Fuel crisis: Signals the market is still under capture

Sopuruchi Onwuka

The prevailing spar between the organized labour and the new government of President Bola Tinubu over the controversial increase in fuel prices tend to conceal a critical distortion in the market, shifting attention from market liberalization to insidious arguments over the prevailing fuel subsidy mess.

What appears to be missing in the public debate is the urgent and central need to distinguish between deregulation of prices as essential component of liberating the market from the clutches of state monopoly on the one hand and removal of fuel subsidy from the basket of sundry social benefits that the government can no longer sustain.

The Oracle Today reports that whereas Nigeria’s poorly managed fuel subsidy programme is delivered to all consumers, rich and poor, at the retail pumps; a liberalized market where players compete fiercely for patronage entails deregulation of prices but does not directly translate to removal of subsidy.  Thus, a well implemented fuel subsidy could still exist outside retail pumps. This fact brings the entire argument to the question of what the stakeholders really demand: deregulation and liberalization.

The intrigues and narratives that beset the prevailing confusion are very beguiling. Commercial deregulation entails a robust competition in which market forces lay price templates and player strategies confer advantage in volume sales through attractive retail prices. Thus, the new list of prices rolled out by the NNPC Limited is at most an adjustment that might be routine with fluctuations in market forces. It points out clear distinction from deregulation as a product of market reforms.

What has been sold to the Nigerian public across decades of the deregulation advocacy is that government and its agencies would withdraw from price fixing and fit into the role of ensuring quality, health, safety and environment standards.

Another core role of regulation in a deregulated marketplace is to guarantee a competitive environment in which the best products and services win more patronage. In this instance, players are encouraged to unleash their creative genius and global partnerships in bringing solutions that crash operating cost and confer the advantage of price competition.  This entails liberalization of the market where every player has the right to source products from the cheapest source.

What is presently uncertain is whether the price increase which the marketer groups and other stakeholders hastily applauded is actually deregulation or mere removal of subsidy. And what is playing now appear to draw the critical distinction between the two, especially when price hike has preceded the expected regulatory outline for detailed implementation of the relevant sections of the dormant Petroleum Industry Act (PIA) 2021 which provides for market liberalization.

The Oracle Today reports that the Nigerian Labour Congress (NLC) and its sister affiliates in the Nigeria’s organized labour movement had last week declared intention to embark on strike after expressing frustration at alleged efforts by agencies of the government to evade discussions expected to provide granular details and clarity over the prevailing price shock in the domestic fuel market.

President of NLC, Comrade Joe Ajaero, accused the regulators and the national oil company of avoiding healthy debate on the best ways to move the market forward without putting the lives and livelihoods of low income earners and the abject poor at risk. He described the ghosting of stakeholders as one of the gimmicks of government to avoid providing clarity on emerging policies that will rule the market.

He hinted that deregulation has not happened since, according to him, the Nigerian National Petroleum Company (NNPC) Limited still fixes pump prices and controls supplies to the market.

Since the NLC raised the observations, the Major Oil Marketers Association of Nigeria (MOMAN) and the Depot and Petroleum Products Marketing Association of Nigeria (DAPPMAN) and other investor groups which had applauded NNPC Limited on ‘deregulation’ of the market have all gone quiet. The Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) which regulates the commercial end of the market has also remained traditionally slow paced in providing a clear dashboard on the emerging system.

Statements rolled out from NNPC Limited and NMDPRA simply make allusions to engagements with stakeholders, contradicting allegations from the NLC that scheduled meetings have been repeatedly called off to evade thorny issues.

Perhaps the only time tested way of getting government to table with NLC is a nationwide strike which was planned to hold this week. And true to expectation, the office of the Attorney General of the Federation has since come alive and online with speedy court injunction to restrain workers from embarking on the scheduled strike.

On Monday, Justice O Y Anuwe of the National Industrial Court sitting in Abuja fired off an ex-parte injunction restraining the NLC and sister Trade Union Congress (TUC) from embarking on strike pending the determination of motion on notice dated June 5, 2023 by the representatives of the government.

He also ordered that the labour leaders be served with the originating process of the suit on the Motion on Notice which is now fixed for hearing on June 19, 2023.

Justice Anuwe premised his considerations in the motion on the envisaged impact of national strike on social and health services to the people of the country, especially on students and hospital patients who, according to him, would be severely affected by withdrawal of services.

From the texts of the motion in court, the concern of government is primarily to address the symptom, not the illness. It strives to avert the strike without addressing the issues and grievances that instigated the agitation.

This fits into the traditional pattern of engagement between the Nigerian masses and government when matters that border on demand for accountability are on the table. And the determined suppression of social demand for accountability has bloody antecedents that are still fresh in memory.

From the days of Nigeria’s disastrous military regimes through transitional governments to the return of democracy in the nation’s political administration, poor management of fuel price increase along the inflationary pathway form the traditional flare-point between government and the organized labour whose members form the vehicles of income distribution in the economy. And many compatriots have paid the supreme price in the attempts that availed little government’s audience.

Therefore, when the incoming President Tinubu declared withdrawal of fuel subsidy in his inaugural address, it sent the signal that his administration of the government has headed towards the path of strategic blunder. The declaration rendered his administration vulnerable to manipulation and exploitation by entrenched managers of the system who did not spare any time in pulling the subsidy plugs without submitting to stakeholder engagements.

The sudden jump in retail prices of petrol came against existing demands for robust domestic refining capacity as the major condition for price deregulation and liberalization of the market. It also deviated from the collaboration among stakeholders in supporting the ongoing revamp of public refineries in preparation to formal and total deregulation and liberalization of the domestic fuel market where only petrol price is currently regulated.

But standing in front of the boiling controversies are critical questions that government does not incline to address. Is the market now deregulated? Is it liberalized? Is state monopoly dismantled? Are public refineries working? What are the roles of private players in the market? Did the government just take out the subsidy and left the market still unreformed and captive?

What the industry players have canvassed for across decades is the deregulation of prices to allow market forces determine the real retail price of products. This has been achieved with different products in the market, including aviation fuel, low pour fuel oil, automotive fuel oil, household kerosene, dual purpose kerosene, lubricants, natural gas products including cooking gas, octane additives, ethers, et cetera.

The NNPC, Major Oil Marketers Association of Nigeria (MOMAN), Independent Petroleum Marketers Association of Nigeria (IPMAN), Depot and Petroleum Marketers Association of Nigeria (DAPPMAN) and smaller market groups that trade on the premium motor spirit (pms), also called petrol, all demand deregulation on the product.

The group of marketers has vehemently demanded government to embark on full deregulation of the market, given the weakness of regulators in controlling price surge and subsequent distortions in the uniform price policy.

Their principal argument centers on saving money for government and enhancing the level of competition that would bring in efficiency, phase out perennial scarcity and expand the capacity of the market to absorb more investments.

Chairman of Major Oil Marketers Association of Nigeria (MOMAN), Mr Olumide Adeosun, had during an online workshop with market stakeholders, Federal Competition and Consumer Protection Commission (FCCPC) and the media strongly canvassed phased deregulation of petrol prices as the only way to supply sustainability and fair competition.

His predecessor and Managing Director of 11 Plc, Mr Adetunji Oyebanji, has remained in the forefront of the campaign for market reforms, warning that crises would befall the market in its current state of public sector monopoly.

The marketers groups see deregulation as means to full market reforms which would position them for direct cuts from the full bake. They currently see themselves as fringe players in a market where only crumbs are available from a king’s dining table.

Whereas the NNPC Limited and the private players trade blames over cross border smuggling of subsidized petrol, they all agree that deregulation of the market would dismantle border frontiers that limit market outlook for investments in trade facilities and infrastructure.

The market investors also demand and have canvassed vigorously for liberalization of play; entailing free and level playing ground for sourcing of products from sundry origins. Liberalization, according to them, would spur investments in local refining and market offtake partnerships at existing local and foreign refineries. These, according to them, would confer price advantages to huge destination markets like Nigeria where foreign refiners dream to dump products as energy transition thin down their local markets.

The Oracle Today reports that advanced countries, mostly in Europe and North America, currently have 2040 to 2050 deadlines to phase out or drastically cut use of petroleum liquids for transportation.

According to Statistica, global fleet f electric vehicles will jump from 8.5 million units in 2020 when the global electric vehicle fleet grew by more than 3.0 million units to 115 million vehicles by 2030.

The Chairman of AA Holdings, Mr Austin Avuru, assured in a chat with The Oracle Today that global automobile producers would not shut down the production line for internal combustion engines so long there is market for petroleum fired vehicles in the world.

The development would inevitably force manufacturers and vehicle owners to give up their internal combustion vehicles for export. So would refiners also position their products for massive export to countries with huge market for internal combustion vehicles.

The overall market outlook for petrol, according to Mr Oyebanji , calls for enhanced investment in trade and marketing infrastructure in the domestic fuel market.

MOMAN reiterated that “a final resolution to these challenges will be the full deregulation of the petroleum downstream sector to encourage liberalization of supply and long-term investments in distribution assets.”

Whereas the controversy over the credibility and fiscal size of the domestic fuel subsidy is not the focus of this expose, stakeholders must rise to the consciousness of the reform movements that set agenda for the new administration of the government to ensure that the provisions of the law are not misapplied in the implementation of downstream petroleum industry reforms.

Expectations are that the reforms would churn out outcomes that must necessarily include full deregulation of retail prices and complete liberalization of play in the domestic fuel market. The two components of envisaged reforms prohibit price fixing, price uniformity and monopoly of supply. Thus, the hasty price increases imposed on the market by a public sector player appears to be an abuse of the PIA. By its incorporation, the NNPC Limited should be a commercial player without any regulatory functions.