In the late 19th century, the birth of transcontinental railway was achieved by the Promontory summit in the USA. Within the same century, more of this feat saw the light of the day albeit in other countries. Concomitant with this success was the accompanying ills, as there came an increasing frequency of train-human accidents. Commonsensical was the finding that whenever anyone went against a train, the train was bound to have it was at whatever expense. Thus, man was back to the board to quell this unfortunate happenings. The Grand Trunk Pacific Railway would many years later sponsor a contest, requesting people to provide slogans which would be easy to comprehend and abide by. ‘STOP, LOOK and LISTEN’ was the $2500 award winning slogan, which has since been used in almost every railway-present corner of the world and has saved thousands of lives and prevented disabilities. These words also applied to spheres of our lives could make a lot of difference in our thinking capacities.
STOP, LOOK AND LISTEN
On Wednesday 11th May 2016, the NNPC announced the removal of subsidy and application of a price cap for PMS at N145/L. This has been painted in the light of deregulation and the advantages of this policy in the not-distant years have been brought to fore in support of this claim. Mentioned are the stability in the Telecoms industry, availability of Diesel oil amongst others. The Government has tried to use media campaigns to make people see the reasons why this removal is inevitable. Arguments, across party-lines and personal conveniences have besieged the social media, relating to the veracity of claims that May 2016 was a better time to remove subsidy as against January 2012.
At this crucial time, we have to STOP, LOOK AND LISTEN. STOP to make an assessment of our past and take a pause from hurried judgments, LOOK to evaluate the ambient challenges now faced and LISTEN for the subtle whistles from the yonder future which could help avert disasters.
Nigeria is a net importer of PMS, to satisfy her average of 40million liters of PMS per day. An unstable quantity of this requirement is provided by the fluctuating efficacious local refineries. The Nigerian National Petroleum Corporation (NNPC) provides about half this daily requirement largely through importations and to a lower extent from the local refineries. The other half is provided by importations by other independent marketers. Heretofore, the NNPC saddled itself with the responsibility of stabilizing pump prices nationwide, irrespective of the source of purchase by the buyers and the point of sale in the hinterlands. This responsibility is what we describe as subsidy, as the stabilization came at an extra cost per liter of almost all products sold in the country.
Inefficient monitoring, political indecision and leveraging on loopholes within the subsidy campaign made it a lucrative venture for individuals and corporations to claim subsidy for product not brought to the country and even to divert it for sale in other neighboring countries after reception of subsidy money. Thus in 2011, the daily consumption of PMS was 60.25million liters and 39.79million liters in 2012 when measures were put to check the loopholes. A whooping difference of over 20.5million litres subsidized daily for 365 days and no one visibly got punished for that. So this brought the TRUST ISSUES AND SACRED YAM EATERS POSITION of some people who became opposed to removal of subsidy even when it became glaring that deregulation and subsidy proscription was the way to go.
By the mid-2014, the national revenue from sales of crude began to plummet to its ever low by late 2015 and early ’16. This meant reduced petrodollars to cater for the imbalance of international trade, with resultant massive tilt towards importation. This grossly affected the country’s balance of Forex ability and immensely depleted the foreign reserves, till the Central Bank of Nigeria pegged the exchange rate at average of N198 per dollar and also limited the availability of the CBN dollars to certain commodities.
We must be reminded that trade within the country is so dependent on availability of the dollar because most of our national consumption only reach us after scaling through some form of foreign exchange deals. The major importers and businessmen then invaded the black-markets and Bureau De Change for Dollars. The invasion also reached a dimension unrivalled in history, demand overwhelming the supply and thence the upshot of prices of the Dollar. Meanwhile, the dollar remained ‘happily stagnant’ for the Government alone to transact its businesses. This brought about a massive increase in commodity-prices in response to the hiking black-market dollar prices. The local market became less affording of the imported commodities and then the effective demand crashed. Many businessmen and importers who could no longer continue in the business had to withdraw from the dollar demand. With the reduced demands, the dollar prices again crashed to the present average level or N330 per dollar which we find it as at today, early May 2016.
How has this affected petroleum?
As mentioned earlier, the country’s 40M liters per day is completed by the half supply by the private importers, who sell to other marketers in the country and also at their own filling stations nationwide at expected price dictated by the NNPC (via the PPPRA). The Herculean nature of assessing the dollar made it less lucrative for the importers to buy PMS at very expensive prices due to blackmarket dollar rates and still sell at compulsory fixed prices. Thus many importers withdrew from importation and the country fell at the knees of the 20M liters provided by the NNPC, and hence the low supply again heralded the scarcity, fuel hike and hardship that followed. This is just to summarize the befalling circumstances.
With the cessation of subsidy and commencement of ‘deregulation’, the pump price is also at a ceiling of N145 and the Ministry of Petroleum promising a fall in prices within the next 6 months. The Minster of State also goes on to state that the NNPC would continue to provide her own quota of the oil demands and other ‘capable’ importers would be encouraged to import the remaining half.
It is of note that the NNPC would assess its dollars at N198 per liter while the other ‘capable’ importers would assess at the black-market fickle average of N330 per $. This already creates an imbalance and unfairness in the market. This means that while the NNPC might make all its profits (even at supernormal proportions) at N135/L, the other filling stations would definitely struggle to break even at N145/L if not now, in the nearest future due to the immense disparity in their assessable dollar rates.
It is of note that with this stance of the CBN and NNPC, black-market forex trade which is not encouraged world-over, has now become the official respite of the major drivers of the economy.
As described earlier, the black-market dollar rates are dependent on the demands thereof. As it crashed when demands for dollar crashed out, it is imminent to rise when the importers bombard the blackmarket with their billions of dollar demands to purchase PMS. What would probably happen is the upsurge of parallel Fx rates to maybe N500 per dollar or more while the NNPC enjoys her insulated rates of $198 per dollar. This would also mean the filling stations in bid to break even would have to sell above N145 in the coming future while the NNPC sells for less than or at N145 per liter. Consumers would then prefer to queue at NNPC stations for hours to get PMS rather than at the other filling stations selling at higher to make marginal profits. In essence, the competition created would be between all the private filling stations and the NNPC. It is almost presumable that the earlier ‘capable’ private importations would cease to be capable and we would all be back to the earlier spot of fuelscarcity, dependent on the inadequate provisions by the NNPC.
Higher prices and removal of subsidy would then prove not to be solutions to this here-abiding fuel crisis.
If we must claim deregulation and expect its dividends which should drive down prices, the NNPC and private importers must purchase the dollar at the same or very close exchange rates. And not at d difference of approximately $120.
The ways to make this possible is either to
Make the Fx available to the petroleum importers at N198 per dollar which would destroy everything we ever claim to have stacked up in our foreign reserves.
Devalue the naira and make it easily possible for the importers to assess the dollar at official rates and hence discourage black-market trades and its unaccommodating nature with pressure of demand.
1. The NNPC (and CBN) should avoid being miserly with information and place the cards on the table.
2. The people should start asking the right questions about the viability of Government policies and not be deluded about the transparency of an individual.
3. The National Assembly should address pertinent issues and not bask in the pettiness of support for an individual who has personal integrity questions to answer.
Until we sit as a people and address our challenges, we would ever wallow in self-perpetuating poverty and hopelessness for the future generations.
I am Rotimi Akinbinu, a Physician by discipline, Nigerian by birth, and I choose to be nonpartisan on National issues.
God bless Ondo State. God bless Nigeria
Dedicated to the memory of Alhaji (Chief) S.B.A, an astute Nigerian hopeful who passed away 8th May, 2016. May he find peace in Allah and be proud of the choices we make in National interest.
Dr R.A Akinbinu