Nigerians eager to see reduction of profligacy in govt –Senator Abe

The_Chairman_Senate_Committee_on_Petroleum_Downstream_Senator_Magnus_Abe

The recent attempt to introduce full deregulation, so to speak, threw the whole country into turmoil. What is your

The recent attempt to introduce full deregulation, so to speak, threw the whole country into turmoil. What is your comment on this?

No, the removal of the subsidy didn’t throw the country into turmoil. The country has been moving in this direction for a very long time. People who have not taken time to study the economics of Nigeria blame President (Goodluck) Jonathan for removing subsidy but subsidy has to go and everybody understands that and they have always understood that. So, it is not a choice, it is not sustainable. I think that every previous President had also understood that same challenge. What is subsidy? The government pays money for the fuel that you buy. This money the government pays does not directly generate any income into the Nigerian treasury but it is paid every day. Even as a private person, if you have a head of expenditure that you have to fund on a daily basis that doesn’t contribute anything to regenerate you know that you can’t sustain it indefinitely.

So, why is it that deregulation must take off with increase in the pump price of fuel, when it is a whole process involving a lot of things?

Why deregulation would necessarily result in some kind of increase is that deregulation means that you buy and sell according to how you bought; that is what deregulation means. Nobody is going to interfere; nobody is going to tell you how you sell. The market will determine the prices that you pay. Now, when that happens, that would create several spin-off effects for the economy; it would open up the market place, other players who have their own resources can come in, they can invest because there is money to be made. You know, you have Shell filling stations in Europe, you have them in Asia, you have them in South America, you don’t have them in Nigeria, but there is Shell in Nigeria. Why? Shell wants to make money, if there is money to be made here; they can even build their own refineries, refine some of their products here and sell it here.

The other day, we listened to Prof. Pat Utomi and he did mention that if the government was deregulating, it would have opened up the market for genuine competition, but now, the Atlas Cove and other facilities that are critical to fuel distribution are in the hands of the Federal Government and the Petroleum Price Regulation Agency is there ensuring that prices are regulated. His view is that what is happening now is the imposition of a heavy petroleum tax.

What I would say to that is that deregulation has not taken off. The things that Prof. Utomi is talking about, we talked about them ever before deregulation was announced; so, that is why we are watching. If there is deregulation, we will ensure that there is actual deregulation, not price fixing. I have been talking about this, that deregulation is different from price fixing. Price fixing is a crime. So, if there is deregulation, if you see anybody involved in price fixing, even the marketers, among themselves, if they meet and enter into any arrangement that is against the market, you kill their businesses, that is the way governments run and that is how Nigeria will run. In starting out, we would have those challenges because it is not something that we have operated before. You know, the market will take some time to adjust and the dynamics of infrastructure management and all that will take some time to work out in a manner that actually favours the consumer. It will take time but the truth of the matter is that yes, there is a difference between deregulation and price fixing.

What I was trying to find out is if deregulation and subsidy removal are interchangeable.

No, deregulation and subsidy removal are not the same thing. Subsidy removal in a controlled environment, is simply replacing the source of the money from the public coffers to private market. In deregulation, you are opening up the industry to competition so that the benefits of competition go to the consumer. If I bring five million litres of PMS and say I want to sell it for N150 per litre, the public will simply react by not buying it in the quantum in which they would have bought. Instead of putting your fuel in my tank, I put my money in my pocket. When I want to buy, I buy two litres. So, when the petrol stays in your tank, you can sell it and buy another one. There will now be a cost to your money, which you spent on the fuel. There is a cost to keeping the tanks occupied, which you are paying; there is a cost to running the filling station when it is not selling the volume that it should sell. All that will make your business unprofitable. So, to make your business profitable, you will be compelled to reduce the cost. So, if you just remove subsidy and pass that pain to the market without giving the market the power to control what happens, you have created a different kind of challenge.

One major thing about the issue is that no one is even sure of who is saying the truth. Some voices such as Prof. Tam David West, a former Minister of Petroleum, said that there was no subsidy and some say there is subsidy, but we don’t even know how much it is. You are the chairman of the Senate Committee on the Downstream, perhaps you have more authoritative information on it.

Why I am surprised at some of the things people are saying is that we conducted a hearing here in the Senate and it was that hearing that opened up the issue of subsidy to Nigerians. Nothing was hidden and for the first time, everything was done in the open and all the figures are there with everybody. So, I am surprised that anybody would say there is no subsidy. There is an international market price for fuel, for PMS, it is sold in the stock exchange, in the trading houses internationally; that international price is known to everybody. So, if nothing else, the difference between what you pay and the international price is the subsidy because that is the international price. If the price of Cocoa is N50 on the international market and you are buying it for N20, with or without anybody telling you, you know that if that cocoa comes to the market, it would sell for N50, and if you buy it for N20, it means that there is a loss and that loss is the subsidy.

One major controversy here has to do with the quantity of fuel being consumed in the country. The Central Bank of Nigeria, the Nigeria National Petroleum Corporation, the Department of Petroleum Resources and others have been quoted to have given conflicting figures.

All that is part of the challenges of the regulation of subsidy because the nature of the product, once you are selling in Nigeria for N50 if they are selling in Cotonou for N100, if this person has it and he can get it to Cotonou and sell it for N100, he will. So, for you to achieve subsidy here, you first have to saturate the market within transport distance of your product. That is the truth; it is when you have saturated those markets that you can now achieve your real subsidy; because as long as the volume is not such that Cotonou people can buy at N100 before you buy at N50, the traders who have it would rather take the product to Cotonou and sell it for N100. I mean it makes more sense.

Is it not criminal for somebody to take the fuel that has been subsidised by the government of this country elsewhere to make extra money?

First of all, when you say criminal, you think this thing is done only by big people but if you are living in Badagry, and you had a pick-up van and you can buy petrol in containers and drive it across the border to Cotonou and get double the money, it is better than going to dig the sand elsewhere, you would do it. So, this thing is not something that is just being done by the big companies. Anybody who is situated there economically…

The level at which a small man does it is different from that of the big companies.

When you have several small men you get the same result. If you are leaving near Niger Republic, you would do it, if you are leaving near Borno, you would do it.

There can be no subsidy when you don’t have the exact volume of fuel being consumed in the country per day. The civil society bodies and experts in the sector are saying that what we consume is less than what the government is claiming.

Let me say something about this issue of consumption. First, it was the Senate Joint Committee that brought out this issue of what we actually need and what we buy. So, the civil society was not the one who told me. It was our committee that opened it up for Nigerians to know that these are the challenges. And we did that because we wanted to see transparency in the process. But at the same time, you also have to understand that it can’t be an exact size because contrary to what anybody would tell you, I don’t think that it is actually possible for us to get exactly the total volume of fuel that is consumed in Nigeria because the man who is by the border and comes to the filling station with five containers only uses one of them, the other four he may put in his pick-up van, drive it across the border and sell it. But you have recorded that volume as being consumed in Nigeria but it wasn’t. So, there are different ways to fight this whole thing, and I think, and I actually believe, that the most efficient way to fight this thing is to submit it to the market. That is what I believe. So, I am not angry if Nigerians can trade in petrol in neighbouring countries, I would be very happy; it is part of economic growth and economic expansion. But it has to be either products they generated or produced with their own resources.

Now, more or less, we have agreed that fuel should sell for N97, what does that portend for this country?

Well, I think what should be done are three very important things. First, I want to say that I have spoken to so many Nigerians, and more than 70 per cent of the people I have spoken to are not opposed to deregulation if it is real deregulation. They are opposed to several things. One of the things that they are opposed to is waste in government. They don’t believe that if you deregulate, you will actually create that economic transformation while you still have a high level of waste and corruption in public life. Two, they do not see that equivalent commitment on the part of most of the tiers of government to actually provide the services that the people require. That’s why you notice that in places where the government has failed to be proactive in providing services, the resistance to deregulation is not as high as those places where people just suffer for nothing. So, I think that part of what needs to be done is that governments, not just the Federal Government, state governments and local governments, all of us have a responsibility to conduct public affairs in such a manner that will earn the trust of the people. And third, people would want to see that if they are suffering, their leaders are feeling some of the pinch. They want to see a reduction in the flamboyance of the people in government. Why can’t our children school in Nigeria? So, the people want to see all these things and know that we are in the same boat. If there is problem, Nigerians would all share it, if there is prosperity they know we are all sharing it. So, those are the things that I think are making the people sceptical about the challenges of deregulation. I don’t think that any Nigerian believes that we should continue subsidy ad infinitum.

But at the end of the day, we ended up with a fuel price of N97, where does that leave us?

That is regulation now. That still leaves you where you are. What you have is price adjustment. It is not deregulation.

Is it petroleum tax?

This is not petroleum tax; you are paying below the market price. How are you saying it is petroleum tax?

Don’t you think that we have postponed the evil day.

First of all, I think that the President’s commitment to deregulation is real but I have mentioned the challenges that make the Nigerian people not to go along and give the kind of support that we need in order and achieve that. And I don’t believe quite honestly that you can disregard the suffering of the people.

Many had expected that by now the Petroleum Industry Bill would have become a law. What has happened to it?

It was submitted to the sixth Senate, they didn’t make progress on it; and it lapsed. It had to be resubmitted and the PIB is a very fundamental law. Apart from being a very fundamental law, it has a whole range of interests and all that tied to it. So, you have to build consensus to get it passed. The industry has its own concerns that need to be addressed, communities have concerns, the government has concerns, NNPC has its own interest in the PIB. Everybody has an interest and you know the Nigerian economy and the Nigerian nation as a whole run around oil; so, when you want to do something so fundamental to the issue of oil, you don’t expect that it would be without resistance or without controversy. The PIB is not going to be an easy road to travel but it is a road that must be travelled if Nigeria is to move forward.