Nigeria: Continued Relevance of Petroleum Equalisation Fund

3 June 2020

Abuja — Where justice is denied, where poverty is enforced, where ignorance prevails, and where anyone class is made to feel that society is an organised conspiracy to oppress, rob and degrade them, neither persons nor property will be safe - Frederick Douglass.

Recently, there has been a stratospheric increase in strident calls for either a restructuring, merger or even an outright liquidation of the Petroleum Equalisation Fund(Management)Board, in the media.

Those pushing these views are encouraged by the depression of oil prices in the world oil market, powered primarily by the Covid-19 pandemic.

To them, the Petroleum Equalisation (Management) Board (commonly known as PEF), has either outlived its usefulness or at best, should be made to be an arm of a parastatal, under the Ministry of Petroleum Resources. Some are quick to allude to the Oronsaye Report, which recommends a merger of the PEF with the Petroleum Products Pricing Regulatory Authority (otherwise known as PPPRA).

In truth, as a measure of good faith, and in a bid to ensure that Nigerian citizens benefit from the drop in oil prices, the Buhari Administration in its wisdom, decided some two months ago, to reduce the pump price of Premium Motor Spirit (PMS or petrol), to N125 per litre (and then to N123.50 in April) from the prevalent N145 per litre).

Those calling for the tinkering with the statutes and responsibilities of the PEF are now citing the good gesture of the government as the basis of their arguments and seeking complete deregulation of petrol prices.

What makes them so sure that oil prices will forever remain depressed? What happens when prices rally, especially as the nations of the world re-open their economies as they are gradually doing now?

About three months ago (March 2020), the average price of the Brent Crude (sharing similar characteristics with Nigeria's Bonny Light), was $32.01 per barrel.

In the successive month of April, when the pandemic was raging in some parts of Europe and the United States of America, the price of the Brent nosedived to $18.38 a barrel, on the average.

By the second week of May, the price has gained some traction at $30.07 dollars per barrel.

The world oil market is ever dynamic and that is why responsible governments the world over, do not joke with anything that can throw a clanger in the socio-economic indices of their development agenda as well as the overall well-being of their people.

It is on record that the United States subsidises her farmers to the tune of $20 billion a year. These subsidies protect farmers against fluctuations in prices, yields and even takes care of their marketing costs and research; all in a bid towards ensuring that US families are guaranteed affordable, reliable and sustainable food supply.

In Nigeria, food security is yet to be achieved and our farmers are mostly on their own. They have to bear the costs of production, transportation, preservation (for non-perishables), distribution and marketing initially, before passing them all to the final consumer.

Whilst those pushing for complete deregulation of petrol prices may have a point, it is instructive to note that countries that have gone that route, have in place, all required infrastructure to ensure hitch-free distribution of products to all the nooks and crannies of their nations.

In Nigeria, there's a dearth of infrastructure ranging from epileptic and inadequate refineries, unworkable pipeline network, to bad roads and unsteady or non-existent power supply.

History

Perhaps it is even germane to recall why the Federal Government deemed it necessary to float an 'Equalising Entity' for petroleum products' prices, in the first place.

Following the upward review of civil servants' salaries (with the adoption of the recommendations of the Udoji Commission report in 1974) by the Gowon Administration, and the burgeoning oil prices recorded in the 70's, the nation experienced an unprecedented buoyancy in economic activities.

Nigeria became a giant construction site. Iconic and humongous projects such as The National Stadium, (completed in 1972), The National Theatre (completed in 1975), The Federal Secretariat, Lagos (completed in 1976) and many others of the same ilk, started springing up in frenetic fashion.

More and more people started expanding their businesses, procuring vehicles and acquiring properties. Udoji was hailed as a hero especially by public servants and in no time, inflation and other hydra- headed economic problems soon set in, but that's a discussion for another day.

The sudden but sustained economic boom, resulted in traffic jams all over Lagos, the nation's capital then, and that gridlock forced the Government to introduce 'an Odd and Even' vehicular numbering system. This ensured that vehicles whose number plates started with odd (numbers); 1, 3, 5, 7 and 9, plied the major roads on Mondays, Wednesdays and Fridays. Those sporting even numbers as the first digit such as 2, 4, 6 and 8 could only get on important roads on Tuesdays and Thursdays.

The answer to that for Lagosians was to procure a second car (one with an odd number registration; the other with an even number). In effect, most families could commute every week day. It even became something of a status symbol at the time to own multiple cars. Needless to say, the policy was dead on arrival.

The resultant effect of this surge in activities was the unquenchable thirst for petroleum products and in no time, queues started surfacing everywhere in the polity. The farther away from a depot, the higher the price people pay for products, with the populace in the Northern parts of the country, mostly impacted.

The Establishment of PEF(M)B

By the tail end of 1974 the petroleum products shortages had reached such a crescendo that the federal government knew it had to do something fast to ameliorate the sufferings of Nigerians.

It therefore set up an inter-ministerial committee comprising the then Ministries of Mines, Power and Transport, the Nigerian Railway Corporation, the Nigerian Ports Authority and representatives of the Petroleum Products' Marketers, to carve a way out of the logjam.

The committee soon came to the conclusion that the transport costs incurred by marketers, were solely responsible for the lopsided price differentials of products' sales across Nigeria. The inadequate local refining capacity and deficient distribution capabilities further exacerbated the problem.

The body decided to address the marketers' transport costs lacuna head on and thus, PEF(M)B was birthed as a child of necessity and given legal teeth by Decree 9 of 1975 (as amended by Decree Number 32 of 1989 now chapter 352 of the Laws of the Federation). It has so far proven to be one of the most enduring decisions ever taken by the federal government.

In effect, a system of price uniformity was put in place and this became sustainable via the reimbursement of marketers for losses they incur in trucking products from depots to their filling stations anywhere in Nigeria.

The funds employed in making this mechanism work effectively are sourced from the revenue pool, generated by the product marketing companies.

Along the line, the PEF kept modernising its operations. Incidences of losses and spurious claims by marketers were largely plugged through massive investments in information technology and truck tracking.

PIGB provisions for PEF(M)B

The provisions of the Petroleum Industry Governance Bill (currently being worked on in the National Assembly) as pertains to PEF, will further deepen the activities of this all important Agency.

The Minister of Petroleum Resources, Chief Timipre Sylva, is quite optimistic that the Bill, which will create one uniform law for the existential framework of entities within the oil industry, will be passed this year.

The Case against a Merger

The proponents of a merger between PEF and PPPRA as a way of improving the activities of the downstream subsector, are not mindful of the longer view. The bureaucracy in most of our government offices is legendary and there is no need to over flog it here. A merger in this case will result in the creation of a behemoth, which is bound to impact proficiency and productivity in large measures.

The seamless operational methods and the relative tranquility in petroleum distribution landscape at the moment, is due largely to the success of the active schemes being implemented by the PEF.

Merging two separate entities with distinct and varied functions will engender bottlenecks, create strife, slow down or/and hamper the smooth petrol distribution processes, currently in place.

Once Marketers do not get their reimbursables on time, the impact is felt straight away, from Ikare to Potiskum and from Maiduguri to Nnewi. Petrol supply and distribution is so volatile, and so much so, that little disruptions in its flow, reverberates along the nation's socio-economic corridor, not to talk of the anguish it brings to bear on the well-being and psyche of Nigerians.

Merging is clearly not in the interest of the nation or its people. The federal government does not need the headache. Certainly not in this period of our development, especially with so many salient issues currently confronting the federal government.

The Case against Disbanding PEF

Earlier, in the body of this piece, a reference was made to the fact that the US subsidises it's farmers to the tune of at least 20 billion dollars a year. Republicans are in power at the moment in that country and they are all about limited government. They love and embrace the free market to a very large degree.

But no party in power in the tates, whether Republican or Democrat, ever toys with farmers' subsidies.

For instance, in 2018, the hike in price of bread led to the eventual ouster of the former President of Sudan, Omar Al-Bashir. No responsible government leaves pertinent economic activities to the vagaries of the market, especially if those have direct impact on the social safety nets put in place for its citizens.

In Nigeria, I will say our social safety nets are in the 'developmental' state as it were, so we cannot compare ourselves with countries that have deregulated every aspect of their petroleum industry. Even here, the Government is not providing the funds for the marketers' reimbursables. It's all worked into the template of prevailing petrol prices at every point in time.

When oil prices rebound (especially post Covid-19), the likelihood that petrol price per litre will revert to the pre-Covid level, is high.

If the prayers of those advocating for the abrogation of the law establishing the PEF are answered, what will happen to the hapless farmer trying to move his/her produce from the farm, to the main market in Jimeta, Adamawa State?

If the PEF stops its intervention, how much impact will it have on people travelling from Otukpo to Lagos or from Port Harcourt to Yobe? What about the movement of goods and services all over the nation? What will be the fate of tailors, barbers, welders, vulcanisers and other small scale business enterprises, who rely primarily on generators in running their outfits due to inadequate or non-existent power supply.

Disbanding PEF is akin to weaponising market forces in determining petrol prices. That will be an unforced error in its entirety. The implementation of such a policy will have untold effects on the socio-economic fabric of the nation and the people.

For sure, food will become more expensive as market sellers will pass the jump in transport fares to consumers. A lot of cottage industries may be forced to close down due to skyrocketing and unpredictable petrol prices, especially in the northern parts of the country.

Also, workers, already weighed down by the surge in high living costs, will have to look for extra means of balancing the family budget. This means less attention is paid to official responsibilities and that takes a direct hit on performance and productivity in the public and private sectors, and by extension, the economy itself. In addition, criminal activities will spike due to the vexations of those who feel 'left behind' by the nation's economic planners and the poor will definitely become poorer.

Truth needs be told. The average Nigerian is overly burdened economically at the moment, especially when the Covid-19 dilemma is added to his/her malaise.

For now, the majority is struggling to survive. Allowing free market to determine petrol prices when there are no visible infrastructure or economic palliatives in place, to cushioning its impact on the people, will result in protests of such cataclysmic proportions, of which the embers would still be smouldering, months after been put out.

I will end this piece with the words of the 11th President of India, A.P.J. Abdul Kalam, affectionately dubbed 'The People's President':

"In a democracy, the well-being, individuality and happiness of every citizen is important for the overall prosperity, peace and happiness of the nation."

Nothing can be truer than that.

Olakunri, a Director of Oats Global Energy and a Public Commentator, writes from Abuja

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