As a firm believer of full deregulation of downstream sector, I’ve supported removal of subsidy from onset and knowing that the advantages far outweigh the disadvantages. The major concern with subsidy removal is the fact that various Nigerian governments planned removal without adequate cushioning measures to ensure that the common people on the street are well of after the removal. It is unfortunate that historically, every government in recent times that assumed power are made to see the one sided effect of subsidy removal without the big picture of the welfare of the people of Nigeria.
The various governments have given genuine reasons why subsidy must be removed without adequate measures that will ensure Nigerians do not suffer after the removal. There were almost zero investments in road infrastructure, rail networks, rural access development and construction of more refineries through private sector investments. During the campaign that brought President Muhamadu Buhari to power, one of the promises among many was stable and low pump price but the forces that made the previous presidents jerk up the price of PMS are still on ground and their wrong, perverse and self-centred ideology was still strong. Barely a year after inauguration of the new government, the Minister of state for petroleum announced the partial deregulation of the downstream sector after Nigerians have suffered ‘artificial scarcity'. There is a school of thought that the scarcity was inflicted so Nigerian would not resist the proposition of the increment but I will not believe a government will afflict the people with so much pain just to drive a policy into acceptability. But Nigerians accepted the increase of pump price of PMS to a ceiling price of N145.0 per litre.
It is a dream-come-true for the government for exercising so much political will and tactics that led to the successful implementation of the deregulation policy. The question is; could this be the end of oil subsidy?
I have argued that the aftermath of this policy will either lead to some spurious increase in PMS Price or resumption of subsidy payment and that the ceiling price is obviously a temporary fixative. Why so?
The economic, mathematical or statistical calculation that fixed ceiling price at N145.00 is wrong and not based on free market dictates but a subsidy mentality. Marketers have been complaining of their landing cost and while the price of crude oil has been so low, high percentage of retail stations sells at the cap price. What happens when the price of crude oil starts increasing? As at 12-09-2016, OPEC price of crude oil is $48.0 per barrel and the meeting between Saudi Arabia and Russia to cut production so as to market-manipulate price was successful and depending on the resolution of OPEC ministers at the meeting to be held in Algiers on September 26-28. If they decide to cut production and succeed in meeting their goal of stable price of $50-$60 per barrel, then Nigeria PMS Price calculation will have to change. Already, there are indications in some quarters that government is trying to increase PMS price which has been dispelled although the major marketers are still complaining of unfavourable landing cost and the foreign exchange hike but this will happen when the price of crude oil increases and foreign exchange is still high since Nigeria is a net importer of refined products.
If these factors of crude oil price and foreign exchange exist, then there is a looming price increase and if that is met with resultant action from labour then, government subsidy will resume.
The only solution that will avert looming crisis is for government to urgently increase investment in the local refineries that are under producing, encourage and attract private refinery construction like Dangote Group is doing and tighten all leakages if they subsidy will resume.
In conclusion, the current administration was impulsive in deregulating the downstream sector like all the other democratic governments; they put the cart before the horse by removing subsidy without ensuring that we sufficiently produce what we use, not massively investing in road infrastructure and rail networks. It is still possible to achieve these development additions to the economy. It is also hope that Nigerians will not have to pay more for fuel even with the dwindling income, high rate of unemployment and high prices of commodities with other economic issues on hand. It is hoped that free market will be allowed to dictate price in a complete deregulated environment after we have started producing what we use. Ceiling and floor fixations are government interventions that will always result in market complexity, Nigerian government should develop the background factors before the imposition of the price calculator. Government should go back to the drawing table and rework the factors else, the economy will further regress.