Deregulation: An Executive Guide For Elder Statesmen. By Kòmbò Mason Braide, Ph.D. Port
Harcourt, Nigeria. Sunday, 24 August 2003 @ 8:23 pm. Preamble:
Jargon Bursting For Old
Dummies. Dr.
Bertrand Arthur William Russell (1872 - 1970), a
famous British
scientist, philosopher, logician, and social critic, best known for his
works in mathematical logic, and analytic philosophy,
once gave a public lecture in which he elegantly described the intricate
details of how some satellites orbit round the moon, how the moon orbits
round the earth, how the earth orbits round the sun, and how, in turn,
the sun orbits round the centre of a vast galaxy called the Milky
Way. At the end of his lecture, a little old lady at the back of the
auditorium got up and remarked: “Hey
let me tell you this, my son! What you have just told us is pure and
unadulterated freeze-dried bullshit: rubbish. The world is flat, and it
is firmly supported on the back of a giant tortoise”. Dr. Russell
simply smiled, and asked the old lady: “Madam, on
what is the giant tortoise standing?” The little old lady replied,
rather confidently: “You must be a very smart young man. Very, very clever. It is tortoises
all the way down, Stupid!”
Most
people may find the little old lady’s rather simplistic picture of the
universe as an infinite cascade of giant tortoises, unmistakably comic,
or even downright absurd. But then, do we know any better? What do we really know about “deregulation”,
“liberalisation”, “privatisation”, “subsidy”, “market
forces”, or similar other regularly abused concepts, frequently
deployed in articulating official propaganda in Nigeria? How did
Nigerians come to know about such jargons, in the first place? From
where did such concepts infiltrate the consciousness of Nigerians and
their rulers?
The
repeated resort to reckless misapplication of euphemisms,
and clichés in the
articulation of government policies, official propaganda, and similar
other unsolicited executive outbursts, can best be appreciated from the
frequency of blatant misuse, over-use, and abuse of the word, “deregulation”,
with respect to the petroleum industry in Nigeria. Our task is to shed
some badly needed light on “deregulation”
as a process, hopefully, for
the benefit and enlightenment of all those that habitually abuse the
exploitation of its meaning, via propaganda, and in a language that even the most hardened and incorrigible moron would understand. The
essence of all our digressions and rigmaroles is to sensitise you to the
wide disparity that exists between the actual
meaning of certain frequently misused (abused)
popular expressions, and their perceived
meaning, in the deployment of official propaganda in Nigeria. Our focus
will be on the euphemistic
abuse, misuse, or misapplication of the word, “deregulation”,
in relation to the Nigerian oil industry. But before we “land”, let us take a quick helicopter view of
the political and regulatory terrain of the Nigerian petroleum industry,
vis-à-vis deregulation: At
this juncture, we cordially invite all those who may wish to exercise
their fundamental liberty to
indulge freely in some creative digression,
to kindly refer to the appendix,
for “A
Detailed Road Map for Expired Astronauts”, “Army
Arrangement (Part 4-19-2003)”, and “Techno-economic
Factors of GSMizing Nigeria"”, before we “land
properly” on the subject mater. Have fun!
The
Comedy Behind The Tragedy: Following
the recent fixing of the price of petroleum products nationwide by the
Federal Government of Nigeria, ordinary Nigerians, despite their
non-negotiable right to freedom, like any other normal, peace-loving,
and law-abiding earth being elsewhere, continue to be victims of a
relentless barrage of government-sponsored ultra-high-density disinformation,
and hard-core propaganda, via
the Nigerian Television Authority (NTA) news network, daily.
Essentially, the television clip is centred around the euphemism: “Forward Match: ... Deregulation is the answer.”
That
propaganda clip is supremely tasteless, inane, paternalistic, and
thoroughly patronising. It insults the intelligence of even
a village imbecile. According to the producers of that silly clip, “deregulation”
is the critically needed political aspirin for curing all of Nigeria’s
chronic economic migraines, since “deregulation”
would stop smuggling, boost agriculture, strengthen the naira, provide
funds for building more roads, hospitals, schools, universities,
electricity, pipe-borne water, refineries (private and state-owned),
and ultimately, flood Nigeria with copious inventories of petroleum
products, thereby bringing down their prices, including the price of
every other thing that the naira, dollar, or euro can buy in Nigeria,
kick out “scarcity” from
Nigeria (for ever and evermore),
consign fuel queues to prehistory’s non-recycling bin, and everything
will be all right, (probably
tomorrow!).
Now,
before we derail our thought processes with the subject matter of that official
propaganda, let us just ask a few simple, but pertinent questions:
The
answer is simple: Bad
policies, Stupid!
We
will now “land” on our
gist proper: Free
Lessons From Above: Worldwide,
the private sector is increasingly participating in competitive
petroleum businesses. Over the years, the international oil market has
evolved sufficiently to produce a competitive environment that is setting
globally accepted prices for
crude oil, natural gas, petrochemicals and refined petroleum products.
For many Third World (i.e. poor
and underdeveloped) countries, that happen to have crude oil and
natural gas resources, structural reform of their petroleum industry has
become imperative for national survival. A
school of thought believes that deregulation
should start upstream. This,
they claim, would induce competition
in the local crude oil market,
and attract capital for exploration and production (E&P) activities.
It is universally accepted for governments to pass high-risk investments
to the private sector by licensing exploration blocks for them to
develop and, possibly, make a profit. Competition over risk
capital is recognised worldwide. In
Nigeria, the Federal Government has conferred upon itself, complete and
sole ownership of all petroleum resources found anywhere in the country,
by military fiat, since the end of the First Nigerian Civil War (1967
~1970). Except in Brazil, Ghana, Mexico, Venezuela, and Nigeria, most
governments, the world over, have opened up the upstream sector of their
petroleum industry to private operators. Oil
field development is very capital-intensive.
It is typically financed under two types of contracts: Production
sharing contract (PSC), or joint venture (JV). With PSCs, the operator absorbs all risks and investment costs, as done in Indonesia. JVs
involve large-scale investments by the state, as is the case in Nigeria.
The concept of joint venture is becoming increasingly rare, if not
obsolete, because of the very high investment risks, and huge capital
requirements, which the debt-ridden economies of most Third Word
countries, like Nigeria, cannot afford. For
example, in Columbia, as in Nigeria, where state-owned monopolies are
still active in the oil industry, the government is having serious
problems raising funds to maintain its high equity participation in the
development of oil fields. Observe that, for some time now, NNPC has
repeatedly defaulted in fulfilling its cash call obligations to its JV
partners. In
PSC agreements, the crude oil and/or natural gas produced belong(s)
to the producer, and it can be freely sold, either locally or
internationally. Contractual prices are set to international benchmarks.
But then, fundamentally, the PSC concept is not only irreconcilably and
diametrically opposite to the executive mindset of the incumbent
President and Honourable Minister of Petroleum Resources of Nigeria,
they defy the sole ownership status of the Federal Government of
Nigeria, vis-à-vis absolute control of Nigeria’s petroleum resources,
and also flout the Land Use Decree. Nevertheless,
in Peru and Argentina, the healthy
proliferation of independent
crude oil marketers as suppliers of crude
oil to the local refineries, sequel to completely dismantling their
state-owned oil companies, marked a significant turning point in the
success story of their oil industry reform efforts. Downstream
sector reforms could proceed down the supply chain, into the retail
markets, resulting in competing wholesale distributors, and retail
outlets. Such is possible if distribution is freed, and common-carrier
principles are introduced and enforced. To achieve reform in the retail
market, the following key conditions must be considered, and ensured:
Reform
in the retail markets starts from different points for different
countries. Uneconomic state-owned retail outlets, supply and
distribution systems are being fully privatised in Latin America and the
Caribbean. Meanwhile, in Nigeria, with the exception of two or three
NNPC-ran filling stations, retail outlets are owned by private
investors, but are operated under the constraints imposed by
state-regulated pricing agreements. With
effect from July 2001, local private
Pakistani oil marketing companies (not
the government) began to set appropriate
prices of petroleum independently,
every fortnight. The prices of petroleum in Pakistan are based on
international benchmarks, and the prevailing foreign exchange rate. In
short, it is the job of the government of Pakistan to strengthen the
local currency against foreign currencies, for prices to rise or fall,
and not to sit tight in Islamabad, fixing
prices, in the name of “deregulation”! In
Chile, the government removed barriers to entry into the downstream
sector of the oil industry, since the mid-1970s, and facilities have
been run by private operators, with open access to state-owned
facilities (like jetties, storage facilities, refining, and pipeline
distribution services),
strictly under non-discriminatory rules. The state-owned oil company, Empresa
Nacional
Administradora del Petróleo
(ENAP), continues to own all the
refineries, and most of the storage facilities in Chile, but operates
them, on lease to interested private
businesses, strictly on a commercial basis. Attempts
in Mali to deregulate the country’s oil industry failed woefully, mainly
because of a faulty regulatory framework. Lack of skills, and
the ineffective monitoring role of the Malian petroleum regulatory
agency, created unfair advantage for Malians over private foreign
investors. Without a level playing ground, guaranteed by a transparent,
and efficient regulatory body, the reform process failed. In
Mali, “deregulation” meant
kicking out “foreigners” and
multinationals (like elf, and Total), and
then “indigenising” the Malian petroleum products marketing business, reducing it to an
over-glorified jerry can and surface tank petroleum products peddling
industry, while the country remains entrapped in a permanent state of “fuel
scarcity”, apparently the only “dividend
of deregulation” in that poor country. In
Japan, and the USA, the downstream sector of the petroleum industry is
undergoing consolidation, for example, the
ExxonMobil merger of 1999. The
petroleum industry in the USA is undergoing a process of complete unbundling.
Japanese oil companies have also formed strategic alliances (or
mergers) in an attempt to reduce operating costs. Since
2000, the state-owned oil company in Indonesia, Pertamina,
has been undergoing reform. The government of Indonesia intends to end Pertamina’s
monopoly of the country’s oil industry, particularly in its role as a mandatory
joint venture partner with foreign operators. In
1998, the government of the Philippines deregulated the county’s
downstream sector, ending price fixing for petroleum products, and
removing barriers to new entrants into the petroleum market. In
Thailand, as part of an IMF package of economic reforms, the state-owned
Petroleum Authority of Thailand (PTT) would be broken up and privatised:
subsidiary-by-subsidiary. Re-Inventing
The Wheel: The
above examples should provide Nigerians and their leaders some useful
insights, including an opportunity to learn some fundamental lessons in
oil industry deregulation, as
it is done all over the world. Nigerians
do not have to re-invent the wheel! The
moribund and lack-lustre approach in both the articulation, and
implementation of the deregulation
of the Nigerian petroleum industry betrays a fundamental conflict
between official posture and official
action, which in turn, is traceable to the attendant defects in the initial
conceptualisation of the task of managing Nigeria’s petroleum
resources optimally, to the
overall benefit of over Nigerians worldwide. Ultimately,
Nigerians deserve fewer euphemisms,
less propaganda, less knee-jerk
responses to serious national issues, less license
peddling, and less price
fixing, all in the name of “deregulation”,
if we seriously wish to avoid the fate of our fellow ECOWAS and AU “brothers” in Mali. Surely,
there is more to deregulation
beyond the unabashed militaristic
subliminal suggestion in the government-sponsores bland slogan: “Forward Match: Deregulation is the answer.” It is not. Kòmbò
Mason Braide
(PhD) Port
Harcourt, Nigeria. Sunday,
24 August 2003 @ 8:23 pm. References
& Sources: 1.
Hawkins,
S. W.: “A Brief History of Time:
from the Big Bang to the Black Hole”;
Bantam Press, Transworld Publishers
Ltd, London, England. (1988). 2.
Mayorga-Alba,
E.: “Deregulation
& Reform of Petroleum Markets”; Energy
Issues; FPD Energy Notes # 6; World
Bank Group, Washington D.C.; (September 1995). 3.
Business
Recorder:
“Oil
marketing Companies to Set Petroleum Prices Independently from July 1”;
Associated Press of Pakistan;
(17 June 2001). 4.
Braide,
K.M.: “The Impact of
Deregulation on the Downstream Sector of the Nigerian Oil Industry”;
(2001). 5.
UNDP:
“Human Development Report 2002”;
United Nations Development Programme, (UNDP), New York; Oxford
University Press; (2002). 6.
The
CIA Fact Book: Central Intelligence
Agency, Washington DC, USA; (2002). 7.
ThisDay:
“Fuel Price Hike Inevitable, Says Obasanjo”; ThisDay
Newspaper, Leaders & Company Ltd, Lagos, Nigeria; (Sunday, 24 August
2003). 8.
ThisDay:
“FG Threatens to Close Border with Cameroon, Chad, Niger”;
ThisDay
Newspaper, Leaders & Company Ltd, Lagos, Nigeria; (Sunday, 24 August
2003). Digressive
Appendix:
(Back
to main article) A
Detailed Road Map For Expired Astronauts: While
Britannia rules the waves in the British sector of the North
Atlantic Ocean, Akuku rules
the waves of Akuku Toru (now
commonly known as River Sombrairo), in the Niger Delta, off the Gulf of Guinea, in the mid-Atlantic
Ocean. For the benefit of the
unenlightened, Akuku Toru is
just one of the myriad creeks and rivers in Rivers State, Nigeria. Akuku Toru was charted by some Portuguese explorers, over 500 years
ago, who named it “Rio Sombrero”,
long before the formal partitioning of Africa, indeed, before both the
trans-Atlantic and trans-Saharan slave trades. As
a matter of fact, “Sombrero de paja”
is the Portuguese for a “straw hat”. Today, the sombrero
(hat), which robbed Akuku of
relevance within Her domain for over five (5) centuries, has finally
found populist expression in yet another distraction. Thanks to the
on-going transition from predatory military autocracy, through “nascent democracy”, via “continuity”,
hopefully, to a future stable
democracy. Actually,
the real name of Rio Sombrero
was, (and still is), “Akuku Toru”, as given by both the inhabitants, and the
itinerant straw hat-wearing
fishermen of Elem Kalabari
(Ancient Kalabari). Akuku Toru
simply means, “Akuku’s Sea”.
Quite logical: that waterway was,
(and still is) the permanent domain of Akuku,
the resident Goddess of that portion of the known universe, according to
Kalabari metaphysics. As
any average student of basic propaganda knows, the application of euphemism
in propaganda is forced by circumstances in which the propagandist may
want to pacify his listener in order to make an unpleasant reality become
more palatable, by using bland
words. Today,
“Akuku Toru” has come to
be associated, almost exclusively, with the name of a local government
area, AKULGA, whose
headquarters is located at Abonnema (York
City), instead of a river sprawling with straw hat-wearing
fishermen. Concurrently, “Sombrero”,
instead of being the Portuguese for a straw
hat, which used to be the indispensable distinguishing feature of
the massive crowds of fishermen of Akuku
Toru in the good old “olden
days”, has now come to be associated with a heavily polluted
river, now almost completely devoid of fishing activity.
Why? … Petroleum. Army
Arrangement (Part 4-19-2003):
(Back
to main article) Nigeria,
a former colonial outpost of the United Kingdom, became independent some
43 years ago, and was, shortly afterwards, effectively occupied by (overseas-trained) Nigerian soldiers,
in two major waves of nuisance value to the collective destiny of
Nigerians: i.e. firstly, between 1966 and 1979, and secondly, between
1983 and 1998. Interestingly, an effective exit
strategy for the orderly retreat of discredited, and/or demystified
military politicians, into a better
life on their retirement from “active
national service” (usually in the national interest), was
creatively supervised by a Nigerian-trained
general called General Abdulsalami Abubakar (GCFR) in 1998/99. Within
29 years of predatory military autocracy, Nigerians experienced
avoidable episodes of ethnic cleansing, a civil war, an escalation of
both violent crimes, and official corruption, the rapid degradation of
public utilities and industrial infrastructure, official sycophancy,
masochistic servitude, and a general culture of bare-faced impunity.
Today, Nigeria is a fatally traumatised, impoverished,
unstable, and quasi-feudal pseudo-federal
democracy, still in transition to stability, under the benign and
imperial ego of a former military dictator.
Although Nigeria has degenerated significantly after over 30 years of
military autocracy, it is a key member of two (2) very lame duck
organisations: i.e. the Economic Community of West African States (ECOWAS),
and the African Union (AU). One
singular characteristic of all the post-Gowonian
military dictators, who, in the first place, inflicted themselves on
Nigerians, is their predilection for exerting a choking grip on the
micro-management of he so-called “commanding
heights of a centrally
controlled Nigerian
economy”, understandably, in
conformity with their primordial worldview.
Most
significant of the catalogue of grievous damage done, include the flurry
of questionable “nationalisation“
and stage-managed “indigenisation”
that took place over the period between 1975 and 1979, when the
incumbent President of the Federal Republic of Nigeria, General
Obasanjo, was initially the deputy head, and later, the head
of a military junta. To
further compound the damage, shortly before stepping
aside in 1979, General Olusegun Obasanjo promulgated the Land Use Decree, by military fiat. Essentially, the Land
Use Decree dispossessed Nigerians of any meaningful
ownership of land in Nigeria
by Nigerians, for perpetuity. Even
more worrying, and indeed very frightening, is the fact that the
so-called “representatives”
of Nigerians in the National Assembly, have not yet deemed it expedient
to decisively expunge, and obliterate completely from existence, General
Obasanjo’s singularly odious Land
Use Decree, with maximum despatch,
as a matter of uttermost
priority, and for the sake of national
survival. For
some weird reason that defies both logic and commonsense, General
Olusegun Obasanjo’s despicable Land
Use Decree is also indelibly “enshrined”
in the bogus document called
the 1999 Constitution of the
Federal Republic of Nigeria, whose production was also creatively
chaperoned by Nigerian-trained
General Abdulsalami Abubakar (Up
NDA alumnus. Esprit
de corps!). After
presiding over the actualisation of aggressive
land grabbing, nationalisation and indigenisation
policies in Nigeria, it is incredible, a quarter of a century latter, to
see Chief (General) Obasanjo, the very prime
mover and flag bearer of
Nigerian’s centrally-controlled, command-structured economy, now vigorously
espousing the beauty and benefits of liberalisation,
deregulation, and privatisation, particularly
in an industry that he single-handedly designed and created to his
taste and whims, in 1977. It
will be recalled that, following General Olusegun Obasanjo’s mere
promulgation of a decree, the Nigerian National Petroleum Corporation (NNPC)
came into existence on April 1, 1977, with
immediate effect. The resultant cumulative structural and policy
distortions, and the evident asymmetry between official
posture and official action,
are predictably reflected in the evidently asinine manner in which deregulation,
particularly of the petroleum industry, is being perceived, and
continues to be sub-optimally executed in Nigeria today. Now,
before we delve into “bread and
butter” deregulation, we will take a further necessary diversion
with a case example: i.e. the quality
and impact of GSM services in
Nigeria, post-deregulation. Techno-Economic
Factors Of “GSMizing” Nigeria: From
all indications, the introduction of GSM technology into Nigeria has
been a colossal failure. Among several other non-trivial complaints,
rampant customer dissatisfaction,
especially with respect to the cost, technical capacity, and reliability
of the services provided, uniquely characterise the quality of GSM
services currently available in Nigeria. We can safely assert that it
may even be more difficult now, to convince any new (foreign
or local) investor to invest in infrastructure development, let
alone operate in rural areas, given our experiences, derived from the “deregulation”
of the telecommunications industry in Nigeria. Today,
Nigerians have not yet derived any tangible satisfaction from GSM
services, principally because of massive congestion in the networks.
That GSM services are abnormally expensive in Nigeria can be traced
right to their very inception in the country, when GSM operating
licenses, considered to be the highest in the world, given the near obsolescence of the GSM technology deployed into Nigeria
by the operators, was sold to prospective investors, at the
exorbitant cost of US$285 million each: i.e. about five (5) to eight (8)
times the cost of a GSM license in the European Union (EU). Observe
that the GDP per capita of most EU countries average about 30 times the
GDP per capita of Nigeria. Again, observe that the cost of doing
business in Nigeria is about the highest in the known universe. Note
that NITEL provides less
transmission capacity than the GSM operators demand in order to satisfy
Nigerians. Furthermore, note that GSM companies in Nigeria spend
significantly for electric power generation, and related high-cost
maintenance. The
resultant escalated GSM tariff in Nigeria is therefore as a result of a
combination of avoidable factors: the high sunk cost of obtaining a
licence, and the attendant high cost of power generation operations, and
facility maintenance for the
sustenance of GSM services in Nigeria, which, ironically, are all
attributable to the Federal Government of Nigeria, either by omission,
or by commission. And so, the GSM operators spent over US$600 million
within the first year of operations in Nigeria, just to provide a
workable operating base. Inevitably, an additional US$1.4 billion will
be needed to provide critical infrastructure for effective GSM services
in Nigeria, by 2007 Although
NITEL provides poor connectivity, it collects about 50% of the tariff of
the other GSM operators, effortlessly. For example, by April 2002, NITEL
made a profit of N60 billion, while the other private GSM operators made
N28 billion, and yet, the so-called “inter-connectivity”
problem persists nationwide. In
other words, NITEL is exploiting the GSM operators, who in turn are exploiting GSM users
in Nigeria. As usual, Nigerians have to endure the cost of this
monumental failure of due diligence, while their ruler, and Minister of
Petroleum Resources, indulges in all manner of frivolities like his
unrestrained frequent flying, providing asylum for an expired terrorist,
and negotiating “peace”
with armature coup plotters overseas. Meanwhile, the communications
regulatory body, NCC, is sitting pretty, doing
absolutely nothing, as Nigerians wallow in abject displeasure. It
will be recalled that a second Nigerian national carrier could not
emerge initially, although two (2) other telecommunications companies
were willing to bid for the clearly exorbitantly priced GSM license. It
is therefore clear that a thorough and transparent review, including the
subsequent effective overhaul of the vision, mission, specific goals,
objectives, and methodology of the Federal Government’s “deregulation” policy thrust is unavoidable. As a matter of
fact, the high cost of GSM service is an important issue: the tariffs
are too high, and may likely not come down in the foreseeable future.
However, official propaganda suggests that deregulation
has been successfully implemented in the Nigerian telecommunications
sector. The GSM experience in the Nigerian telecommunications industry is a foretaste of the probable trajectory of deregulation in the petroleum industry in Nigeria. The most probable scenario is one of initial euphoria, spiced with euphemisms and sloganeering, followed by aggressive market share grabbing, then, considerable customer discontent, and finally, a return to zero |