PEOPLE AND POLITICS

Oil Price Shocks: Will they ever end?

Mohammed Haruna

Looks like even before she has had time to sit down as the new presidential spokesperson Mrs. Remi Oyo has been landed with an almost impossible job. Or more accurately, a whole lot of impossible jobs like trying to sell her Oga’s local government reform agendum, not to mention the even more controversial issues of restructuring the country’s politics. But these are not what are on my mind this morning. The impossible job for Mrs. Remi Ojo I have in mind is that of justifying the president’s decision to increase the price of petroleum products, specifically petrol, by a whopping 65% at a time when inflation is already galloping and eating away at peoples’ pockets.

Four years ago, I was saddled with a similar job as the Chief Press Secretary of General Abdulsalami Abubakar. The reader will recall that at the time fate saddled General Abubakar with the leadership of this country in June 1999, following the sudden death of General Sani Abacha, petrol was selling at 11 Naira per litre. I became Abubakar’s CPS in October. About two months later he decided to more than double the price of petroleum products. By then Nigerians had long suffered almost perennial shortages of the products. In addition they had suffered fatal adulteration of the products, kerosine especially, not to mention equally perennial price shocks – I think nine in all between 1986 and June 1998 when Abacha died.

I was not surprised at the public’s skepticism and even cynicism about the price increase because I too was initially skeptical and cynical. If I eventually overcame my skepticism and cynicism, it was for at least three reasons.

First, in the six months or so General Abubakar had left at the time I joined his team, it was impossible to turn around all our four refineries to produce enough products to meet domestic consumption. In other words, Nigerians had to depend mostly on imports throughout his tenure. Second, it was going to take even longer than the time needed to turn around the refineries for government to get rid of the inefficiency and corruption which decades of government monopoly of the downstream sector had created – the inefficiency and corruption which have cost consumers dearly all these years. Third, oil was fetching us a near all time low of less than 10 dollars a barrel, with the prospects looking even bleaker for a balanced budget.

However, the credit for finally banishing my skepticism and cynicism about the need for a price increase must go, first to Alhaji Ibrahim Aliyu, Chairman of General Abubakar’s Policy Implementation and Monitoring Committee (PIMCO), which many saw as a rival outfit to the office of the Secretary to the Government of the Federation. The credit must also go to Alhaji Abba Gana, the Managing Director of African Petroleum, and my classmate going back to 1971 at the School of Basic Studies, Ahmadu Bello University, Zaria.

The two, both of them economists, tried to explain to me how it was impossible then for anyone, private or government, to make a reasonable margin from selling petrol at less than 26 Naira per litre. With the cost and freight of imported petrol at 11.47 Naira, assuming an exchange rate of 95 Naira to the dollar, plus the cost of shuttle vessel and ports and financial charges and demurrage, the landing cost, they pointed out, came to 13.32 Naira. By the time you added other costs like “thruput”, bridging, marketers’ and transporters’ charges the pump price came to 20.19 Naira. Add to this government taxes like VAT, PTF and excise duty the price came to 23.64 Naira. At this price, 26.00 Naira sounded reasonable to me, even though it was an outrageous leap from Abacha’s 11.00 Naira.

Trying to explain all this to a skeptical and cynical public as General Abubakar’s Chief Press Secretary, was an impossible job and I doubt if I succeeded at all in carrying it out. Most certainly not as far as one, Kayode Soremekun, writing from Ile-Ife, in The Guardian of January 13, 1999, was concerned. What I tried to do, he said, referring specifically to my letter on the price increase in The Guardian of December 21, 1998, was “a classic display of conscienceless power lording it over powerless conscience”. He was particularly galled, he said, by my contention that the price increase was not about what is popular but rather about what is proper.

“This government, and any of its functionaries,” said Soremekun, “should be the last entities to talk about propriety. This is because, thus far, they have displayed a disregard for that hallowed concept. In a country where billions of Naira have been plundered and where, till date, nobody has been arraigned for trial, it is mischievous and dishonest to lay claim, as Haruna has done, to propriety on the part of this government”.

Soremekun probably spoke for most Nigerians who simply could not see why a people blessed with so much oil should suffer from endless shortages and price shocks of oil products. I too shared Soremekun’s sentiments but having visited several of NNPC’s facilities, including the refineries at Port-Harcourt and Kaduna, the oil jetty at Atlas Cove, and some of its depots and pipelines, in company of the corporation’s Group Managing Director, Engineer Dalhatu Bayero, and seeing how these facilities have truly gone to pot, and, again, knowing how far our budget had derailed because of the low, low price of oil which accounts for nearly 70% of the budget and 95% of our foreign exchange, I didn’t see hosw petrol would continue to sell for less than 26.00 Naira. If nothing else, I thought the upward adjustment was necessary to end the terrible queues at filling stations and, more importantly, to buy time-and money-for the incoming government to rehabilitate the decaying NNPC facilities.

My only worry at the time even as I tried to justify the price increase, was that it could once again prove the thin end of a wedge that would open the way for even greater price increases in future. Unfortunately my worry was soon justified. Barely two months into the price increase, my good friend, the Managing Director of Unipetrol, Alhaji Yusuf Ali, who was more or less the doyen of the major marketers – the reader would probably remember him as the predecessor of Chief Donald Eteibet as the Chairman of All Peoples Party – asked me to set up an appointment for the marketers with my boss to discuss a review of the price. I was completely fazzed and told him so.

I also told AP’s Abba Gana who also wanted such a meeting, the same thing and reminded him about how they had said 26 dollars should stabilize supply for at least the rest of General Abubakar tenure. The reply by both Gana and Ali was that government did not fulfil the key condition for stabilizing supply, which was the liberalization of the pricing system of the products. I said I did not remember the marketers insisting on that condition at the time of the increase.

Anyway, I did not oblige Ali’s request because I simply didn’t see how any further price increase could be justified. I did not know whether they used other channels to see General Abubakar on the matter, but if they did, they apparently never succeeded in their mission since the price of petrol remained 26 Naira well after Abubakar’s departure.

Four years ago I tried to justify his decision to more than double the price of petrol and other petroleum products. As I said, I did’t think I succeeded in doing so in the public’s eye, convinced as I was about the need for the increase. Having tried the price increase of petrol four years ago, I can understand Mrs.Oyo, President Obasanjo’s spokesperson, trying to do the same today. However, I am certain she is likely to be a far worse failure than I was for at least three reasons.

First, whereas my boss had no time to turn around the NNPC facilities to meet domestic demand, Oyo’s boss has had all of the past four years to do so. Second, whereas oil in our time sold for less than 10 dollars a barrel, on average its price more than trippled during the past four years. Money, therefore, could not be as much an object in turning around the NNPC infrastructure as it was in our time. Last, but by no means the least, it is hard to justify the jump from 26 Naira to 40 Naira, assuming the universal validity of the arithmetic I took you through half-way through this piece.

Four years ago the 26 Naira per litre of imported petrol was based on an official exchange rate of 95 Naira to the dollar. Today the official exchange rate is around 133 Naira. The price increase today, therefore, should have been around 35 Naira, not 40 Naira.

The most important point in all this, however, is that President Obasanjo had four years and enough money to put an end to the seemingly interminable shortages and price shocks of oil, but he inexplicably blew the opportunity. Or was it really inexplicable? Six years ago, at the height of our dependence on imported oil products, Professor Sam Aluko, then the irrepressible Chairman of the National Economic Intelligence Committee (NEIC), revealed to a probably not-so-shocked public that the privileged clique of importers of petrol were making an unconcionable $100,000 margin per 30,000 tonnes of the imported stuff and therefore were actively sabotaging the turnaround of NNPC’s infrastructure. Today, there are speculations that the new set of importers are making an even bigger killing. Could it then be that this new clique of importers has become too entrenched and powerful that it has become impossible to dislodge them and bring an end to the misery inflicted on Nigerians because of the country’s dependence on imported petroleum products?