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Oil Policy

– A Holistic Solution to an Ever Unending Problem -

Oluwagbemi Michael II

busangax@yahoo.com

October 21, 2004

In recent times deregulation has been the buzz word in the corridors of power, and industrial strikes have been the refrain from the alleys of our cities with peasants and labor coalescing together to defeat the enemies of the common man that can be best described by this mundane term for modern capitalism! Like every argument in which two competing sides are shouting hoarse, not listening or strategizing, acting on each others perceived worst instincts - crowding out good reasoning has been the order of the day. In this particular scenario, labor and the almighty Federal government while ascribing to themselves the omniscience of their views have failed to perform a real cerebral analysis of the problem at hand. Labor has accused government of playing god and the government has accused the labor of being unpatriotic. That is in fact to a common Nigerian like me, taking the route of the lowest common denominator of true policy debate – labeling that achieve nothing but help to derogate the intelligence of the common Nigerian that pays the price. I am sure neither OBJ nor Oshiomole can accurately tell me the price of a congo of garri and that is not far from the truth!

Taking issue with the union bosses, one cannot but be tired of three major strikes in eighteen months, fruitless negotiations and above all a lot of threats that is yet to yield real dividend for the generality of Nigerians. May be we need some other modalities of settling conflict and may be the High court judge was by the letter of law right but wrong by the relevance. Her lordship forgot that given our stage in socio-economic development as a nation, applying the medicine of 21^st Century America to a 19^th century Nigeria comparable to their 19^th Century American counterpart (when local union bosses were gods and the White House trembled when the teamster boss spew fire) would do the common man no good! The day would come when labor would no longer strike when the price of fuel increases , and that day is not the day deregulation is introduced – no, it is the day Nigerians start earning a living wage that is at par with the resources with which Almighty God endowed our beautiful nation!

And to the megalomaniac federal government, the blames are countless. How on earth can NNPC claim to be losing money? Umn, and how much did they lose while the stealing went on under military rule! Why haven’t they gone under since then? What stake have Nigerian people got in the corporation? If NNPC is to be ran as a for profit enterprise, why not completely divest government interest, instead of playing god with common knowledge waste and corruption that goes on daily in the oil bureaucracy! If Obasanjo is truly interested in an NNPC that works, the countless redundant engineers and management positions in the company would be cut off and the numerous rotting estate of the corporation would be sold off or opened to homeless Nigerians who don’t need any government or persons to tell them how their God endowed wealth should be spent! And talking of petroleum pricing, how on earth would Nigerians that earn two thousand percent less than the Western world be asked to pay the same price for a commodity that is the engine of growth for our economy. It is simply unimaginable and unacceptable.

As a matter of policy, the issue of petroleum pricing has to be seen from the point of the governing and the governed. The Nigerian political system has evolved in a manner that does not meet this basic litmus test of the governors serving the governed. Our politicians see themselves as task masters that must exert complete control over our affairs, or money and our welfare while seeking theirs alone. The concepts of an ownership society where every man achieves wealth by merit and moves up the class consequent upon such merit; have been undone. Today in Nigeria, the most brutal and selfish get the ears of the Villa, while the lily livered and the academia get the scowl of the man that hold forte at the top! What a pity! The question is, does this policy as it is being pursued presently serve the common Nigeria, and the answer is no!

Using the analogy of a reformist agenda that would be painful and difficult as Obasanjo is won’t to is not enough for the people that voted you in office (if truly our votes count), at least FDR didn’t reward Americans with higher taxes during the great depressions, he resorted to borrowing (borrowing while in depression is the visionary and difficult decision that FDR made, not increasing the burden on his people as OBJ would)! FDR never cut down welfare programs to cut government cost, but he built great ones like the Veterans Care and the Social security. The question is why is our government is different? Our case is different, because our votes don’t simply count. The muscle of the thugs, ethnic sentiment, bandwagon effect, the choice of the oligarchy and a few political godfather have hijacked the ballot box in our country and our leaders don’t need to pay attention, at least when they don’t want to! What then is the right way to go about solving our problem? Apparently the right way is the third way- not the labor way, not the Villa way!

In tackling this hard question of what is the third way? The third way to resolve this issue without necessarily being the pawn of self gratifying union bosses or self conceited politicians! The third way is the people’s way. Is the way that put the people first before economic figures and indices or even rating from world regulatory bodies like the IMF and World Bank. It is the way that the government and people of Nigeria need to focus upon. It is the way this humble writer though carefully constructed would not even confer absolute correctness upon. It is the common sense way!

The oil policy of the Nigerian nation has to be comprehensive. It would require that all stakeholders be honest, truthful and humble. This would be a veritable starting point after deceiving ourselves for over thirty five years since the end of the civil war. The oil industry being broadly divided into two major parts- the upstream and the downstream would require basic reforms in both sectors that would be discussed in this essay. Two institutions also need reforms; they are the NNPC and the petroleum pricing regime.

The only reason why we need deregulation is because Nigerian government has failed to deliver to the people on the promise of a running refinery that would meet local demand. As if this were not enough, the Nigerian people (the elites through their peasant workers) have been smuggling the limited cheap fuel to neighboring countries for profit. So in one fell swoop we are all to blame!

In order to solve this twin problem, there is a need to restructure the NNPC. As it is presently constituted, it cannot be profitable or efficient. Government need to divest a portion of its capital in NNPC and cede such to institutional investors – the NNPC should maintain all its functions as it is presently constituted i.e. develop, produce, refine and distribute except those that are regulatory. The NNPC should stop being the sole government partner in joint ventures as well as the sole refiner. Rather the NNPC stake should be reduced from a 60% average to about 3%. NAPIMS should be separated from NNPC and should take on the remaining 57% and manage such on behalf of the Federal Government. The NNPC should be likened to a Nigerian pet project to see that petroleum expertise does not eclipse the local oil industry and should be positioned as a global player competing for oil blocs in Africa and beyond, bringing bear the bargaining power of a mercantilist federal government without necessarily putting the nation’s investment at unusual risk!

Out of the 57% allocated to the government exclusively through NAPIMS, a certain percentage should be exported, while the remainder should be allocated to local private refiners at below international market price to be sold for local consumption only. The price at which to sell to local refiners should be predetermined in an auction like system that would be fairly market controlled but would be devoid of the influences of fluctuating prices in the international market, since the band gap for sale would be predetermined by the government at the beginning of every fiscal year. This band gap should be reasonably below the government expectation for budget revenues, and should be fixed through the whole year. Local refiners would be able to sell this locally refined crude at competitive but cheap rates; as such deregulating and insulating the internal economy at the same time, achieving the cross purposes of the labor bosses and the Villa folks. The refineries would be able to sell at a profit return that does not gouge the economy, but since they sell at multiple points and multiple rate consequent upon the price at auction, they offer competitive but converging prices to the Nigerian populace.

The licensing of local refiners should take the modalities applicable to GSM operators and should be open and transparent. Companies should be mandated to set up facilities within a given period, while they should be encouraged to partner with multinationals. Talking about the multinationals, they should be required to refine a certain percentage of their equitable oil within the country with the excess capacity of local refiners, hence providing incentives for them to have stakes in local refineries also. Multinationals, however should be able to sell their locally refined product at the international market if they choose to, since they would have refined at international prices anyway and more than likely such refined oil would be unprofitable to sell within our borders but would factor in as part of our Gross Domestic Product, as well as a viable foreign exchange earner.

The effect of this policy would be straightforward- local refiners would build refineries that exceed local consumption knowing fully well that multinationals are mandated to refined certain percentage locally, and the multinationals would in turn pick up stake in this refineries ensuring that they are efficiently ran and meet international business standards possibly spurring some big time global business leaders from our economy. Not only that, the era of implementing deregulation in order to encourage importation by some cartel thus contributing to capital flight, increase in trade deficit, as well as depletion of our GDP would be over!

However, the question of how to avoid smuggling given the relative cheapness of oil prices within Nigeria and her not so endowed neighbors still begs to be answered by our rulers. However, it isn’t that the answer to this problem does not exist; it is simply because our leaders have proven to be unimaginative! The answer lies in technology – GPS technology! Simple tracking devices that cost less than one thousand five hundred naira can be placed on petrol tankers to make sure they don’t cross our borders and that fuel bought at depot reach their destination as promised when clearing them. In fact, the Nigerian Satellite project can be put to use in this area to feed data in real life from millions of tankers (even if they reach that proportion) to regulatory authorities as at when they need them. Regulators should be able to put any unethical businessmen out of business; fine them and even imprison them when they engage in unholy acts that destroy our economy.

More so, a national pipeline project should be on the table for discussion. Instead of having to drive tankers up and across the nation, pipeline provides an efficient and safe way to do so. A mega pipeline project would be a major government spending that would provide the much needed relief to our economy, provide jobs for upwards to ten years and create new jobs consequent upon completion (for security, maintenance, and operation) and without necessarily destroying old ones, since tankers can be involved in intra state transport and short distance emergency haulage between states and not regions.

Contrary to popular belief among Abuja-DC economists trained and bred in Breton Wood Institutions, government spending doesn’t cerate economic chaos – it is unproductive spending like payment of salaries to political jobbers and party faithful that does. Payment of some living wage to thousands of sweating youths that would rather work for our nation, reminiscent of the great dams, inter state highways and public buildings that was built in the United States during the depression and helped the nation recover, that would help pull our nation out of the throes of desperation, high crime rate due to high poverty rate. This is an opportunity to make Nigeria work again. It is my belief that a truly responsive government would never pass up an opportunity to make a difference regardless of whose ox is gored! Nigeria is at a crossroad, and the time to decide is now!

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