IS SUBSIDY REMOVAL ALL THERE IS TO THE DEREGULATION OF THE DOWNSTREAM OIL AND GAS SECTOR?
A WRONG PREMISE OFTEN DISTORTS A GOOD ARGUMENT
While I agree, that the absence of a price-driven determination for petroleum products creates an opportunity for rent-seeking and distorts incentives for a fair market development, but I must confess that I was one of those that kicked against the removal of subsidy in 2012 because I felt that does not speak to a need for a change in the structure of the industry and the birthing of a more efficient delivery regime. What subsidy removal simply means, for me, is a pure cost reduction and budget deficit management strategy by the government rather than holistically addressing the issue of pricing, competition, and efficiency, which speaks to a more efficient and sustainable industry structure which delivers better value to the consumer - the masses, the electorates or ordinary citizens - the ones who immediately feel the impact of a rise in the price of a crucial variable like petrol and its impact on inflation and its effect on their purse!
WHAT DO WE REALLY WANT? DO WE WANT DEREGULATION OR PRICE LIBERALISATION?
I know a lot of people think that Deregulation is the same as Price liberalisation, but the two are different. While Deregulation refers to removing or reducing government regulations and restrictions in the Downstream, Price Liberalisation refers to a relaxation of commercial restrictions especially the universal pricing of Petroleum products across the length and breadth of Nigeria. So while Deregulation will touch on policy and commercial objectives, Price liberalisation will majorly affect the commercial side of things; but therein lies the snag. In a liberalized regime, what will we be doing with the Petroleum Equalisation Fund (PEF) and Petroleum Products Pricing Regulatory Agency (PPPRA)? So my take is that the policy regime may make price liberalisation difficult, so I think a complete deregulation of the downstream may be a better option.
I KNOW THAT IN A DEREGULATED REGIME, PRICE MAY GO UP IN THE FIRST INSTANCE AND THEN HIT AN EQUILIBRIUM - SO MY TAKE IS THAT, WE NEED TO DEAL MORE WITH INDUSTRY STRUCTURE RATHER THAN WORKING BACK TO THE ANSWER ON PRICE.
In drawing this conclusion, I am of the opinion that the argument on subsidy removal is a wrong argument. It is better to argue on the need to change industry structure even if that will incorporate subsidy removal. This is a better argument. This is because the current structure beyond subsidy removal will not make for fair market development and these are my reason:
THE ROLE OF THE NNPC IN THE DOWNSTREAM
Beyond the DPR, is the NNPC an operator or a regulator. The NNPC currently plays the combined role of an operator and a regulator and this creates a clash of policy and politics. If we are to assume that the NNPC is a downstream operator and not a regulator, knowing that government owns both the DPR and the NNPC, is the DPR able to truly regulate the NNPC? Let's also take it that the NNPC is a regulator and then compare the NNPC with the CBN which also plays the role of banker to the government and a lender of last resort as well as a regulator of other banks. But if the CBN is a lender of last resort, why should the NNPC be an importer of first resort as it has been the only agency charged with importation of finished product under the current regime?
MY CONCLUSION.
In deregulating the Downstream, the move should be to deliver a structure that will deliver a more efficient, competitive and sustainable industry rather than putting the cart before the horse by starting the argument with SUBSIDY REMOVAL.