Economists, marketers react to Kachikwu’s suggestions to end fuel scarcity

Economists and petrol marketers have expressed diverse views on the workability of three proposals made by the Minister of State for Petroleum Resources, Ibe Kachikwu, to resolve the current fuel scarcity.
While the economists say the proposals are open to corruption and will not work efficiently, the marketers see it as a good initiative to resolve the recurrent fuel crisis.
In his presentation to the meeting of the Joint Committees on Petroleum (Downstream) in the National Assembly last week, Kachikwu said that a committee he heads was considering three options to allow marketers join in the importation of petrol.
The Nigerian National Petroleum Corporation (NNPC) is currently the sole importer of petrol whose price is fixed at N145 per litre, despite the landing cost being about N171.
The options being considered include, “a regime of flexible tax-waiver window to accommodate the extra cost elements in the fuel pricing template,” “introduction of an exchange rate modulation programme,” and “price plurality regime to allow marketers sell at a different price from the NNPC’s.”
The first will include some form of tax waiver for marketers that import petrol or sell at the government regulated price. The second involves the Central Bank selling foreign exchange to private petrol importers at a rate lower than the normal price, while the third involves marketers being allowed to sell petrol at a different, most likely higher price, than the NNPC.
Kachikwu later clarified that the third option does not mean that government plans to increase fuel price above N145 per litre. He, however, said that the options would support NNPC’s effort to stabilise products supply and distribution.
“These measures would pave the way for marketers’ participation in the fuel import regime to guarantee seamless supply and distribution of petroleum products across the country within an 18-month corridor, ahead of the eventual attainment of local refining capacity,” he said.
In his reaction, the Executive Secretary of the Major Oil Marketers Association of Nigeria, MOMAN, Obafemi Olawore, spoke in support of the options. He told journalists that the options would only work, if certain measures were adopted to curb corruption and abuses.
Olawore, who said he was expressing his personal view and not that of MOMAN, said some of these measures included establishing an independent committee that would report to government at regular intervals.
“I agree the options point the way forward,” Olawore said. “Firstly, a monitoring committee comprising the Central Bank of Nigeria, Finance Ministry and representatives of the marketers, Petroleum Products Pricing Regulatory Agency, must be set up.
“Secondly, the committee must meet on a quarterly basis and reports of its meetings made public, while copies are sent to the Nigerian Financial Intelligence Unit.
“Again, the number of fuel importers must be limited to about 11 or 15, while the committee should be shielded from the corrupting influence of politicians.”
He said that with seven major oil marketers and about 50 fuel depot owners, government must learn from history, particularly from the massive abuses that characterised the 2011 oil subsidy scandal, which resulted in the 2012 fuel import probes.
“Otherwise, we should limit the number to the three oil marketing associations, namely Major Oil Marketers Association of Nigeria, Depot and Petroleum Products Marketers Association and the Independent Petroleum Marketers Association of Nigeria.”
Another fuel marketer also supported Mr. Kachikwu’s proposal on allocation of foreign exchange to marketers at a lower rate.
He, however, requested that his name should not be revealed, because of his involvement in decisions on the issues.
“Yes, I agree completely with the proposals by the Minister, especially on the allocation of foreign exchange. But, how practical it will be, I don’t know. Abuse of the process is subject to the intentions of those granting such foreign exchange.
“If foreign exchange is strictly for marketers and not through brokers or politicians, there will be no problem,” he said.
The Managing Director of WNT Capitas, Abimbola Agboluaje, said the minister’s proposals were practically unworkable, because “not using market or economic principles to resolve economic problems will lead to fraud.” 
Agboluaje, who is also the Secretary, The Peter Bauer Foundation, noted that once another foreign exchange window was opened for fuel marketers outside the official window, people would take undue advantage of the gap to the disadvantage of the system.
“It’s a very archaic way of running an economy. If they take all the money to bring in fuel and pay subsidy, that could have been used to improve education, healthcare and other infrastructure. Yet, there is the issue of equity. Fuel is not selling at the same price in Niger Delta and Lagos or Abuja. We have to know who the poorest Nigerians are.
“Rather than subsidise foreign exchange for fuel marketers, government can spend the money to diversify the economy. The proposal is a very inefficient way of managing the economy. It amounts to throwing away almost 10 per cent of the annual budget that should have gone into infrastructure development,” he said.
Also, the Lead Director, Centre for Social Justice, Eze Onyekpere, said he does not believe that the proposals make economic sense. He said foreign exchange should have a uniform price.
“The point is that since the price of petrol was moved from N87 per litre to N145, and the value of the Naira moved from N197 to N306, there has always been a subsidy component in the petroleum products’ pricing template.
“But, the government has always lived in denial. Instead of going to the National Assembly for appropriation for subsidy, the NNPC has been secretly managing the extra cost, thereby reducing the money remitted to the Federation Account.
“Whatever money the NNPC withholds is what the states and local government could have been sharing for the benefit of the people. So, indirectly the loss to the government through the arrangement to subsidise allocation of foreign exchange to marketers is a loss to the people.
“The truth is that the Federal Government has been subsidising without telling Nigerians. Nigerians can no longer subsidise again through this proposal. It does not make sense to subsidise consumption, rather than production. At the end of the day, Nigerians will still have to pay,” Onyekpere said.

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