Fuel Price Increase- Facts And Figures At The Presidential Villa By Izielen Agbon
Some of the people who were in the meeting with the FGN have changed their minds and decided the Nigerian masses should suffer some more and make more sacrifices in support of the current fuel price increase. They agree that only the fuel cabal will benefit from this fuel price increase and corruption will continue. However, they think there will be no more queues at the petrol stations if fuel prices increase.
Furthermore, the FGN will get time to fix our domestic refining problems. For instance, Femi Gbajabimilla wrote “I was at the Presidential Villa on Wednesday, May 11th where a stakeholders meeting involving the leadership of the National Assembly, governors, Labour leadership, minister of state for Petroleum, ministers of Information and that of labor held. The meeting was chaired by the Vice President. It was a consultative meeting ostensibly to get the buy-in of stakeholders. I was pumped, and ready to challenge any proposition for an increase in pump price and my position was known to most people I spoke with. However by the time the Honourable minister for petroleum finished his doomsday prognosis and gave a graphic account supported with facts and figures of where we are and where we would be in a matter of months if we did not alter the approach or fundamentally change the status quo, I had no option but to capitulate. It was the first time I had been confronted with such a gloomy picture. I found myself between a rock and a hard place. The facts were incontrovertible and the prognosis and consequences dire. ”
We sympathize with the situation that those at the meeting had to face. It must have been very difficult. But, history is our best teacher. In 2012, the former Minister of Finance, the Minister for Petroleum Resources and the CBN Governor under President Jonathan also gave graphic accounts supported by incontrovertible facts and figures showing how subsidy was unsustainable and the economy would collapse if fuel prices were not increased. We agreed the nation was broke in 2011, but asked for time to verify the government data and their conclusion that fuel price increase was the one and only true cure. The presented FGN data proved to be questionable under scrutiny (House of Rep Investigations). The graphic presentation and recommendation for fuel price increase was nothing but a cover up for the massive corruption in the subsidy regime. There was no fuel subsidy; just a corruption subsidy. Today, the FGN arguments have not changed much. The only difference is that high oil prices were used to justify the sudden fuel increase in 2012 while low oil prices and high exchange rates were used to justify the sudden fuel increase in 2016. In both cases, there were official facts and figures that showed the country was broke and the only way out was to directly pass the burden of paying for the fuel cabal’s corruption subsidy from the FGN to the people.
Faced with a graphic account of doomsday data in an FGN policy meeting presentation, it is always best to have the figures and data vetted and reviewed by other experts. A second opinion never hurts, especially when the Petroleum Resources Minister is speaking for both the CBN Governor and Finance Minister and is devaluing the Naira in support of a fuel price increase. It is extremely difficult to have your own figures/data on your fingertips under such conditions, especially when you know that oil revenue to the nation has decreased in the last year.
Yet, it is fairly certain that under strict peer review, we will find that some of those facts and figures that were presented in that meeting were stretched estimates and other facts/figures that did not support the narrative of the Minister of Petroleum Resources for an immediate fuel price increase and Naira devaluation were conveniently excluded from his presentation. It is when all these data/figures have been vetted, and all other alternative policies examined that the intended and unintended consequences of fuel price increase/Naira devaluation can be considered in all its totality.
For example, the Minister of State for Petroleum, Dr. Ibe Kachikwu, later explained that the FGN arrived at the PMS price of N145/litre by “a simple conversion of using foreign exchange at N285. That N285 is from nowhere; it is basically the secondary source that people buy foreign exchange from, versus the N320, which is the black market rate. If you convert it and throw it in, you will get about N141, N142 or N143. So there aren’t much of palliative elements left there for you to use. It is simply, ‘go out, find your product, your cost is covered, there is an opportunity for your efficiency to make money, come and deliver.” How can the N285 exchange rate be from nowhere?. Why not N250, N300, N320 or N360 since we expect a backdoor Naira devaluation will lead to an increase in the black market exchange rate.? What is a secondary source of foreign exchange purchase? What happened to the CBN?. Are they not the institution responsible for changes in the exchange rate?.
Apart from this, the PPPRA have played around with their price template. The Storage/Lightening/Finance etc. costs were increased from N5.11/litre in Jan 2016 to N10.61/litre in May 2016. Distribution margins were increased from N14.3/litres in Jan 2016 to N18.37/litres in May 2016. There was a total increase of N9.57/litre (49.3%) on the margins during this period. This is the reward to the fuel cabal for a successful hoarding strike in April 2016. (in addition to an increase in market shares from 22% to 58%+ ). It signified the failure of the modulation price strategy. Another NASS investigation of the 2015 subsidy payment of N1 trillion will reveal massive corruption and fake imported PMS volumes. The FGN should have done such an investigation by now if it was serious about fighting corruption. Nobody has been jailed for the corruption discovered in 2012, and nobody will be jailed for the 2015 corruption when it is discovered.
A claim of N16.4 billion per month (from April 2016 to date), made by Dr. Ibe Kachikwu, implies a N13.67/litre under recovery or an OMP of N100.67/litre at 40 million/litre a day PMS consumption. This N13.67/litre ‘under recovery’ is high because PPPRA used price modulation to add N9.57/little profit to the margins for the fuel cabal. There is no justification this profit bonus. Without this price modulation economic magic, the under recovery would have been N4.1 and the OMP for PMS would have been N86.5+N4.1 = N90.6 at an official exchange rate of $1/N200 using PPPRA January 2016 import-parity model calculations. At a prevailing black market exchange of $1/N320, this would give N145/litre . Unfortunately, someone might ask why PPPRA want to use black-market exchange rates. However, if you invent a non-existent secondary market, a $1/N285 from nowhere, impose price modulation on the margins to generate higher under recovery of N13.67/litre and an OMP of N100.67/litre, you will get about N16.4 billion per month subsidy payment and a N145/litre price. A N16.4 billion/month subsidy payment would scare anybody compared to a N4.1 under recovery, which generate an expenditure of N4.92 billion per month. The PPPRA templates showed over recovery of N1.4/litre, N4.7/litre, N7.49/litre, N10.5/litre and N16.06/litre for January 1, January 11, January 20, February 6 and February 11 2016 respectively. This amounted to a total over recovery savings of N20.2 billion for the months of January and February 2016. The FGN/PPPRA/FMPR assured the nation that this savings would be used to cushion future under recovery payments under the price modulation strategy. So what happened to the savings of the price modulation exercise? There are so many questions and we have not even started a serious examination of the facts and figures.
All stakeholders should have been consulted and given a chance to come up with better facts/figures and alternative policy recommendation (both short term and long term) before the villa meeting. Then a final decision should have been made as per the law with a constituted PPPRA board. Had this policy review/implementation workflow been followed ( a few more weeks at most), I am certain that a policy with no fuel price increase that ensures equitable sacrifices from all stakeholders would have come up.
There were many other policy options that could have been pursued during the last year and can still be pursued today given the low revenue situation. The FGN could have eliminated more corruption, blocked more leakages, stopped impunity in PMS delivery and petrol station sales prices, improved surveillance of petrol stations, Improved price template, forced the marketers to consolidate and reduce cost by improving efficiency, repaired and secured the pipelines, improve refining efficiency and jailed the fuel economic saboteurs and hoarders. New technological breakthrough, better workflows, mergers, higher productivity, lower Opex and Capex, less corruption, less greed and taking a loss when necessary are some of the methods used by USA unconventional shale oil and gas producers, refiners and marketers to survive the current low price and profits conditions. There are no guaranteed corruption subsidies given to inefficient capitalist companies by the US government. Those firms that cannot survive close shop. In Nigeria, the FGN chose to institutionalize the corruption subsidy of the fuel cabal by increasing fuel prices, devaluing the Naira and passing the cost to the Nigerian masses.
As of 2016, we do not have a functional general equilibrium model that capture the external global economy (international oil, gas and petroleum products markets), the 30 major sectors of our national economy (manufacture, transport, petroleum, oil refining, food & beverages, electricity, agriculture etc.) and the informal sector. The 2010 Nigerian input-output tables need to be updated. Our data collection and maintenance are poor. Our database is poor. We do not know our employment multipliers ( how many net jobs we lose because of fuel price increase). We have no idea how our national demand for fuel is affected by fuel price increases or what impact this policy have on the other sectors of the economy. If the lines are shorter, is that because there are fewer customers.? Does the average number of customers remain the same while the amount purchased per customer decline when fuel prices are increased?. What are the implication of these results on economic productivity.? We are not even sure just how much petroleum products we consume.
The CBN econometric model does not capture the global economy or dis-aggregate the petroleum and oil refining sectors. It has no informal sector. I do not think the Fed. Min. of Finance has a better model. Neither does the Fed. Min. of Petroleum Resources. We have no regional input-output modeling system (RIMS) to capture the regional impact of fuel prices increases. If the price in the rural areas was N120-N160/litre when the official price was N87/litre in Abuja and Lagos, what will be the prices in the rural areas when official price is N145/litre.? Will the price increase to N300/litre?. What impact will these high rural energy prices have on FGN agricultural policies and programs? We have no social accounting matrix (SAM) multiplier model.
The IMF bases its policy recommendations, ultimatums and advises on its 2005 Nigeria national accounts. Yet, we have econometric experts in UI, ABU, Ife, Nsukka who can build all-embracing general equilibrium models for policy evaluation if well-funded. Rather, we still chose to make snapshot decisions or plan without facts as done by Wolfgang F Stolper (Planning Without Facts – Lessons in Resource Allocation from Nigeria’s Development. With an Input-Output Analysis of the Nigerian Economy, 1959-60) while preparing our first national development plan (1962-68). Most policy decisions are based on personal opinions, textbook neo-liberal economic theses, group economic interests and guesswork. There is a need for more objective homework.
A fair and detailed independent review of all available facts/figures and the FGN/FMPR public statements from May 2015 to May 2016 will likely reaffirm the previously held principles and beliefs of those formerly opposed fuel price increases but have now changed their minds. It is imperative that the masses of Nigeria fight this anti-human pro-IMF fuel price increase policy. The fuel cabal ensured a change of policy that favored the payment of their corruption subsidy with many well-planned protracted hoarding strikes. They gained this policy advantage from the FGN at the expense of the masses. The FGN did not ask them to make any sacrifices. Their greedy, corruption-ridden profits are guaranteed by the fuel price increase. The masses have to fight back in order to survive. If they do not cry out, their interests will be swept aside by stronger forces and classes. We hope those at the FGN meeting who now support fuel price increase will revisit the FGN fact/figures critically (both those presented and those not presented at the meeting) before permanently declaring their neutrality in this unfolding strike for mass survival in our motherland. We will not pay for corruption, mismanagement and inefficiency. We encourage the masses to fight for their own interests and support the ongoing strike.