past — the Subsidy Reinvestment and Empowerment Programme (SURE-P) of the administration of President Goodluck Jonathan.
Sure as SURE-P?
The SURE-P was birthed after the partial deregulation of the PMS market in 2012 as a multipurpose vehicle through which the Federal Government would re-invest savings from fuel subsidy removal on critical infrastructure projects and social safety net programmes with direct impact on the citizens.
Some aspects of the programme include a graduate internship scheme, maternal and child care, roads and bridges, women and youth employment, community services, tourism and culture and a mass transit scheme.
The mandate of the scheme was the judicious and transparent application of the Federal Government’s 41 per cent share of the subsidy savings. The funds accruing to the Federal Government were domiciled with the Central Bank of Nigeria (CBN). All the 36 states of the federation and the 774 local governments were entitled jointly to 54 per cent of the subsidy savings, while the remaining five per cent went to the Ecological Fund, as well as the cost of collection.
The scheme was robust with great intentions but could not live up to the high expectations. For the purpose of this report, the focus is on the mass transit scheme.
Whenever petrol pump prices increase, one of the first impacts is the cost of transportation. This would turn the tide of the prices of goods and other aspects of the economy. So, the then government seemed well informed when it included a mass transit scheme in the SURE-P programme to help ameliorate the impact of the price increment. The strategy was simple: give out mass transit buses to transportation companies and in turn, they will reduce the cost of transportation and the cost of goods would remain stable.
A N16 billion fund was created and domiciled with The Infrastructure Bank (TIB) — a private sector-led, but government-sponsored Development Finance Institution (DFI), with an ownership structure comprising: the three tiers of government, the Nigeria Labour Congress, and the private sector block with 69 per cent. The fund took the shape of a revolving loan and was managed by TIB’s Public Mass Transit Revolving Fund (PMTF). Through the fund, 1,179 vehicles were released to 31 beneficiaries who were mostly commercial transport operators. The loans had a repayment plan of four years.
But then, the goals were not met. Allegations of mismanagement and misapplication of funds were fraught with the SURE-P programme and the mass transit scheme was not left behind.
An investigation by the International Centre for Investigative Reporting (ICIR) found that a large chunk of the PMTF went down the drain as just two of the 31 beneficiaries actually repaid the loans. Steep in the allegation of misappropriation was that the scheme was used as a political patronage.
Some of the beneficiaries, the report found, said they could not repay because the vehicles they were supplied were not good enough for their business. For instance, they were supplied, directly by the TIB, Hyundai and IVM Innoson vehicles instead of the Toyota, Mercedes and Ashley Leyland high capacity buses they requested for.
Nothing has changed
Folorunsho Moshood, a public affairs analyst, fears that the new proposal is likely to go down the same way the other went. According to him, the current posture of the government does not indicate that anything has changed. Allegations of favouritism and nepotism have reached new heights, way more than they were when the previous scheme was initiated. So, it would be unrealistic to think that political patronage, which is one of the reasons for the SURE-P mass transit scheme’s failure, would not repeat itself.
“There should be a proper needs assessment of various needs of the people”, Folorunsho said. “Just concluding that people need a mass transportation scheme is a wrong step in the wrong direction. For example, I am a Nigerian who needs petrol at an affordable price. I don’t need any mass transportation scheme of the government.”
Beyond not meeting the needs is the problem of the attitude of Nigerians. “It can never solve any problem. We are yet to understand the term, ‘public’ in our body politics. Even citizens in government think the term ‘public’ is synonymous with the term ‘government’. So, if we say, ‘public mass transportation scheme’, people still think it is a ‘government mass transportation scheme’.
“Since they think the government is the owner of such a scheme, whenever there is a public protest or unrest, the property, materials and equipment of the scheme will be destroyed by the public themselves”, Folorunsho said.
Repayment of loans from government agencies is a big issue in Nigeria. Most see any loan from the government as their own slice of the national cake and find it difficult to repay, especially when a new government comes to power. So, the guarantee that the loans would be repaid by the beneficiaries is another challenge.
The 2023 elections are almost here and there is no guarantee the All Progressives Congress (APC) would retain federal power. Even if it does, there is no guarantee, too, that the new government will continue with the scheme. So, if a new government comes in and decides to dissolve the scheme as the current government did to SURE-P, then the amount dedicated to it would have gone down the drain, too.
In this complex, the best approach, Prof Adenikinju says, is to fully liberalise the market and watch market forces determine the prices of petroleum products. This would make the intervention proposed by the governors immaterial, stop their cry for more revenue, kill the idea of price fixing, create more jobs and attract long term and sustainable investments.
He, however, warned that these cannot be done if the legal framework for the deregulation — PIB — is left unpassed and unaccented to and price fixing as proposed by the governors is accepted.
- This story was produced under the NAREP Oil and Gas 2021 fellowship of the Premium Times Centre for Investigative Journalism.
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