Petrol pricing: A good stitch in time

Even the vaguest of pronouncement on petrol pricing in Nigeria is enough, it seems, to revive contempt or optimism, depending on the side of the divide.

The announcement on Wednesday of a new price ceiling for petrol by the minister of state for petroleum, Ibe Kachikwu, illustrates the contrasting divide and at  the same time the problems of a petrol market suffering from information asymmetries (or irregularities).

But the issue that should be uppermost in  the mind is what a deregulated petrol market would mean for the economy. The public should be given as much detail on the cost and benefits of a deregulated petrol market in order to inform choices and views.

The talk of subsidy removal frequently witnesses a lot of ripe nonsense about the impact on the poor and nothing of the sort for the benefactors of the subsidy- never known faces.

The Nigerian Labour Congress as an exemplar, is piling lectern railings against the policy move that many international observers and country watchers have hailed as a ‘ step in the right direction’.

Their rhetoric is gradually rising to rafters. Yes, the move falls below expectation. The petrol market should have been completely left free of any form of ‘band’ pricing. Marketers should be free to import and sell the products, subject only to quality and anti-trust regulations.

The price band of N135-145 per litre approved for non-NNPC importers shows the strangulating hand of government on the sector, which may hurt the industry and prevent its real development.

That being said, this move, long in coming, is a welcome relief and perhaps the only option left for the government to escape from the economic immobilism the country has been thrown into due to declining oil price and consequent scarcity of fx. As the Chairman of the Lagos Chamber of Commerce opines, “the overregulation of the sector and the subsidy regime had put enormous pressure on government finances and on our foreign reserves.  It was evident that the policy choice was not sustainable.  The review is in the long term interest of the economy and the people.”

We recall that the problem began with the fx scarcity and the inability of major marketers to obtain fx from official sources and could not realistically import petroleum product at fx rates sourced from secondary sources (read parallel market). The NNPC was consequently saddled with the task of importing the entirety of the national demand of about 45 million litres of petrol per day – a task which we all know it never succeeded in doing thus leading to crippling scarcity of the product and endless queues at the stations.

For several years, the Nigerian economy has been bleeding from the burden of huge subsidy payments of over trillions of naira yearly with no substantial benefits to the people. This was happening in the context of severe infrastructure, social and economic deficits. It was simply unjustifiable and had to be discontinued if the country must have any realistic chance of meeting its obligations to its citizens.

We align ourselves with the position of the Lagos Chamber of Commerce by enumerating the advantages of the subsidy removal on the economy.

•It will free resources for investment in critical infrastructures such as power, roads, the rail systems, health sector, education sector etc. The deficiency in all of these infrastructure areas is phenomenal. Fixing infrastructure will greatly improve productivity and efficiency in the economy and impact positively on the welfare of the people.

•It will boost private investment in the downstream oil sector especially in petroleum product  This will ultimately reduce importation of petroleum products and ease the pressure on the foreign exchange market as well as foreign reserves. •It will eliminate the rampant patronage, rent seeking activities and corruption that currently characterise the downstream oil sector. •It will improve product availability and eliminate fuel queues

•It will create more jobs for the teeming youth of the country in the downstream oil sector as investment in the sector improves. However, we believe that this can only be achieved if the government follows through with aprropriate reforms and urgently review its current strangulating exchange rate policy to improve liquidity and transparency in the foreign exchange market. We will encourage the government not to be deterred by the current opposition to this policy shift. It must show staying power and go the whole gamut of reforms to make a clean break from the past.