Deregulation: An Executive Guide For Elder Statesmen.

By  

Kòmbò Mason Braide, Ph.D.

kombomasonbraide@msn.com

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:  

  • “What, exactly, is this thing called “deregulation”?  

  • Should we blame 120,000,000 Nigerians that massive inventories of petroleum products (and crude oil) are smuggled daily across Nigeria’s borders with impunity, even though it is the job of specific government agencies to interdict smugglers and/or their so-called “Godfathers”, who are doing their human best to further aggravate the degradation of Nigeria’s collapsing economy, without qualms?

  • Should we blame the state and Federal governments, who pretend to be completely oblivious about recurrent cases of barefaced complicity of the very security operatives that they charge with the responsibility of securing Nigeria’s borders?  

  • Are 120,000,000 Nigerians to blame, just because their refineries, roads, schools, universities, hospitals, industrial infrastructure, and public utilities are severely decrepit, and obsolete, principally as a result of official neglect, mismanagement, and executive corruption, over the past 30 years?  

  • How come Nigerians endued the ineptitude of NITEL (with fortitude) all these years, wondering how even okada riders in Ghana, Cote D’Ivoire, and Benin Republic freely used GSM phones, while a few in Nigeria brandished their prohibitively expensive cellular telephones with unabashed glee?

  • A Nigerian businessman has been running a lucrative private refinery in Liberia since the mid-1980s, and yet, Nigerians have not still established a successful private refining business in Nigeria, despite “deregulation”. Why?

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:  

  • Distribution and storage facilities must be sufficiently robust to cope with demand.  

  • Barriers to entering petroleum industry-related businesses must be eliminated as a matter of national policy. Entry requirements must be simple, and realistic.  

  • Prices must reflect differences in regional distribution costs, market size, and saturation.  

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.

                                (Back to main article)

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