FG deregulation, subsidy removal and scarce forex

So much has happened in so short a time that one need to engage in reasoned analysis to follow the frenetic pace of events or risk being fatally overwhelmed and swept off by the deluge of arguments being forcefully propagated by both sides of the divide. Following the capping of fuel price at N145.00, up from N86.5kobo by the Federal Government last week, voices have been busy with some supporting and others opposing. While some argue that this is not the time for fuel price increase in view of the suffering already evident among the populace, others say there could be no better time than now that the price has dropped to less than half of it used to be.

The increase has since led to a plethora of questions which have crowded the national space, among which are: Has the government deregulated the downstream sector of the petroleum Industry? Will the new price lead to abundance of products thus ending harrowing experiences of Nigerians at fuel queues? Will the government ensure that marketers across the country dispense fuel uniformly at the new rate fixed by government? Or will some filling stations continue to sell at cut throat prices in violation of the new price cap as was the case when the price was N86.50? Is the new action the much anticipated subsidy removal?

The Minister of State for Petroleum Resources and Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Dr. Ibe Kachikwu, had while proffering answers to some of these posers, said that the policy is inevitable and the right step forward because of the drastic fall in oil prices that has dried out the nation’s foreign exchange earnings. Kachikwu had last Wednesday after announcing the new policy which in effect saw an increase in the pump price of fuel told State House Correspondents that the decision was reached at a stakeholders meeting attended by the representatives of the Legislature, State Governors and organized labour. In his raison d’être to justify the price increase, the Minister blamed it on the failure of the major oil marketers to get required foreign exchange at the Central Bank of Nigeria (CBN) approved official rate to carry out their importation due to severely reduced inflow of hard currencies into the Federation Account. As a result, he said that fuel importers could not import their 50 per cent share of overall national fuel supply.

On his part, Vice President Yemi Osinbajo explained that the present action of government is not tantamount to fuel subsidy removal in view of the current price of fuel at the international market which has not left much room for the product to be subsidized. While reacting to observations made by Nigerians concerning the new price template, Osinbajo said: “Fellow Citizens, I have read the various observations about the fuel pricing regime and the attendant issues generated. All certainly have strong points. Permit me an explanation of the policy. First, the real issue is not a removal of subsidy. At $40 a barrel there isn’t much of a subsidy to remove. In any event, the President is probably one of the most convinced pro-subsidy advocates. You will notice that I have not mentioned other details of the PPPRA cost template. I wanted to focus on the cost component largely responsible for the substantial rise, namely foreign exchange. This is, therefore not a subsidy removal issue but a foreign exchange problem, in the face of dwindling earnings,” the VP explained.

Already, the Nigeria Labour Congress (NLC) and its counterpart, the Trade Union Congress (TUC) have rejected the new price and saying they gave already commenced nationwide mobilization of workers and their civil society allies to commence a nationwide strike tomorrow should the government fail to revert to the old pump price of fuel by midnight today. As at the time of writing this piece, the government through the Minister of Labour and Employment was believed to be meeting with Labour leaders with a view to dissuading them from their proposed industrial action. How far the intervention of government would go in getting the buy in of Labour on the new fuel price regime would only be clear today.

However, many Nigerians and corporate entities have openly identified with the reasons advanced by the Minister and by extension the Federal Government for the necessity of the price increase among which is the backdrop of the sharp practices and fraud that had characterized fuel supply across the country in the last 16 years. It must be noted that while interminable queues became the order of the day in cities where the Department of Petroleum Resources (DPR) was able to enforce the former price, majority of Nigerians suffered purchasing the product at over 300 to 400 per cent of the N86.50 pump price. In some cases, the product was not even available at some locations, while a few smiled to the banks daily.

Meanwhile, the Director -General of Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf has supported the increase saying it was in the people’s interest. According to him, for several decades, the subsidy regime had serious transparency issues which inadvertently caused the economy to convulse.

Also the two major unions in the nation’s oil and gas sector – Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) and the National Union of Petroleum and Natural Gas Workers (NUPENG) have endorsed the new price fixed by the Federal Government. In a communique jointly issued by both unions, they called for stakeholder engagement by the government to further discuss issues on how to plough back the expected gains from the exercise into the economy.

Only yesterday Kachikwu appeared before the House of Representatives during a special session and briefed the legislators on the new development. Even though it was not clear what position the House would adopt on the issue after the briefing and the in depth question and answer session, the live programme afforded more Nigerians opportunity to understand the thinking of government and the plans afoot to cushion the biting effects of the new increase. What is also worthy of note is that the government in initiating this policy has shown an immense courage, responsibility and maturity in the way they have kept explaining their position to Nigerians. They have told us that the new price regime will be “painful”, a situation it said would be mitigated by the roll out of the social safety net already captured in the just assented 2016 budget.

Above all, what is important at this time is that despite the pains associated with the new increase, the Federal Government led by President Muhammadu Buhari, deserves the support and trust of all, to navigate our economy away from the dire straits we currently find ourselves. The President has demonstrated enough commitment to the Nigeria project, the fight against corruption, insurgency and plans to reflate the economy, provide jobs, and ensure that the country’s environment is business friendly enough to attract the needed investment in all sectors of the economy.

More so, whether the current increase is a step towards full deregulation, subsidy removal or occasioned by scarcity of Forex, many analysts believe that the government is on the right track and that the end result of the current initiative will be to the benefit of all not minding that it would take some time for the beneficial derivatives to be felt across board by Nigerians.
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About Adeosun Adeyemi


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