Leadership (Abuja)
23 December 2008
analysis
The tumbling oil price of the last three months has left Nigeria in a dilemma. While government officials are wailing over the 60 percent fall in foreign exchange earnings as a result of the drop, the average Nigerian who directly or indirectly consumes refined petroleum products, especially diesel, must be applauding the development in the international oil market. Rivers State governor, Rotimi Amechi, lamented at a meeting with media executives sometime in October that he was deeply troubled by the declining oil prices because it was going to upset his ambitious projects of building infrastructure.
The men in the federal government share Amechi's predicament. President Umaru Musa Yar'Adua responded to the declining inflow of forex engendered by falling oil prices by imposing an undeclared austerity measure on the federal workforce. Right now, the most affected of the perks that federal government officials used to enjoy is foreign travel. The facility, which was grossly abused by the three tiers of government, consumed a good chunk of the taxpayers' money and brings in next to nothing in terms of benefits. The president's undeclared austerity measure has slashed 50 percent of that. If strictly enforced, it would conserve some funds for use in the provision of decaying infrastructure. That is bad news for top civil servants.
On the other hand, the tumbling oil price means lower pump price of refined petroleum products which the downtrodden people of Nigeria directly or indirectly consume. Unlike federal government executives, the Nigerian masses would prefer oil prices to be reasonably low. The reason is obvious: high oil prices pushed the pump price of petroleum products through the roof and made life difficult for the common man. The benefit of the oil boom of the last three years did not reach the grass roots. Epileptic power supply, bad roads and a senseless concentration of all modes of land transportation on crater-riddled roads effectively priced many of life's necessities out of the reach of the masses.
Nigeria earned close to $200 billion from crude oil export in the last three years, yet the business of generating power has become the responsibility of individuals and corporate bodies. With the high cost of oil prices, Nigerians were paying through the nose to generate power in their homes while they were still being levied by the dormant public power monopoly known as Power Holding Company of Nigeria (PHCN). Right now, if a random survey of Nigerians is conducted to determine whether they wanted high oil prices as an exporting country or would prefer oil prices to even drop further, many Nigerians would vote for lower oil prices if it would bring down the cost of generating power and haulage of food items from the hinterland. The truth is that it was only politicians and top civil servants who raked in the proceeds of the four years of oil boom.
That is why everybody is worried about the discordant tunes from the federal government over the pump price of petroleum products in the country. People are worried because Nigeria is a country where whatever goes up hardly comes down. The price of crude oil has been declining in the last three months but it is yet to translate into lower pump price of refined petroleum products in Nigeria.
It is true that, at a certain point, the landing cost of a litre of premium motor spirit (PMS), popularly known as petrol, was above N100. At that point, the market price of the product at the retail outlet was anything in the range of N115 per litre. At the controlled pump price of N70 per litre, the federal government subsidy on PMS alone was well over N30 per litre before the financial meltdown and the subsequent global economic recession eased the tension on oil prices. There were that the federal government subsidy on refined petroleum products this year was sailing perilously close to N1 trillion. All that is now history. The landing cost of a litre of PMS has dropped to N37 even with a weak naira. The pump price of the product under normal circumstances should be around N55. However, no one expects that to happen, given the discordant tunes emanating from the federal government.
About two months ago, Odein Ajumogobia, the minister of state for petroleum (energy), virtually ruled out the possibility of lower PMS pump price in the face of tumbling oil prices. His argument was that the market is regulated and cannot be subjected to the dictates of market forces of demand and supply. Last Tuesday, Emmanuel Egboga, the president's special adviser on petroleum, put some smiles on the faces of fleeced Nigerians when he told ThisDay newspaper that government was set to effect a downward review of the pump price of PMS. That was a sharp contrast to Ajumogobia's anti-market posture.
Just as consumers were set to celebrate the proposed gesture, Livy Ajuonuma, Nigeria National Petroleum Corporation's image maker spoke from faraway Algeria re-echoing Ajumogobia's stance on the issue. Unlike Ajumogobia, Ajuonuma was more concerned with the federal government recouping what it lost to fuel subsidy during the days of soaring oil prices. Ajuonuma was so finite in his pronouncement that he sounded more like the president's spokesman than the image maker of the nation's embattled oil monopoly.
The discordant tune on the pump price of PMS has raised the issue of who really speaks for the president on the matter. Under normal circumstances, the president's adviser on petroleum should have more insight into policy decisions than the officials of the NNPC. That hypothesis makes NNPC's statement on the issue sound more like an opinion. But the Yar'Adua administration has a penchant for policy flip-flops which makes it extremely difficult to understand its body language. The conflicting statements from government officials on such a sensitive issue as the pump price of PMS could be interpreted as a sign of in-fighting within the administration.
What one could decipher from the conflict of interest within the administration is the fear that higher oil prices, which the Organisation of Petroleum Exporting Countries (OPEC) is working feverishly to attain, may return the federal government to the days of heavy subsidy on the pump price of PMS if it hurriedly effects a downward review of prices at the moment.
Given the fact that the issue of pump price increase always keeps the federal government and organised labour at daggers drawn, the anti-fuel price reduction camp in the administration may just be bidding for time to see the return of higher pump prices engendered by soaring oil prices. That bid to kill time for the return of higher price may be the ploy of the opponents of fuel price reduction to avoid a confrontation with labour over an increase, in the event of crude oil prices inching up. The truth, however, is that Nigerians need to know the position of government on the issue since it directly affects their economic well-being.
All said and done, the federal government's handling of the issue of the pump price of petroleum products, since crude oil prices started the journey to the south, has been very disappointing. The argument that government has to recoup part of what it spent on fuel subsidy during the days of high oil price is not only selfish but delirious. It is obvious that government is set to enrich fuel marketing companies at the expense of innocent consumers.
With the sharp decline in oil prices and the consequent lower prices of refined petroleum products, more marketers would import fuel directly to rake in the huge margin, thus becoming less dependent on NNPC imports. That means less income for the NNPC and, by extension, public coffers.
At an average daily consumption of 30 million litres of fuel and a huge margin of N15 per litre following, the decline which plunged the pump price of fuel to N55, government and the marketers would be raking in N13.5 billion monthly. That borders on profiteering, which is even worsened by the fact that a good chunk of the proceeds of profiteering would end up in the pockets of marketers. Government is therefore fleecing the populace. While Ajumogobia might be thumbing his chest that the price of PMS is regulated and cannot be determined by interplay of market forces of demand and supply, government has turned a deaf ear to the disastrous failure of the allocative function of the market in the aviation fuel sector.
Though the pump price of diesel, a de-regulated market, is gliding down in tune with falling oil prices, aviation fuel price has defied the dictates of market forces. The landing cost of aviation fuel (Jet -A1) has dropped to N64.82 per litre. However, the product still sells for N151 and N154 in Lagos, N156 in Port Harcourt, N156.50 in Abuja, N159 in Kano, N161 in Maiduguri, Yola and Sokoto and N164 in Kaduna.
Consequently, airlines still charge as much as N20, 000 for a one-hour flight against N14, 000 for the same flight about a year ago.
Defending the marketers' exploitative pricing, executive secretary of the Major Marketers Association of Nigeria, Mr. Femi Lawore, said the cost of aviation fuel goes beyond landing cost and marketers' margin. Though aviation fuel and diesel pricing are de-regulated, it is sad that fuel marketers have continued to fleece the flying public by keeping the pump price so high after crude oil price has tumbled precipitously. Domestic airlines operators' appeal to the federal government to halt the profiteering has so far fallen on deaf ears. The federal government's glorified silence on the issue is delirious. The pump price of aviation fuel is not being determined by an inter-play of market forces. There is no reason why it should be above N80.
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