The Case for Deregulation
We probably all agree, to varying degrees, on the need for a full deregulation of the Premium Motor Spirit (popularly known as petrol) portion of Nigeria’s downstream petroleum sector. Economists, industry analysts and global lenders alike continue to make the case for removing the current government price controls and allowing market forces to determine the price of petrol at filling station pumps.
As the theory goes, a deregulated environment will allow for cost-reflective pricing, which will attract investment inflows for petroleum downstream sector growth, resulting in the much-needed competition that will ultimately drive down pump prices. No more subsidies. No more crude swaps and NNPC accounting losses. No more fuel queues. All problems solved, it would appear…
The Problem with Deregulation
According to recent claims by sector participants, the landing price of PMS, based on current global crude oil prices with all pricing elements including (regulated) margins considered, is about N171, a 20% increase from current pump prices. This can be expected to rise even further if, driven by ongoing and anticipated geo-political events, global crude oil prices maintain their current upward trajectory.
The immediate effects of a 20% or higher increase in PMS pump prices on living costs for Nigerians will not be cursory, and will almost certainly reverse the celebrated downward inflation trends that we have seen for the last few months, resulting in considerable economic hardship for an already struggling populace.
Refining capacity is not something that is acquired overnight, and the gains of deregulation may not be fully realised for another 3 years at the earliest. The direct political ramifications of a fuel price increase one year to the general elections amidst the absence or insufficiency of social safety nets are not hard to imagine.
I summarise the problem with immediate deregulation using the analogy of trying to perform a major surgical operation on an unstable patient (e.g. high blood pressure). The operation may be necessary and will probably enhance the length and quality of life of the patient, but you run the (unacceptable) risk of the patient not even surviving the procedure!
The one thing to do before Deregulation
If we could find a way to build a hedge against fuel prices, for the majority of Nigerians, perhaps then we could deregulate and have a much better chance of surviving the potential difficult period between deregulation and the time when we can fully reap its benefits.
I believe that this hedge is mass transportation.
The government needs to give immediate and urgent attention to inter and intra-state mass transportation infrastructure. Further to the rail projects currently being undertaken, a clear regulatory framework is needed to attract private sector investment to rail and the inland waterways. Fuel price increases will have a considerable lesser effect on hundreds of people ‘sharing’ a single train locomotive, ferry or large bus than on an individual vehicle owner or 12–18 people sharing a ‘danfo’.
Considering Lagos State’s share of daily PMS consumption (25% of Nigerian vehicles are in Lagos), the existing BRT (Bus rapid transit) initiative, ongoing light rail projects and planned large-scale rollout of mass transit buses are a step in the right direction, and this needs to scale nationwide.
Ultimately, the goal should be, to make it unnecessary for commuters to drive an individual vehicle. The closer we get to positioning efficient mass transit as a viable alternative to driving and fuelling our individual vehicles, the sooner we can consider the ‘safe’ deregulation of petrol prices.
By: Bolarinwa Durojaiye
