Oyegbami on a second fuel subsidy -By Lekan Sote

Filed under: National Issues |

Lekan Sote

Segun Oyegbami’s personality, and the profound effect of his message came strong in the phone call he made after reading this column’s call to the Federal Government, and its relevant personnel and agencies, to “Please end this fuel crisis” about two weeks ago.

If you read Oyegbami’s book, “Reversing The Rot in Nigeria,” an extremely frank expose on Nigeria’s oil industry, you cannot but form the impression that Oyegbami is highly educated, erudite, and witty, if also daring. But you shouldn’t be surprised: He attended Comprehensive High School, Ayetoro, in Ogun State, and Government College, Ibadan.

While the curriculum of “Compro,” funded by America’s Ford Foundation, was developed and taught by Harvard University faculty, GCI, fashioned on the elite British secondary school system taught basic skills of critical and creative thinking, writing, oral communication, library literacy, laboratory competency, and problem solving.

Oyegbami studied English at the University of Ibadan, under scholars like Dr. Ayo Banjo, who later became a professor, and Vice Chancellor of UI. Oyegbami’s deep insight into Nigeria’s petroleum industry is informed by a long career as Marketing Representative, Area Manager, and a petrol station dealer with an International Oil Company.

He comes across as a man who is conversant with the problems of Nigeria’s oil industry. But his strength is in his willingness to share his insight. He declares In the Preface to his book, “Copyright to this book is hereby relaxed; and therefore, it can be photocopied, loaned out, or quoted freely.” He gave a free copy to this writer.

Oyegbami’s thoughts, generously expressed in his book, may be quirky, but you cannot deny his incisive, and honest take in looking out for the well-being of ignorant Nigerian citizens caught in a catch-22 quagmire, and suffer the consequences of what he describes as government’s “hare-brained” policies.

Oyegbami’s beef is with the Federal Government’s use of the Petroleum Equalisation Fund to force the prices of petroleum products to be uniform all over the nation, regardless of the location of the processing refinery within Nigeria, or the entry port in the case of imported petroleum products.

After convincing itself that “the only variable element in the provision and the sale of petroleum products at uniform price nationwide was the transportation cost,” an inter-ministerial committee suggested the Uniform Pricing System.

The committee was set up by the Federal Government to address the issues of long queues at Nigeria’s petrol stations between 1974 and 1975. But Oyegbami thinks that government is selling a red herring with the argument that fuel scarcity is caused by poor performances of the refineries, hoarding by dealers, and smuggling across the borders.

Gen Yakubu Gowon’s Military Government proclaimed Decree No. 9 of 1975, to “reimburse petroleum marketing companies for any losses suffered by them, solely and exclusively, as a result of sale of petroleum products at uniform prices throughout the nation.”

This was probably a deliberate ruse to put money in the hands of some people. It’s the same way economist John Maynard Keynes suggested that a welfare state should guarantee employment for its citizens by paying some citizens to dig a hole, so that another set will refill it, and also get paid.

Nigeria’s former ambassador to Brazil, Dr. Dele Cole, explained that PEF “is funded by the Bridging Allowance and the National Transportation Average – jargon for saying that all petroleum marketers pay N6.80 per litre to the Fund for every litre imported into the country.”

Cole insists that the promise to pay bridging cost for road transport of petrol led to a surge in petrol tankers in Nigeria. It also led to a criminal neglect of oil pipelines, tank farms, railways, and inland waterways. He shares Oyegbami’s view that prices should differ as the markets get farther from the refineries.

In Oyegbami’s opinion, it is more than a coincidence that most of the bridging payments go to northern destinations like Kaduna, Kano, Jos, Minna, Gusau, Kano, and Makurdi. Of course, token deliveries, and bridging payment, go to Enugu. Consignment to Maiduguri in recent times is in doubt for the obvious reason of Boko Haram insurgency.

Oyegbami says the oil marketers from the North, who benefit almost exclusively from the transport subsidy, oftentimes sell their products either to South-based marketers, final consumers, or smuggle them out of the country– to sell at a higher price.

In other words, the trucks were based in the South all along, and never took any delivery to the North to earn the transport subsidy. Yet, the owners get their papers vetted, and duly stamped at both the departure depots in the South, and the receiving depots in the North, and qualify for the unwarranted subsidy.

You may have read the news report where the Group Managing Director of the Nigerian National Petroleum Corporation, Maikanti Baru, admitted that the disappearance of 4,501 trucks, laden with 148,533 million litres of petrol, compounded the lingering fuel crisis. How did the trucks and their consignments vanish, you’d ask?

When it probably seems ridiculous that a marketer would be claiming reimbursement for petrol he freights to the North, from the subsidy that is extracted from him in the South, Government decided to charge the Federation Account.

The bridging claim has been unilaterally paid by the Federal Government, sometimes from the Excess Crude Account, which belongs to the three tiers of government. Oyegbami thinks that this burden amounts to double jeopardy for the South especially because the Federal Government failed to impose uniform and countrywide prices on produce like cattle or foodstuff that originate from the North.

He complains that the scheme tinkers with distribution of petrol products and replaces Adam Smith’s “Invisible Hand” that determines the price of goods with the PEF. Oyegbami, who obviously prefers a market-driven economy, wonders why the NNPC sells petrol that it somewhat has a hand in regulating.

As you know, every product is “free” from nature, until you begin to factor in the costs of conversion from the raw state to the processed product, and of transport from the producer or marketer to the consumer. Accountants with a flair for philosophy would say that costing is the toll paid for processing a raw commodity over time and space.

Oyegbami offers that the payment is a freebie sham because there was never a subsidy in the first place. The petroleum products never sold below cost of production at any time, he insists. This scheme, he argues, is essentially a social interventionist policy.

And the perfect excuse for it came via local refineries that worked sub-optimally, and (maybe deliberately) ill-maintained oil pipelines and railways. A policy that was supposed to be a temporary measure became permanent by default. It is manifestly in the interest of some people that the Kaduna Refinery, or any Nigerian refinery for that matter, never works.

You can swear by Cole that the Petroleum Products Price Regulatory Agency refunds shortfall of high cost of importation and the sale price fixed by government. You can also swear by Oyegbami that PEF pays bridging cost to marketers for transporting petroleum products from southern depots to northern depots.

But hold oil marketers responsible for a third, but indirect, subsidy if government accepts the tax holiday they seek for importing petrol and selling it at the N145 controlled price.

Follow me on Twitter @lekansote1

 

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