Dr Abubakar Atiku Nuhu-Koko

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Below is the continuation from where Part 1 of the 5 Part serialisation of the above subject ended.

The Economics and “Market Fundamentals”

The pertinent question agitating the minds of most Nigerians is whether there were serious economic justifications for the government’s actions at the time they were made. In other words, Nigerians are yearning to know if the fundamental economics were right to justify government upward reviews of fuels prices and VAT rate, among other actions implemented by the outgoing administration of president Obasanjo on May 27, 2007. Therefore, in the absence of any government official statement issued to the public before the changes were made, one is limited to the two testimonies provided by Chief Gbadamosi and Dr Oluleye respectively. They serve as the grounds to question the authenticity of the “Market Fundamentals” and/or the conventional wisdom used by the PPPRA to influence the Nigerian government to hike the prices of fuels by 15% on 27 May 2007.  

The inclination here therefore, is to question the authenticity of the “Market Fundamentals” (conventional wisdom) used by the PPPRA Secretariat on this matter. In doing so, this analysis rely heavily on the findings from one of the most recent (March 2007) International Monetary Fund’s (IMF) review of domestic petroleum products prices, in the different fuel pricing regimes, and fuel subsidies in a range of emerging markets and developing economies¹. 

Nigeria was among the 51 emerging and developing countries reviewed by the IMF research team. Nigeria was included in the study largely because it satisfied the selection criteria of belonging to countries or economies, where governments have significant influence over domestic fuel prices and social safety nets tend to be poorly developed. Secondly, Nigeria also belongs to the group of developing countries that have responded to the increase in international fuel prices in terms of the pass-through to domestic fuel prices, adjustment to fuel price and taxation regimes, and changes in fuel price subsidies.  

Looking eight years back (i.e., 1999-2007), Nigeria satisfies these selection criteria adopted by the IMF research team. For example, since 1999, the government of Nigeria under the leadership of President Obasanjo initiated far-reaching reforms; cutting across the entire economic, political and social fabrics of the Nigerian state. The downstream domestic petroleum sub-sector was one of the economic pillars that received reform attention. For example, it was among the earliest to be deregulated and liberalised. 

By the period 2000-2004, the legal and institutional frameworks for the downstream petroleum sector deregulation and liberalisation were in place. For example, the government had mobilised the citizens and canvassed for support in the implementation of the deregulation and liberalisation policy and programmes. The legislative arm of the government (i.e., National Assembly) had deliberated upon and passed all Bills relating to the deregulation and liberalisation of the sector. For example, on May 27, 2003 the President of the Federal Republic of Nigeria, Chief Olusegun Obasanjo, signed into law the Petroleum Products Pricing Regulatory Agency (Establishment) Bill, 2003².  

Other policies, programmes and activities that were implemented by the government in this sector include: 

1. Privatisation of all federal government-owned petroleum products marketing and distribution companies
2. Issuing of licences for the establishment of private refineries
3. Licensing of private Jetties and Storage Depots
4. Issuance of licences to private firms to import, market and distribute petroleum products
5. Establishment of “Mega Filling Stations” by the NNPC in selected locations nationwide
6. Privatisation of Port Harcourt and Kaduna refineries and petrochemical plants and
7. Deregulation and liberalisation of prices of domestic petroleum products – under the watchful eyes of PPPRA, the Department of Petroleum Resources (DPR) of the Federal Ministry of Petroleum Resources and the Nigerian National Petroleum Corporation (NNPC)³.

 

The liberalisation of the prices of domestic petroleum products (i.e., subsidy removal) during Obasanjo’s eight years in office brought about “12 movements⁴ in fuel prices, mostly upwards. On June 1, 2000, petrol price rose from 20 to 30 naira, was reduced to 25 naira on June 8 when labour embarked on a strike and was further reduced to 22 naira per litre on June 13 when the strike persisted. Yet, on June 1, 2002, it rose again to 26 naira per litre and barely a year later on June 20, 2003 it was hiked to 40 naira per litre. NLC called another strike and on July 9, 2003, it was reduced to 34 naira. Three months later, on October 1, 2003, it was raised to 42 naira, and seven months later on May 29, 2004, it was again raised to 49.90 naira per litre. Another six months down the road, on January 1, 2005 Obasanjo further hiked it to 52.50 naira, and three months later, on April 7, 2005 he made it 52 naira a litre. Another four months later, on August 25, 2005, it was raised to 65 naira per litre, and on May 27, this year, two days before Obasanjo’s end of tenure as president of Nigeria, he raised it to 75 naira, the cause of the current trouble.⁵ 

The import of the above summary of adjustments of domestic petroleum products prices over the years is to situate the findings of the IMF study in relation to Nigeria and in relation to the recent development in Nigeria’s deregulated and liberalised domestic petroleum products prices and subsidy regimes. According to the IMF findings in relations to the developments with particular reference to the prices of three fuels (gasoline, diesel and kerosene) reviewed in the period 2003-2006, 26 out of 44 countries fully or more than fully passed-on the increases in international prices of petroleum to domestic prices for gasoline to domestic consumers.  

Figures 1 and 2 of the findings show that Nigeria was among the countries in this bracket. For example, in Figure 2, Nigeria crossed over the $1/litre mark as its domestic gasoline price does not include tax element at the pump-head. Nevertheless, Nigeria showed appreciable progress in the pass-through in the net exporting countries, which averaged of 0.46 compared to the net oil importing countries that averaged 1.09. The result put Nigeria in the same league with the United States, Russia, Japan, Indonesia, Armenia, and Cameroon (see Figure 1 below).

 

1/ Post-tax retail prices. The pass-through is calculated as the relative change in the retail price of domestic fuels and local currency price of oil imports since end-2003. 

Source: Baig, Taimur, Amine Mati, David Coady, and Joseph Ntamatungiro (March 2007) “Domestic Petroleum Product Price Subsidies: Recent Development and Reform Strategies.” International Monetary Fund (IMF) Working Paper No. WP/07/71. Fiscal Affair Department, IMF Washington, DC, USA. 

 

 

Source: Baig, Taimur, Amine Mati, David Coady, and Joseph Ntamatungiro (March 2007) “Domestic Petroleum Product Price Subsidies: Recent Development and Reform Strategies.” International Monetary Fund (IMF) Working Paper No. WP/07/71. Fiscal Affair Department, IMF Washington, DC, USA.  Available online at: http://www. 
 

Figures 1 and 2 above, also indicates that the pass-through for domestic gasoline was higher in Nigeria than in the UK, Ukraine, Columbia, Ethiopia, Kyrgyz, Yemen, Congo, Afghanistan, Bolivia, Gabon, Azerbaijan, Egypt, Argentina, Bangladesh and Lebanon during the period under review!  

Furthermore, Figure 3 below, of the findings shows that by 2006, Nigeria more than double its 2003 price of gasoline by way of liberalisation of the pricing mechanism, which is the most sustainable and most favoured regime by the IMF. This shows that Nigeria’s liberalised fuel pricing mechanism in the period 2003-2007 is associated with the highest level of retail fuel prices and price-pass-through of increased international prices to domestic consumers even though there is no tax element in the pump-head prices for fuels in Nigeria. 
 

Source: Baig, Taimur, Amine Mati, David Coady, and Joseph Ntamatungiro (March 2007) “Domestic Petroleum Product Price Subsidies: Recent Development and Reform Strategies.” International Monetary Fund (IMF) Working Paper No. WP/07/71. Fiscal Affair Department, IMF Washington, DC, USA. 
 

In terms of both explicit and implicit subsidies, Table 4.0 below shows that Nigeria had also done very well within its class of net oil exporting developing countries. For example, both in 2003 and 2005, Nigeria registered zero percent (0%) of GDP explicit subsidy. Similarly, Nigeria recorded only 1.6 percent and 2.2 percent of GDP in implicit subsidies for 2003 and 2005 periods respectively. These were projected to disappear entirely by 2006 as budgetary provisions for a Petroleum Support Fund (PSF) was introduced to make subsidy element explicit. 
 

 

Source: Baig, Taimur, Amine Mati, David Coady, and Joseph Ntamatungiro (March 2007) “Domestic Petroleum Product Price Subsidies: Recent Development and Reform Strategies.” International Monetary Fund (IMF) Working Paper No. WP/07/71. Fiscal Affair Department, IMF Washington, DC, USA. 
 

Briefly, therefore, one can see that from the IMF review cited above, there was no justification for the 15% hike in petroleum products prices in 2007. For instance, all the economics and “market fundamentals” point to the fact that, the 2005 pricing regime that was sustained in 2006 by the government actually fully passed-through to Nigeria’s domestic petroleum products consumers the international prices of crude oil. Figures 1-3 of the IMF study cited in this analysis provide the evidence and point to the truth of the matter that there are no significant subsidies in the Nigeria’s domestic prices of gasoline, diesel and kerosene during the period under review. 

However, with no any major sustained upward movements in the world market prices of crude oil in the first half of  2007 (January - June 2007), the 2005 domestic pricing regime of petroleum products can be carried into 2007 and sustained without price hikes by the government. This is possible as Nigeria has been able to substantially pass-through the increased international petroleum prices to domestic retail fuel prices from 2003 to 2006. What this means is that the higher international oil prices since 2003 to date, have been captured by the pricing regime and passed on directly to the domestic consumers. Thus, the domestic consumers receive no implicit subsidy during the period under review⁶.  

Moreover, the phenomenal inflow of excess crude oil “windfall” revenue accruals regularly shared by the three tiers of governments, net cash flows from oil blocks auctions and telecommunications licences, privatisation and VAT accruals and the international debts cancellation benefits - all made significant fiscal contributions to Nigeria’s fiscal balances. These revenue streams can be justifiably used in sustaining the 2005 pricing regime through 2007 without recourse to price hikes. 

Therefore, the 15% (later reduced to 7.5%) price hikes as recommended by the PPPRA amounted to extortion by the private petroleum products importers and the NNPC bureaucrats who prefer importation of fuels to repairing the old refineries and building of new ones to produce cheaper products and provide employment and other forward and backward linkages in Nigeria’s economy. Thus, any fuel price above the 2005-2006 pricing regime amounts to unfair “rent-seeking” and not pursuit of cost recovery and normal profit, which President Yar Adua should consider in his attempt to fix the nation’s downstream domestic petroleum products sub-sector.  

Furthermore, some credible Nigerian voices have supported and buttressed these strong statements. For example, as this very analysis was about concluding, the renowned Nigerian Professor of Economics, Samuel Aluko (Snr.), in an interview with a Nigerian Newspaper similarly remarked that there are no subsidies in the domestic prices of petroleum products in Nigeria⁷. Similarly, Mr Simon Kolawole, a Columnist with Thisday Newspapers published another finding, which shows that Nigerians are actually paying above international prices for the consumption of petroleum products imported and marketed in the country⁸. Furthermore, Aliko Dangote, one of the few business moguls that bought the two government-owned privatised oil refineries following their fire sales on May 27, 2007, exploded the “bombshell” when he remarked in a rare interview “The price Nigerians are paying for fuel and diesel is high because they are paying the price of inefficiency and corruption within NNPC.⁹” 

Paradoxically, Nigeria straddles between being a net crude oil exporting and a net petroleum products importing country respectively. This is so because virtually all of Nigeria’s petroleum products are now imported after years of graft, mismanagement and violence rendered refineries inoperable¹⁰. Government policy in the sector favours importation of petroleum products rather local refining to provide cheaper products in the country.  

Therefore, it is safe to say that what is happening in the management of the affairs of Nigeria’s downstream domestic petroleum products sub-sector is purely a “rent-seeking” affair. Rather than the elimination of consumer subsidies in the petroleum products prices, the existing institutional arrangements by omissions or commissions, invariably subsidises private petroleum products importers (including the NNPC, which is the largest importer). For example, according to some industry watchers, the landing costs for imported petroleum products in Nigeria are highest within the West African sub-region.¹¹ 

In addition, the system pays for the inept operational management of products supply chain logistics, corruption at all stages of products handling (i.e., distribution and marketing), products import (i.e.,  purchase over-invoicing) and other business sharp practices inherent in the Nigerian commercial operations. Furthermore, cross-border smuggling and illegal taping from pipelines, jetties and storage depots of the locally produced and imported petroleum products account for substantial leakage in the supply chain. All these are implicit and explicit costs off-loaded by the private petroleum products importers, distributors and marketers on the consumers. These private costs are definitely significant and they invariable filters through the convoluted system to the pump-head and the consumers always end up picking the unfair tab, in the name of conventional “market fundamentals”, as always argued by the PPPRA.¹² 

On the vexed issue of privatisation of the nation’s refineries, the Yar Adua administration should know that privatising the refineries might not necessarily translate to commencement of local production of petroleum products in the country by the new private owners of the privatised refineries. The reason is that the private owners of the refineries are driven by profit maximisation as the bottom-line in doing business. Therefore, under the existing institutional arrangements in the sector, it is more profitable to use the cheaply acquired refineries as collaterals to obtain huge bank loans to continue importation of fuels cheaply to sale dearly to the public. 

In addition, under the current institutional arrangements, private refineries owners-cum-fuels products importers will also have access to the Price Support/Stabilisation Fund (PSF) of the PPPRA and the Petroleum Equalisation Fund (PEF) facilities to increase their bottom-line. Moreover, the private owners of the refineries-cum-fuels products importers might use the opportunity given to them to obtain crude oil at wellhead rates/border prices, which they can trade in the international spot markets and make super profits without refining a litre in Nigeria. Since Nigeria’s private sector operates in a deregulated and liberalised environment, government cannot interfere with private Corporate Boardrooms decisions. For example, what will the government do if the private owners of a privatised refinery decide to mothball it or cannibalise it and use it for something that might have higher returns on investment? The answer is obviously nothing! 

The new private owners of the privatised refinery may have different priorities than that of the government or the Nigerian public¹³ so therefore, if the sums do not work out for them in favour of refining crude oil to produce petroleum products and petrochemical products respectively, the free market will not serve their corporate interest and objectives. Economic arguments can be double-edged; sometimes they are best not wielded. Therefore, an alternative solution would be to put the refineries into social ownership, with society owning the assets. The assets can be put under private corporate management.  

Social ownership of national patrimony is not new concept in Nigeria. For example, traditionally, many societies managed to preserve their natural resources through social norms controlling their use in sustainable and profitable ways. The Unity Colleges that belong to the federal government are going to start being managed under this type of institutional arrangement, for example.  
 

Click Next for [Part 3 of this analysis which examines the economic and social consequences of the four-day shutdown.

Nigeria’s Unending Fuels Price Crisis – Issues and Matters Arising.

(Part 3 of 5)

Below is the continuation from where Part 2 of the 5 Part serialisation of the above subject ended.

Accountability: Who is accountable for the Economic and Social Consequences of the standoff?

There are no doubts that the four-day national total shutdown is not without heavy economic, financial and social consequences suffered by individuals, businesses, the government and the national economy in general. However, getting the exact figures of the costs involved is very daunting problem, giving the fact that, financial, economic and social data and information in Nigeria are unavailable and where available, incomplete and unreliable¹.

It is against this backdrop that the full economic and social consequences of the four-day strike action must be comprehended. For example, both the government’s policy actions and inactions associated with the fuels pricing issue further compounded the implicit and explicit economic and social costs associated with the strike action and its aftermath. In other words, the strike would not have taken place at all if the federal government had swiftly accepted to enter into dialogue with the labour unions in the first place. This could have prevented the inevitability of the total national shutdown that the nation experienced.

Moreover, government’s insensitivity to the plight of Nigerians arising from the increases in the prices of fuels and VAT rate was glaring throughout the duration of the crisis. For example, this was exhibited in the official statement of the government while officially confirming the deal that ended the strike action. The Secretary to the Government of Nigeria who represented the government side during the negotiations, Ambassador Baba Gana Kingibe announced, “There is no winner or loser, if there's a loser, it's the Nigerian people."

This sentiment is true to some extent because from 1984 to 2007, Nigeria had gone through these familiar cycles of incessant fuel prices increases by the government, followed by labour strikes that more often than not, leave trail of incalculable financial and economic loses to the national economy. For instance, the human sufferings in terms of the untold hardships and inconveniences, loss of lives and properties associated with sometimes-violent resistance to the fuel prices increases are phenomenal and very difficult to quantify.

However, all segments of the society and the nation’s economy are still feeling the effects of this particular four-day national strike in terms of social, financial and economic dislocations. For example, even with the ending of the strike action, Nigerians are still facing severe hardships while commuting from one place to the other and the prices of most basic commodities have tripled². Nevertheless, who picks up these economic, financial and social bills? Nigerians of course, as correctly stated by Ambassador Baba Gana Kingibe, the Secretary to the Government of the Federation (SGF).

Ironically, however, none of the public agencies such as the Central Bank of Nigeria (CBN) and the National Bureau of Statistics (NBS) could provide quick estimates of the economic, financial and social implications of the labour unrest and its general effect on Nigeria’s economy. Moreover, obtaining the correct data to undertake such an analysis is a Herculean task in Nigeria given the poor culture of data and record keeping in both the public and private sectors of the economy. The IMF Mission to Nigeria concluded on 27 June 2007 recently highlighted this problem of lack of correct data and information in Nigeria. The Mission indicted the country by stating, "The authorities failed to ensure the accuracy of information provided to the Board.³” 

However, both Reuters News Agency (Reuters, Lagos⁴) and the Lagos Chamber of Commerce and Industry (LCCI) estimated that Nigeria daily lost 50 billion naira ($392.1 million) during the strike. The LCCI statement said that its figure was based on Nigeria’s estimated 18 trillion-naira GDP, which was divided by 365 days. LCCI, the nation's premier trade chamber, also said that country was suffering from losses arising from factory down turn with increase inventory.  

Certainly, this figure is not the true reflection of the full social, economic and financial costs inflected on the Nigerian economy by the national strike actions organised by the labour unions, NARTO and IPMAN respectively. Nevertheless, we should consider this figure as a mere snapshot “guess-estimate” - to illustrate the costly negative impacts on the Nigerian economy. Thus, the grim reality is that these costs, no matter how small or large, are serious drain on the nation’s economy and its productivity. Moreover, the social and economic costs in this type of situation are costs to everyone, as the full costs of strike actions or executive ineptitude are not borne by the individuals involved. These costs will be passed on everyone through higher prices of goods and services. 

In summary, therefore, considerations of these costs implications need serious attention in future handling of situations like this. Hence, a situation whereby actors, be they elected or unelected (for example, bureaucrats) do not bear the full costs of their own actions and/or inactions need not be accepted or tolerated under this type of circumstances. In the light of this worrying development, next we examine the policymaking arena of Nigeria’s domestic petroleum products pricing regimes within the context of Nigeria’s democratic setting.

Policymaking process in Nigeria’s downstream domestic petroleum products sub-sector

The insights gained from the interviews granted by Chief Gbadamosi and Dr Oluleye respectively, brought out to the public some of the policy, and institutional failures in economic policymaking and management in the Nigeria’s downstream domestic petroleum products sub-sector. For instance, these two PPPRA principal apparatchiks played key roles in the decision-making process that led to the hike in the prices of fuels by the outgoing president Obasanjo on 27 May 2007. Invariable, the outgoing president Obasanjo relied on the inputs provided by these principal officers of the PPPRA in deciding to make those infamous last minutes actions.  

Therefore, in handling these issues following the seeming misjudgement arising from the ill advice by the principal officers of the PPPRA, there were some troubling errors of omissions and or commissions. These errors border on serious circumvention of administrative procedural due process, principles of rule of law, transparency, accountability and public consultation. Both the defunct administration of former president Obasanjo and the new administration of President Yar Adua scarified all these very important aspects of good governance. Thus, this further exposed Nigeria’s lack of qualitative policymaking intellectuals at the executive, legislative and bureaucratic levels accordingly. Therefore, a review of the decision-making process that prompted those policy actions (i.e., policy failures) is in order here. The analysis and recommendations that follow are set within the contexts of proper public policymaking process framework and Nigeria’s democratic setting. 

To start with, it would be observed that the decisions to increase the domestic petroleum products prices by 15% and increase the VAT rate by 100% were made behind closed-doors. Those decisions were based on unilateral executive fait without wider consultations and contrary to the existing enabling law, policymaking and intuitional arrangements governing the sub-sector.⁵ Evidentially, the revelations by Chief Gbadamosi and Dr Oluleye indicated that only a handful of appointed technocrats and the outgoing president himself were involved in the decision-making process that produced the policy outcomes. These revelations have not been repudiated by anyone since published in the press.  

What happened behind those closed doors at the Aso Rock Presidential Villa clearly shows that the decision-making process involved in this situation was characterised by not being transparent and not broadly inclusive enough as provided for in the enabling Act establishing the PPPRA. For example, the decisions were made without the involvement and/or consultation with the other key stakeholders, particularly a much broader representation of the members of the Board of the PPPRA (especially the labour unions members), the legislative arm of the federal government (i.e., the National Assembly and its relevant oversight committees) and consultation with the Nigerian electorates.  

This point to the typical characteristics and style of governance and public policymaking process that dominated Obasanjo’s presidency for eight years – full of impunity of established civic norms, procedures and rule of law, utter disregard of democratic institutions and abuse of the budgetary process, among other shortcomings. But that such violations and infringements became sustained throughout Obasanjo’s presidency is a central part of his legacy - and the responsibility of Nigeria’s political elites class that failed to hold to account those who engaged in brazen abuse of public offices that produced the present quagmire with the most devastating social, economic and financial consequences. Until the Yar Adua government makes serious moves honestly to engage the Nigerian citizenry in finding out permanent solutions to the crises in this sub-sector, the likelihood must be that the crises will not end but linger and grow. 

However, a delusional fact that emerged from the insights provided by Chief Gbadamosi and Dr Oluleye was that even the then President-elect Alhaji Umaru Musa Yar Adua was left out of the loop of the decision-making process regarding the issues at stake. For example, there is no evidence from the two interviews cited above, pointing to the fact that the then President-elect Yar Adua was invited by the outgoing president Obasanjo to attend the closed-door meeting and or was consulted on the issues before the decisions were made! Therefore, one can conclude that the decision to make those changes was unilaterally taken by the outgoing president Obasanjo at the behest of wrong advice from the duo of Chief Gbadamosi and Dr Oluleye. 

Probably, the outgoing president Obasanjo must have briefed the then President-elect Yar Adua after the facts. This could likely be the case as the stoic silence maintained by President Yar Adua on these critical national issues baffled overwhelming Nigerians.⁶ For example, as mentioned above, his Maiden Presidential Speech did not even say much on any of these contentious issues bequeath him by his predecessor and benefactor – former president Obasanjo!

However, Mr Olusegun Adeniyi, the Special Assistant to the President on Communications, belatedly issued an Official Statement giving insights of how President Yar Adua handled the matter⁷. Mr Adeniyi made concerted effort to defend and placate his principal against the many criticisms made by people against the way and manner President Yar Adua handled the crisis that erupted following the continued implementation of these very unpopular last minutes policies. Nevertheless, one very important lesson that can be learned from this is for President Yar Adua to attach importance to engaging the public in the economic policymaking and political processes in order to restore trust and confidence in the nation’s political system and processes. It should be noted that, in most of the countries where the World Bank and IMF were instrumental in convincing the ruling elite to eliminate consumer subsidies, they place emphasis on the minimisation of opposition by social groups through adoption of gradual and persuasive approaches.⁸ Sadly, these approaches were largely scarified throughout out the days of the previous administration of president Obasanjo.

Therefore, the best remedy is curtailing this type of unilateral action whereby the PPPRA and the Federal Government frequently and arbitrarily increase the prices of petroleum products in the country. The power to increase or regulate the prices of petroleum products should not be left to the absolute discretion of the PPPRA, the Presidency and above all, “market fundamentals” for that matter. The two Chambers of the National Assembly that comprise the elected representatives of the Nigerian citizenry should have a bigger role in the decision-making process regarding domestic petroleum products prices. This then leads to another thought: if the National Assembly is given greater powers in this regard, it should not allow itself to be captured by the nest of special interest rent-seeking group only interested in ripping off Nigerians. The full participation of the National Assembly will restore the trust and confidence in the Nigerian democracy and democratic decision-making processes.  

Nigeria’s Unending Fuels Price Crisis – Issues and Matters Arising.

(Part 4 of 5)

Below is the continuation from where Part 3 of the 5 Part serialisation of the above subject ended.

Getting the Timing Right:

Abrupt price increases by the Nigerian governments (particularly military regimes) are familiar occurrences over the past three decades. This time around however, Nigerians were taken aback though, with the May 27th, 2007 price increases. Unlike in the previous circumstances, the May 2007 price hike was least expected by Nigerians, given that the administration had only two days left to handover power to a newly elected President Yar Adua on May 29^th, 2007. Nevertheless, the price increases and other actions generated a lot of anger against the outgoing president Obasanjo and speculations were ripe in the media about the motives behind the last minutes presidential bombshell. For example, the press was awash with all manners of opinions from sublime to the ridiculous.  

Newspaper editorials and columnists joined the bandwagon of speculations as to the motives behind the last minutes actions by the outgoing president. Public opinions differ on the issue. For example while some peopled believed that the outgoing president was out for political mischief, others view the actions as vendetta against Nigerians for opposing his quest for a Third Term in office. Nevertheless, either of the side of the speculative debates could be right, giving the circumstances surrounding the inordinate ambition of President Obasanjo’s desire to continue in office beyond May 29^th 2007 and the outcomes of the highly controversial April 2007 general elections. 

Moving away from the speculative world to the arena of conventional wisdom as personified by the “Washington Consensus” thinking, timing of price increases of petroleum products in a reform environment is considered as critical and crucial at the same time. The thinking is that all things considered, if the timing is right, then all goes well. The debate about the correct timing of reform has been very highly contestable: from advocates of gradualism to the apostles of “Shock therapy” approaches. All these approaches notwithstanding, the referred IMF working paper cited above, favours a gradual, pre-determined, approach to phasing out subsidies. The IMF Working Paper argues that a gradual and pre-determined approach is better because “This is to allow time to build up political support, design the new system and protective measures, and get the public used to the idea of petrol prices changing frequently”¹. The caveat of this approach according to the researchers is that, “Such a gradual reform does, however, imply higher fiscal costs, could be reversed at any stage, and needs to be weighed within the overall macro-fiscal context”². 

Nevertheless, the IMF Working Paper³ also favours a particular period of implementing price increases. Thus, it argue that “The post-election period often offers a useful window for governments to push through tough policy measures, as do periods of economic strength. For example, the newly elected government in Ghana in early 2005 felt emboldened to implement a new pricing regime, after two years of frozen prices. The new government strengthened its credibility by hosting extensive public discussions on the pricing issue. As a result, the large price increase, implemented within three months after the government came to power, caused little surprise or protest”⁴. Therefore, in the light of the Ghanaian experience as pointed out by the IMF study, president Obasanjo’s last minutes, sudden and military-styled ambush approach to petroleum products prices increases was only following the IMF script, beyond any political mischief making and vendetta against Nigerians.  

But has the strategy worked successfully in Nigeria as was the Ghanaian case cited by the IMF study? Definitely not, given the successful resistance put by the labour unions against the price hikes. The question that follows is what could possibly explain the reason why Nigeria was so different from the Ghanaian experience? The answer to this pertinent question may be provided by examining the other ingredients that are needed to make the strategy succeed. These ingredients are as follows: 

1. Transparency in the decision-making process;
2. Building political support by educating and consulting the public, especially the often-vocal middle class. For example, according to a World Bank analysis (Adams, H. Jr 2000), the key to understanding how a consumer subsidy policy reform will be implemented and/or opposed is to identify the impact of the reform on the political power or weight of “advantaged” and “disadvantaged” social groups. Therefore, reform can — and often does — occur despite the opposition of certain social groups. The key here is to understand which social groups oppose reform and how much political weight these opposing groups have in the policy reform process. Therefore, with the right kind of concern for the interests of opposing social groups, it should be possible to reduce and/or eliminate consumer subsidy programs in many developing countries;⁵
3. Depoliticizing petroleum prices review process by involving the legislative arm of government and civil society stake-holder groups;
4. Accountability, public trust in government and anti-corruption measures need to be in place in order to ensure using the savings from subsidy removal well, especially in providing welfare services to the citizenry;
5. Measures to protect the poor and vulnerable members of the society (i.e., Palliative or Social safety net measures).

The above five ingredients are necessary and complimentary conditions that need to be in place for successful timing of implementing tough reforms measures like petroleum products price subsidy removals. Unfortunately, however, these ingredients were not put in place by the time the decision to hike the prices of petroleum products and VAT rate was made on May 27, 2007 by the outgoing president Obasanjo. This largely explains the stiff resistance successfully put by the labour unions and supported by the generality of the Nigerian public. The resistance led to the reversal and reduction of the prices and the VAT rate, among others. The IMF working paper referenced earlier above, discussed each of these issues with specific examples.⁶ Therefore, there are great lessons to be learned by the Nigerian public policy makers and politicians from this perspective and experience.

Post-Strike Policy Directions and Developments

With the strike actions over, a deal made, and mutually accepted, a close look at some aspects of the deal is necessary. This is because there are some aspects of the deal that are worrying. For example, included in the deal, President Yar Adua promised to among others; establish two Expert Committees to further advice government on some of the bonds of contention in the whole debacle.⁷  

According to the deal, an Expert Committee will be established “to examine the pricing mechanism of petroleum products and make recommendations, bearing in mind the strategic nature of the products and the impact of their price levels on the economy and the social life and livelihoods of Nigerians.” Another Expert Committee will also be established “to examine the recent privatisation/concession exercises, especially the sale of the 51% Government equity in the refineries and the proposals for the power sector⁸.” 

Furthermore, the Senate passed a resolution on the 26th of June 2007 to probe all issues that led to the four-day strike action by organised labour. To that extent, a six-man Ad-hoc Committee was raised. The Committee has Senator Bassey Ewa-Henshaw as it Chair. Its mandate is to study all the issues relating to the grievances of labour and government’s response and report back to the Senate within two weeks for further legislative action.⁹  

These post-strike public policy pronouncements and developments are worrying to say the least. They are disturbing in the sense that looking back at where Nigeria came from in the last three decades on these particular issues, the present government does not have the luxury of “re-inventing the wheel” again in order to address them. Unless the government wants to follow the same wasteful and unproductive routes as followed by the previous administrations, there is a dare need for a rethinking of public policy in this sub-sector.  

The reason for saying this is that not long ago, precisely in 2000, the immediate past administration of president Obasanjo, the architect of the just resolved quagmire, also established special committees that deliberated on these same issues and produced reports to the government¹⁰. Following the 2000 national strike against domestic fuels price subsidy removal, the then president Obasanjo’s administration on 14^th August 2000 established a Special Committee on the Review of Petroleum Products Supply and Distribution in the country. This Committee’s tasks, which comprised 34 eminent Nigerian professionals, labour leaders, stakeholders in the oil industry and other sectors of the economy, was to review all aspects of petroleum products supply and distribution in the Nigerian economy, among others¹¹. 

The Committee produced Reports (Majority and Minority Reports, respectively) for consideration by the government after very expensive lavish and more often than not, acrimonious deliberation.¹²The Reports proffered a number of policy recommendations and suggestions, some of which were accepted by president Obasanjo’s government. Those that were accepted by the government were implemented¹³. One of the accepted recommendations implemented was the setting up of the Petroleum Products Pricing Regulatory Committee (PPPRC). The government of president Obasanjo in March 2001 set up the PPPRC, which was later transformed into the contraption that goes by the name Petroleum Products Pricing Regulatory Agency (PPPRA).The Chairman of that Special Committee also metamorphosed into the pioneer Chairman of the Board of the newly created PPPRC, and later PPPRA¹⁴. The rest is now history. 

Many well meaning Nigerians and public affairs analysts criticised the creation of the PPPRA. Several reasons were advanced against the idea of establishing another layer of bureaucracy on top of the already existing ones. For example, experts in the oil industry however, are of the opinion that the agencies sometimes have inter-related functions, which cause confusion and improper execution of government policies. For instance, while DPR is saddled with the responsibility of inspecting and monitoring the operations in upstream and downstream sectors of the oil and gas industry, agencies like the PPPRA also finds itself involved in similar role about monitoring the supply and distribution of petroleum products in the domestic market¹⁵. 

This shows that, over the years, policy inconsistencies and regulatory overload brought on by competing regulatory agencies have made it impossible to implement an integrated energy framework that caters to needs of operators in the energy sector¹⁶. For example, the establishment of the PPPRA clearly duplicates some of the functions of the existing Department for Petroleum Resources (DPR¹⁷) of the Federal Ministry of Petroleum Resources.  

The DPR is the statutory body vested with the powers and authority to regulate and monitor both the upstream and downstream segments of the oil and gas sectors respectively, including monitoring and regulation of the supply, distribution and marketing, and pricing of domestic petroleum products, among others. Furthermore, the establishment of the PPPRA contradicts the principles of deregulation and liberalisation of Nigeria’s downstream domestic petroleum products sub-sector. Nevertheless, the government went ahead to establish it in order to provide jobs for the boys.  

However, realising the nonsensical existence of the PPPRA, the government took steps to correct its earlier mistake of setting up the agency. Dr. Oluwole Oluleye, the PPPRA's Executive Secretary was reported as stating that, the government contemplates making changes to the status of the PPPRA and the DPR as part of the recommendations by the government established Committee on Oil and Gas Reforms (OGIC). The changes were to be introduced through an Executive Bill, which was tabled before the National Assembly for deliberations¹⁸. 

According to Dr. Oluleye, under the review, PPPRA would have its name changed to Petroleum Product Distribution Agency (PPDA) while DPR is to become Petroleum Inspectorate Department (PID), both operating as arms of the Federal Ministry of Petroleum Resources. The restructuring of both agencies is to create distinct roles based on the government's present aspiration in the oil and gas sector. Paradoxically however, this contemplated change to the status of the PPPRA is yet another contradiction and duplication of yet another government-owned subsidiary company of the NNPC that goes by the name Pipelines and Products Marketing Company (PPMC)! 

Nevertheless, these cosmetic changes have not stopped the unending accusations and counter-accusations, which trail fuel scarcity across the country leaving the economy in coma and the citizens stranded, while petroleum products regulatory agencies remain bereft of ideas for a lasting solution¹⁹. It would be observed that since its establishment in 2003, the PPPRA succeeded in further compounding the perennial problems facing Nigeria’s downstream domestic petroleum products sub-sector rather than providing succour to the Nigerian petroleum products consumers. A good example being the latest unnecessary May 27, 2007 price hikes, influenced by the PPPRA that led to the very wasteful and expensive four-day national strike action by the labour unions.

The next upcoming Part 5 – concludes the analysis.  

Abubakar Atiku Nuhu-Koko

(Executive Director)

The Shehu Shagari World Institute for Leadership and Good Governance (SSWI), Sokoto, Nigeria/

(Research Fellow, Petroleum Economics & Policy)

Centre for Energy, Petroleum and Mineral Law and Policy (CEPMLP); University of Dundee, Dundee, Scotland, UK

E-mail: aanuhukoko@yahoo.com

Tuesday, 10 July 2007