OIL SECTOR: Deregulation is Deadly Poison

By Kola Ibrahim

The Buhari/APC government, after perambulating for a year, has come down to its real agenda continuation of the ruinous neo-liberal policies of the past i.e. deregulation and privatization. The government has hiked fuel price from N86 to N145. Before the new increment, the government had deliberately allowed fuel marketers to unofficially increase fuel price of over N200, through artificial scarcity. The ‘anti-corruption’ government did not crack down on marketers selling the product at such outrageous price, but rather allowed them to milk the public. The government is now using the excuse that fuel was already selling above official price to increase the fuel price.

WHAT IS DEREGULATION AND WHY IT CANNOT SERVE THE INTEREST OF THE POOR?

Simply put, deregulation is a policy that will allow fuel marketers and other investors in the oil industry to sell imported petroleum products at whatever price that the laws of demands and supply determines. This means if by tomorrow morning, the law of demand and supply puts the price of a litre of fuel at N1000, so be it! This policy has as its central aim the protection of the interests of the rich. This is why if we look at countries where this policy has been implemented; one of the main consequences of the policy of deregulation is that it makes the rich richer and the poor poorer.

Government and its town criers claim it is only when price is increased and marketers allowed to suck the poor dry, that we can stop scarcity. They also claim that when importers are given the free reign to import and sell at their own prices, price will eventually come down. This excuse is meant to justify the tried but failed neo-liberal policy of deregulation. This same idea of deregulation has been used by previous governments to increase cost of living of the common people.

In the spirit of deregulation, we are told that when government stop subsiding fuel, there will be no more cabals in the oil sector; public fund will be freed to implement other social and infrastructural programmes, and through competition the prices will go down. But this is just fraudulent means of making the poor suffer in order to guarantee stupendous wealth for the rich.

ANSWERING THE LIES

While it is generally agreed that, under the current system, the subsidy regime has meant subsidizing the profits of the fuel importers and marketers, the fact is the government after government push the country to this state of affairs by allowing the nation’s refineries and product distribution facilities to collapse. This is in spite of the huge oil wealth that accrued to the purse of the country in the last 16 years.

Obasanjo, Yar’Adua and Jonathan governments, rather than expand the refining capacity and distribution facilities of state owned refineries deliberately ran down the refineries, and gave billions of dollars to fuel importers, who are mostly their cronies. With less than 10 percent of the over $800 billion that had accrued to the country’s coffer in the last 16 years, the country had the capacity to build adequate refineries, and fuel storage cum distribution infrastructures. However, under the guise of ‘government has no business in business’, civilian governments continue to allow importation of fuel while ensuring that nation’s refineries are not working properly.

In spite of billions given to fuel marketers and importers for subsidy, fuel prices have risen continually even when crude oil price fell. Also, governments, except the Yar’Adua regime, hiked fuel prices under the guise of deregulating the oil sector; yet, subsidy did not stop. Worse still, the so-called money saved from subsidy removal has never benefited the poor people, but rather found their way into private pockets of the already rich few. Unemployment has continued to soar while poverty has never ceased.Obasanjo government, more than ten years ago, in the spirit of deregulation, gave over 40 licenses for private refineries. Until lately when Dangote, after amassing huge wealth through government’s subsidies and protective policies, is making effort at building oil refinery, none of the licensees built any refinery. In fact, they used the licenses to import fuel.

The self-professed ‘anti-corruption’ Buhari government has not brought to book all those who looted the country’s wealth under the subsidy regime. On the contrary, it has succumbed to the power of fuel importers to directly exploit the working people. Moreover, there are no concrete plans by government, in the last one year, to build new refineries or truly make the existing ones function efficiently. All we have had were mere contradictory propaganda.

Argument that subsidy removal and deregulation will lead to competition and fall in price is puerile. Fuel importation depends on foreign exchange. Therefore the higher the cost of procuring dollar to import, the higher the cost of imported fuel, which will translate to higher fuel price. Already, within few days of increasing fuel price, naira has further crashed from N320 to more than N360. Meanwhile, government’s projection of N145 per liter of fuel is based on a dollar selling at about N290. Thus, with the naira falling to over N360, and with the possibility of further rise, the N145 price may increase further. At such point, government will have to either bring back subsidy it claimed to have removed or allow the marketers increase the price beyond N145. The reliance on black forex market for dollar by importers will lead to further devaluation, which will affect prices of other goods. In any way, it is poor people who will bear the brunt.

The argument that the country will save money from deregulation is one-sided. Fuel price increase caused by subsidy removal will lead to higher cost of living. It will also lead to higher cost of production and services, which will lead to mass layoff of workers and worsening unemployment. This will lead to further increase in poverty and misery. On the other hand, the fuel importers, marketers and dollar speculators will be making billions in profits out of the misery of the majority. Also, government officials will have nothing to worry about as their ostentatious lifestyles are secured from the state coffer. Just 18, 000 political office holders, constituting less than 0.01 percent of the population, corner over N1.3 trillion annually as emoluments. This is about 10% of annual expenditures of all tiers of government.

The argument that deregulation will lead to building of private refineries is not entirely true. As said earlier, in more than ten years, none of those given license to build refineries, except maybe Dangote, has built any refineries. Why would any business man commit billions to building refinery when he can easily make billions from less stressful fuel importation? Even Minister of State for Petroleum, IbeKachikwu, once said that it is cheaper to import fuel than build new refineries. Dangote’s refinery, which is expected to come on stream by 2018, is premised on government deliberately subsidies and protectionist policies.

Clearly, deliberate collapse of Nigeria’s refineries will give Dangote the exclusive right to refine, at least for now. However, the Dangote refineries, aside the fact that it cannot stop importation of fuel as it would only refine about 50 percent of nation’s fuel need, will also not lead to cheap fuel. The $14bn meant to fund the refinery was procured largely through loans, which will imply that Nigerians will pay for this through increase in fuel price. The cost of production in Nigeria due to poor infrastructure will also reflect in price of fuel. Aliko Dangote, after factoring all the above, has said that petrol from his company will not be cheap. Definitely, Nigerians will pay for this, either through increased fuel price or government’s subsidy.

OIL NOT THE SAME AS TELECOMS

The argument of deregulation of the telecom sector is not sustainable. Aside the fact that telecom operators are not importing telecommunication services, oil sector is far more sensitive to any change in the world market. Nigeria’s economy is road-based, fuel dependent and power-starved; therefore, the effect of deregulation cannot be the same in the telecommunication and oil sectors. Even in the telecom sector, deregulation has favoured big businesses who earned billions of dollars, yet Nigeria’s GSM service is one of the costliest and erratic in the world. This has led to the tragic situation where although many people now have mobile phones, yet only few can afford airtime! Agreed that the state-owned NITEL was poorly managed and continually looted (remember Fela’s “ITT”) which led to telecom service not made available to the majority. But this is a product of undemocratic management whereby political patrons were appointed to run NITEL, while workers who do the work are made onlookers. The liberalization of the sector has led to availability of services to several millions of the population. However, if it took almost two decades of deregulation for the more people to access telecom services, how many years will it take oil sector deregulation which is more capital intensive, for fuel to be available at affordable prices for the poor people?

LIMITS OF REGULATION AND SUBSIDIES – SOCIALIST CHANGE NEEDED

The Labour movement, working people and genuine change-seekers must reject the fraudulent policy of deregulation. It is aimed at making big businesses profit at people’s misery. If deregulation is allowed in the education and health sector, it will mean that good education and healthcare will only be available for the highest bidder i.e. those that can afford them.

The current crisis shows the severe limitations of attempts to tinker with the terrible effects of capitalist underdevelopment and crisis by subsidies or regulation. This is why, while opposing deregulation and other neo-liberal policies i.e. privatization and commercialization, we must demand that the oil sector be put under public ownership and control. This will mean democratic planning by elected representatives of the state, workers, oil communities, consumer groups and relevant professional groups. This is the only way the oil and gas sector and other vital sectors can be run in the interest of the society.