Deregulationit would appear is finally upon Nigeria, or probably not. An incoherent and ostensibly contradictory statement made by The Executive Secretary of the Petroleum Products Pricing Regulatory Agency (PPPRA), Abdulkadir Saidu cast doubt on earlier proclamations as he seemed to suggest that the market would not set the price for gasoline and PPPRA would retain exclusive control in setting pricing.
Saidu said: "The published regulation does not confer on marketers, the power to fix prices for the product as they deem fit. A guiding price will always be advised by the PPPRA according to market realities.
What he was in fact saying is that the PPPRA would decide what the market cap would be and inform Marketers who would be bound by that price. The market based mechanismwould be a PPPRA template which would be issued from time to time and impose a set margin. So crucially the market cap remains but is no longer a fixed one and theoretically allows for limited profitability.
An esoteric version of deregulation which in part brings an end to probablythe longest gravy train of all time. Regulation was introduced in 1973 as a means to alleviate poverty but became the totemic standard for a corruption so brazenand pernicious it normalised theft in public office in Nigeria. The benefits to a politically well connected class far outweighed any perceived economic benefits derived by the poverty stricken Nigerian masses. Regulation in Nigeria became analogous to prohibition in America an environment where round-tripping malfeasance became de rigueur
The abuse of the 'subsidy' regime has been so pervasive that even when a Committee was created by the National Assembly to ostensibly probe a billion dollar frauditwas exposed for demandingbribes from its respondents and thoroughly compromised.
The subsidy regime has endured under subsequent administration because it has provided a means to establish a powerful system of patronage and reward which have been used to redistribute government funds to political party stalwarts. The criteria for awarding allocations by the national oil company has always been opaque and discretionary. It has also been used to victimise industry actors who are consideredeither outsiders or unwilling to pay rent.
Despite that various Administrations have sought to deregulate in the past . The Goodluck Administration In 2012 provoked civil unrest which was supported by the current ruling party, All Progressives Congress (APC) who condemned deregulation and supported the protesters.
Perhaps the most egregious outcome of regulation has been the governments recalcitrance in operating an installed domestic refining capacity of 445,000 barrels per day. This apparent unwillingness has cost the country tens of billions of dollars. In what can only be construed as an act of bewildering self-harm. Why should Nigeria be the only country in OPEC that import its fuel. It will be interesting to see what if anything will be done with the Refineries.
The politics of gasoline price are universal, high prices are unpalatable to any voters. Especially in places like Nigeria where inexpensive gasoline is regarded as the sole benefit the Nigerian masses derive from their resource endowment. Nigeria's lack of refining capacity further complicates a near perfect inverse negative correlation between the revenues received from the sale of its crude and the costs toimport refined petroleum products.
The prevailing narrative for theNigerian masses is an overwhelming belief that the pump price is inextricably linked to their cost of living.The response is almost pavlovianand that response and poor policy decision making has caused successive Nigerian Administrations to squander tens of billions of dollars.
Deregulation is the correct policy as was the privatisation of the Power Holding Company of Nigeria, but it needs to be done properly and herein lies the concern of most commentators. Beyond a confusing and inadequate statement put out by the Minister of State for Petroleum and PPPRA, the 'deregulation'process is vague and key questions remain unanswered. In 2015 the Government announced that subsidies had been scrapped only to reclassify the policy as 'Under Recovery' which saw the expansion of the offshore processing agreements,Direct Sales Direct Purchase (DSDP) and NNPC acting as sole importer of gasoline. The Nigerian people should know these contractswhich were beyond scrutiny cost them billions of dollars. This is why deregulation should be left to the invisible hand of the market save for ensuring quality and quantity.
The Secretary of the PPPRA was right about one thing, in order for deregulation to have a legal basis, the act which established the PPPRA needs to be abolished as it confers statutory duties which cannot just be simply wished away. Furthermore the existence of multiple exchange rates creates a distortion in the market and unfair advantage. For deregulation to work properly all importers should have access to foreign currency at the same exchange rate and be allowed to use their funds to partake in an economic activity which has inherent risk.
The version of deregulation the PPPRA contemplate is one where importers are guaranteed a fixed yield determined by the PPPRA. Competition should be allowed to drive down prices and improve efficiencies, thus providing the consumer with the best possible price. NNPC should act in the market as a swing supplier, intervening as necessary. In fact if there were any commercially minded managers in NNPC deregulation should be seen as an opportunity to grow NNPC Retail capacity.The other big upside is that I suspect that we will now find out Nigeria's true daily consumption of gasoline as the smugglers arb trade opportunity evaporates
London, June 2020