Amid the hue and cry over the recent hike in the price of Premium Motor Spirit (PMS) popularly known as petrol, a development economist, Dr Tayo Bello has warmed that dire economic consequences await Nigeria should the Federal Government reverse its decision on the deregulation of the oil sector.
Bello, an associate professor of Law and lecturer in the Department of Private and Commercial Law, Babcock University, Ogun State, gives reasons the attempt by the administration of Dr. Goodluck Jonathan to deregulate the nation’s oil sector was met with more vociferous opposition compared to what is currently playing out with the current administration’s decision to embrace deregulation. He speaks more on the issue in this interview.
Despite the widespread criticism trailing the increase in the pump price of fuel in Nigeria, the government has insisted that the decision to deregulate the oil sector and the attendant hike in the price of the commodity is in the interest of the nation. How justifiable is this assertion at a time Nigerians are battling to survive?
The overall objective of deregulation is to restore efficiency and resource allocation. Deregulation is simply the process of removing state’s regulations in the economic sphere or the removal of barriers to competition. If you consider government’s regulation, which requires that it is the government that will dictate the price of the commodity and going by antecedent, there will always be the likelihood of scarcity of the commodity. This has been part of the experience in the past years. Not only that, there is problem of corruption especially in the area of payment of subsidy. Trillions of naira had been paid out in the past as subsidy. Not only that, there won’t be competition and investment climate will be very dicey. But on the other hand, deregulation will enhance competition among investors; it will lead to efficiency in the production and this will lower the cost. The price of the commodity to the consumers, in the long run, will be sharply reduced. In January, 2012 Jonathan’s administration tried to deregulate the downstream sector, but the reactions of Nigerians then through sponsored protests destroyed the benefits of the exercise. The daily consumption of fuel in Nigeria is about 50 million litres and we don’t have functional refineries. So, this has left the government with no other choice but to resort to importation. So, when you have to resort to importation, you cannot determine the price of the commodity on your own. What we have is crude oil not the refined products and it is the forces of demand and supply at the international market that determine the price of this product. In that case, this means that on regular basis, the amount of money generated by the government will be channeled into the payment of subsidy should we insist that government continues to subsidize the product. In the past when the government paid subsidy on fuel, there were people who did not import anything, but who claimed they did and were paid. But with the deregulation, there will be investment template, there will be freedom of entry and exit; so many investors will be free to participate. Government on the other hand will be able to channel what it would have paid as subsidy to other sectors- education, infrastructure, health, agriculture and others. Deregulation will in the long run be in the overall interest of the people.
Some analysts who share your view that deregulation is the answer, contend that the timing of the exercise is wrong?
It is not a question of whether the timing is right or not. It is either the government summons the courage to do it now or it allows the economy to go under. We are in a very precarious situation now. You cannot compare the situation we find ourselves now to 2012. At that period Nigeria had over $60 billion in foreign reserve and the price of crude oil then was above $100 per barrel, but now it is just about $43 per barrel. If you check our budget every year about 70 per cent goes into recurrent expenditure with about 30 per cent going into capital expenditure. But this time around, the government cannot continue to regulate the sector, but if we insist, it means we will continue to pay subsidy and continue to encourage corruption in the sector. Nigeria’s economy is in a dicey situation. The fact is that Nigeria does not have the money to pay subsidy now; all we can do is to borrow money to pay subsidy. The situation can be likened to that of a person who is sick and is bleeding. The first thing you need to do is to stop the bleeding and give the person blood. You don’t ask that same person to donate blood. Do you think those who embarked on protest when Jonathan attempted to deregulate the sector find it easy now to swallow their pride by not staging protest against Buhari? No! It is because they understand the economic realities on ground now. There is no alternative to deregulation for now. If previous administrations had done it Nigeria would have accumulated enough resources which would have been channeled to develop other sectors. The economic realities on ground do not support government’s continued regulation of the oil sector. If Buhari buckles, the economy will collapse. We must never contemplate a situation where our country will go the way of Venezuela. That’s exactly what happened to Venezuela.
Nigerians are particularly embittered that the government’s failure to fix the nation’s refineries is responsible for the unpalatable condition the nation finds itself now. Why is it so difficult to make our refineries work?
During Obasanjo’s administration billions of naira was injected into the Turn Around Maintenance (TAM) of the refineries. But that didn’t make them functional. And when Obasanjo was leaving he recommended that the refineries be privatized or sold to private investors because he knew they won’t work with government still holding on to them, but the people rejected the idea. Recently, over N142 billion was spent on the refineries without any tangible results in return. Is it not better to do away with these refineries? But then the process of privatising the refineries is not as simple as many may think. I was one of those who anchored the privatization and commercialisation exercise during Babangida era. If the government wants to start anything today, it will first appoint a committee. The committee will go into work and file its reports. If you consider every other step that is needed to be taken, it will take more than two years to complete this process. Government should consider selling the refineries outright. And if they want to do that they should allow foreign investors to buy the refineries because experience has shown that what they normally do is to allow somebody to bid for, let’s say the Port Harcourt refinery, for instance, take the offer letter and go to the bank to borrow money with the offer letter, pay the government and that is the end. There is no injection of foreign capital into the nation’s economy. What you have is just money from within the same country. The next thing they will do is to start selling the land and the property there. So, what have they done? They would have made so much money without contributing a dime. That was what they did in the past. Outright sale is better, but there is no way they can do that, that it won’t take at least for one year. But by and large, with the new investment atmosphere that the deregulation of the oil sector has ushered in I think we will be able to do the needful with them. Dangote refinery is on the way, there is also another modular refinery coming. It is not the deregulation exercise that is causing problems, it is the algorithm of the system of government we have in Nigeria that is causing problems.
What would you advise the government to do to ameliorate the suffering of the people in the light of this development?
The masses need only a few things from the government. Give them education, give them free or affordable healthcare services, put infrastructural facilities in place in rural areas to encourage people to move to and live in rural areas. With these in place things will change for the better. Again, the government on its part needs to disseminate information so that people can be better informed about their policies and programmes. They should not allow only the Minister for Petroleum or the Minister for Information to do the talking. They should involve people in the academic- the professionals -in their information dissemination process. These are neutral people who can help to explain government’s programmes and policies to the people. If such sensitive information is left to be disseminated by party spokespersons, it will be hijacked by the opposition and the whole issue will become politicised. And this will create more indignation among the people.