Okey Ndiribe
20 August 2008
THERE are indications that the Federal Government and organised labour unions are once again on a collision course over the Federal government's plan to remove subsidy from the price of petrol next year.
President Umaru Yar'Adua's Economic Management Team (EMT) disclosed Government's decision in Lagos penultimate Monday.
The Minister of State for Petroleum Odein Ajumogobia, who spoke to the media alongside other ministers and top government officials stated that the move already had the blessing of Mr. President. He added that the planned hike was based on the reasoning in government circles that the subsidies on petroleum products in the country never get to the masses for whom they are meant, but rather end up in the wrong pockets.
According to Ajumogobia, a subsidy of about N700 billion had been spent on petroleum products by the government this year alone. He added that despite this, the final consumer for whom the subsidy was meant have still ended up paying the full price.
Already, the announcement has sent disturbing signals across the country. The nation's central labour union- the Nigeria Labour Congress (NLC) has warned against this planned move. NLC's President Abdulwaheed Omar who issued the warning at the weekend in Katsina stated that complete removal of subsidy from the price of fuel would precipitate instability in the price of of the product nation-wide with adverse effects on the prices of other goods and services.
Omar stated that removal of subsidy would leave Nigerians at the mercy of oil marketers who would dictate prices solely based on profit.
Many ordinary Nigerians seem to share the view of the NLC leader. Adenugba Ale the Assistant Secretary at the Taxi Drivers Garage, Ogba-Lagos who spoke to Vanguard Features (VF) last Friday disagreed with the Federal Government's reason for the planned hike.
Said he: "Any hike in fuel price will affect everybody in the society. This includes workers, businessmen and car owners".
He continued: " Even the road side food seller would hike the price of her food. The reason is that if she has to take a bus or any other means of public transportation to go to the market to buy foodstuff, she would be compelled to pay a higher fare. As a result of this, she would add the additional cost in transport fare to the cost of preparing the food and this would then lead to higher price for the same plate of food."
He further stated that as a taxi driver, he will surely raise the rate he charges if the price of fuel is hiked.
" For instance, If the fare to Victoria Island used to be N1500, it would surely go up to about N2000", he remarked.
Adenugba recalled what happened last year when the price of fuel was hiked from N60 to N70.
Said he: "It affected me even though I was not yet a taxi driver then. This is because despite the fact that I was a driver where I used to work at Victoria Island, I had to go to my office and return home by public transport from Alagbole, (close to Ojodu, a border community at the boundary between Ogun and Lagos States) to get to my place of work everyday.
He continued: "Before the hike I used to spend about N270 as my transport fare to and from my office. But after the hike, my transport fare rose to about N400."
A resident of Oworonsoki area of the metropolis who identified himself as David Babatunde said he did not even believe there is any subsidy on the price of fuel.
Said he: "This is because during ex-president Olusegun Obasanjo's first tenure as a military Head of State between 1976 and 1979, the price of fuel then was 7 kobo and diesel was about 31/2 kobo per litre. During the military regime of Gen. Ibrahim Babangida, when the price was hiked to N7 , diesel was still sold for about N2.50 or N3.- still cheaper than fuel."
"But what is the price of diesel now?" he asked rhetorically. He answered the question himself: "The price of diesel has gone up to N160 per litre."
"I believe that what the government has done is to increase the price of diesel in order to make up for the subsidy on the price of fuel"
He asked: "So which subsidy are they telling us they want to remove ?" " My position is based on the fact that diesel, kerosene and petrol are all derived from the same source, they are petroleum products," he said.
Respondingto Ajumogobia's remark that only rich car owners would be affected by the planned removal of subsidy from petroleum products, Babatunde described it as a "white lie".
"How can the rich man be adversely affected by the hike in fuel price when he probably gets free fuel or fuel allowance from his office?" he asked.
"Even if the rich man is a private businessman, all he would do is simply to increase the price of his own goods or services. And this is why the prices of all other goods and services would also go up".
He maintained that rich car owners would not be adversely affected by any hike in fuel price but instead it is the masses that would suffer. He advised the Federal Government to rehabilitate the nation's refineries so that they could produce at full capacity.
Nevertheless Baba Omojola an economic consultant to the UN believes that the nation's refineries could be made more productive adding that fuel was just one of about 100 other products derivable from crude oil. Omojola does not believe there is any subsidy in the prices of petroleum products in the country.
He described the Federal Government's plan to hike the price of fuel as another attempt to impose tax on Nigerians adding that the Government was simply complying with the directive of the World Bank .
Said he: "A lot of revenue could be realised from crude oil when refined and this does not warrant constant increases in fuel prices".
Ken Ukaoha, President of National Association of Nigerian Traders ( NANT) shares some of Omojola's views. In a telephone interview he granted to VF, he stated that successive Nigerian governments had not learnt their lessons on the issue of hiking fuel. He maintained that the nation was gaining presently from the international oil market since the price of crude oil had been steadily rising.
He asked: "If the Federal Government could subsidise the importation of rice with N80 billion why will it not subsidise the price of fuel especially in the light of global food crisis?"
He stated that removal of subsidy from the price of fuel would have serious negative implications for the economy as it would lead to more inflation..
"The people are already crying that the prices of foodstuffs and other consumables are skyrocketing. If government removes the subsidy, the situation would get worse".
In response to a question as to why private investors have not shown interest in building refineries in the country, Ukaoha said that since the power sector was comatose, investors were not be interested in investing in the sector.
Said he: " The government should leave fuel subsidy until they are able to fix the power sector. A stable power sector would lead to improved income for the people and this would enable them to afford a deregulated price for fuel". He called on the National Assembly to intervene and stop the Federal Government from going ahead with its plan to remove subsidy from the price of fuel.
However, the Group Public Affairs Manager of Nigeria National Petroleum Corporation (NNPC) Dr. Livi Ajuonuma insisted in a telephone interview with VF last Monday appropriate pricing of petroleum products was needed to attract private investors to build more refineries in the country.
He stated that even if the nation's four refineries were rehabilitated such that they produce at 100 percent capacity, they could only satisfy half of the local demand for petroleum products.
Said he: " The four refineries we have in the country can only produce 15 million litres of fuel per day whereas the national demand is 30 million".
He continued: "What this means is that even if our four refineries are producing at full capacity, we would still need to import additional 15 million litres to cope with the national demand".
He maintained that what is needed for the nation to produce enough fuel locally is for foreign or local investors to build new refineries in the country.
He stated that NNPC was not surprised that foreign investors had not yet shown interest in building refineries in the country so long as they could import crude oil and sell the refined products to Nigerian marketers.
Said he: "We expect Nigerians to come forward and build refineries but unfortunately the response has not been good. This is as a result of the non-competitive prices at which petroleum products are sold in this country".
He maintained that refining fuel was like running a business which ought to be done by private investors.
He continued: "It is important that the labour unions understand that the solution to this problem cannot come through strikes. Nigerians have to understand that before investors would become interested to build private refineries in the country, the price has to be attractive and competitive".
"It is only when Nigerians agree to pay competitive prices for petroleum products that private investors would be willing to establish their own refineries. The people have to understand that this is the only way we can bear this brunt once and for all".
Although it is not yet known how much petrol would sell for if the Federal Government goes ahead to remove its susbsidy on the prices of petroleum products, observers have said that the current price of diesel could be a pointer to the future price of fuel when it is totally deregulated. Investigations by VF have revealed that most petrol stations in Lagos sell diesel at N150 per litre. But the high price of the product has continued to be a source of tension in petroleum circles.
Last month, there was panic buying of petroleum products in many parts of the country when members of the National Union of Petroleum and Natural Gas Workers embarked on strike to protest against the high price of diesel and bad roads around the country. However the industrial action was called off few days after the Federal Government assured NUPENG that the grievances of its members would be looked into.
Lagos Chamber of Commerce position on diesel and fuel subsidies
Diesel Subsidy
The complete deregulation of diesel (AGO) has become intolerable and unsustainable in the light of prevailing global prices of the product. Many industries and service sector operators can no longer cope with the increasing pressures on their costs arising from soaring price of AGO. Coming at a time when public power supply had virtually collapsed, we submit that a subsidy intervention has become inevitable. AGO has a profound impact on employment through the effects on industrial and other economic activities; it has an intense effect on the general price level through its impact on transportation and production costs.
We therefore welcome and commend the decision of government to subsidise AGO by bringing it under the umbrella of the Petroleum Support Fund (PSF). We urge that this be done expeditiously. We also urge utmost transparency to ensure that the benefits of the subsidy are not hijacked by unscrupulous middlemen in the distribution chain.
Proposal to Review Subsidy on PMS
We have noted the proposal by government to review the current level of subsidy on Petrol (PMS). We appreciate the concern of government over the sustainability of current subsidy levels, estimated at a staggering N700 billion in the first six months of the year. But the issue here is that the prevailing investment climate and the welfare conditions of the majority of the citizens would make this additional shock difficult to bear. The truth is that government has not given a good account of itself in the provision of basic social and economic infrastructures. If basic infrastructures were in place - railways, public transportation and power supply- the pain of a reduction in subsidy would be tolerable! In the circumstances, what is more realistic and practical is a reduction in the subsidy, not an outright and total removal.
However, we concede that the continued dominance of the downstream sector by the public sector, as represented by the NNPC would perpetuate the stagnation of the downstream sector and this is not in the long term interest of the economy. But the exit strategy has to be carefully worked out with the participation of the key stakeholders - Labour, OPS and professional Associations. More importantly, the infrastructures which would reduce the burden of the subsidy withdrawal should be put in place as part of this exit strategy.
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