HIGHER AND HIGHER - The Trauma of Fuel Prices & Hikes

Yet again, the Nigerian nation has been roused into protest mode. The reason for this is the recently publicised increase in the pump price of petroleum products. Petrol and diesel previously sold for approximately N51 per litre. The price increase adds at least 20% to that price. For the ninth time in the last six years, Government has sought to and increased these prices. The Government’s position is predicated upon what it asserts to be the huge demand of fuel subsidy on cash flow. Although major Government sources are unable to agree, the suggestion is that the subsidy is somewhere in the region of N400-N600 billion in the last 6 months, approximately N200 million, per day. The pro-increase argument which, typically, has not been canvassed with the requisite transparency, is that monies raised from the price increase will be used to develop other sectors of the economy so as to promote or contain the consequences of poverty and in the short term, to ease the pressure of cash demands in the running of various other aspects of the economy. The other aspect of the argument is probably disingenuously framed around using the price increases to raise the necessary revenue required to meet the terms of the debt cancellation negotiated with the Paris Club of Creditors. The increase in the subsidy, it is further argued, has come about principally because the higher prices of refined petroleum in the international markets have led to an increase in the subsidy. In effect, the subsidy has increased because the price at which Nigeria is purchasing petroleum products has significantly increased whilst the purchased product is being sold within the country at a lower, fixed price.

Many Nigerians will wonder, audibly, how this situation has come to be. The explanation for this situation is simple. Nigeria is the seventh biggest oil exporter in the world and the source of over 1/5 of oil imports to the United States. Our country produces 2.5 million barrels of oil a day which, following the price increases is now being sold at an average price of $65 per barrel. There, it appears, the picture now becomes somewhat distorted. Given the lack of capacity to refine the products in-country, Nigeria is forced to buy back petrol, diesel and other refined fuels from non-oil producing countries to whom we have sold these products who are selling them back to us at a significantly higher price. As the end result is now sold back to Nigerians at a controlled, subsidised price, there is, it is argued, no commercial reflection of the increase in these prices in the end product. It is, ostensibly, upon this premise, that Government is now seeking to anchor this increase.

The target of Government in this respect is twofold. The first, plainly obvious commercial consideration is to contain the consequence of importing petroleum products at a higher price. The second is to serve as a source of funding for the $12 billion dollars required to satisfy the Paris Club arrangement. Government’s only other argument is a long term one, namely its liberalisation policy.

The case against price increases is unquestionably sound and, as NAS has observed on previous occasions, markedly more compelling and irresistible. On every occasion when prices have been successfully increased in the past, it has led to devastating consequences on every aspect of the economy as a whole. Price increases that have destroyed confidence in the nation have occurred. Inflation has jumped. The purchase power of money in the hands of the populace has diminishes with unparalleled, irretrievable rapidity. Over the same period that has seen these price increases, the cost of goods and services have risen by more than 200%, a development that is wholly disproportionate to the percentage increases in the price of petroleum products. Within this same environment, poverty and adverse conditions continue to deteriorate, seemingly unabated. The graphic statistics about Nigerian social circumstances worsen the overall picture. 91% of our population live on less than $2 a day namely less than N300 for food, clothing and basic daily needs! In 2005, only 62% of the population have access to clean drinking water. Average life expectancy, is at an all time low, induced principally by the harshness of living conditions, at a mere 52 years. Yet the same country has produced over $300 billion worth of oil since 1958.

Like many concerned individuals and organisations, our organisation is gravely disturbed by the current developments. Our anxiety is predicated on three premises. The first is that organisational structure seemingly put in place to deal with the thorny question of eliciting a consensual new products pricing regime appears to be hopelessly ineffective and presently, in disarray. Information in the public domain suggests that on 23 August 2005, the Petroleum Products Pricing Regulatory Agency had adjourned its meeting amidst confusion following a failure to reach any agreement. The meeting was rescheduled for this month and the sole subject on the agenda was the issue of upward review of fuel prices. Further information in the public domain appears to suggest that the reason for the inconclusive outcome was that it had decided that there would be an upward review but was unable to agree as to whether or not the increase should be introduced before the palliative measures proposed by the Senator Ibrahim Mantu-chaired Independent Consolidating Committee on Cushioning Measures Report - submitted since April 2005 - would be acted upon and implemented. If information in this regard is correct, this is tantamount to dismal bureaucratic ineptitude on probably one of the most important issues in the day to day life of ordinary Nigerians today. The second is the arbitrary, again unilateral announcement of the increase in the price and effective date of commencement. It is this latter development that has led to the quite audible complaints that have been made across the length and breadth of Nigeria. The third is historical, depressing but sadly subsisting. Those who have, over the many years, managed the country’s refineries especially in the last 20 years are chiefly responsible for the devastation that these price increases have brought about as staggering levels of corrupt management of over-inflated and poorly executed contracts for their refurbishment has seen to it that Nigeria will remain imprisoned by the sentence of continuing importation of petroleum products for years to come.

Our view is that this current increase is unjustified and insensitive. Our position is predicated both on the commercial and the sentimental. With regard to the former, surely the benefit of the increases in price should make it easier for the country to pay for the increase in the price of imported end products. Second, it seems logically inexplicable that the average Nigerian should be penalised for an increase in world oil prices in circumstances that, ordinarily and commercially, he is expected to profit from. The average Nigerian is not responsible for the nation’s inability to manage the opportunity to refine its oil products. Low fuel prices has been the only way in which the average Nigerian has benefited from the country’s quite prominent role in the production and marketing of oil all over the world. Whilst there may be commercially sound views upon which increase may be justified, the apparent insensitivity to the trickle down effect of this decision is one of disturbing alarm. Ordinary Nigerians, we suggest, would be entitled to consider themselves grossly under-represented in the decision making process that led to this outcome. It cannot go without notice that the legislature has expressed reservations about the increase recommending, uniquely for a change, a different, probably even more stable, price modulating mechanism. In October 2004, on the occasion of the last attempted increase and National strikes, we wrote:-
“NAS calls on the Government to reconsider its position and even if this is to be done, must speak to the people. Clearly, there was no consultation.Both houses of the legislature have distanced themselves from these decisions. Who, we must ask, was the Government consulting in acting on behalf of the people? There must be a return to discussion in order to eke out a policy and a response for the future that is both durable and has a human face”.
That position remains as germane then as it is now. The sad reality of the circumstances is that the position has not changed since then, nearly one year ago.


NAS Capone
National Association of Seadogs (NAS)

20th September 2005

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