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Tuesday, May 28, 2024

Tinubunomics Fuel Price Hike And Market Forces

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The Tinubu government appears to have committed the citizenry to biting the bullet, with the removal of fuel subsidy, in its bid to rescue the nation from using it’s revenue to service a fraudulent subsidy regime.

However, it is an encouragement for the operationalization of the Petroleum Industry Act 2022, to stimulate investment growth and transparent pricing model in the oil and gas sector.

Though a painful choice considering the ripples on the economy, many analysts applaud the government, describing it as a modest approach by Tinubu and his economy team, with the resumption of fuel imports by newly licenced 56 oil marketing companies.

This, in our view, is another fraudulent and cosmetic quick fix, that successive governments’ feeble character established the monsters behind the fuel subsidy regime.

Sadly, it was Nigerian masses that suffered for it, just as they are doing now under Tinubunomics opium that has put every citizen in a sit don look mode.

It was all the Nigeria National Petroleum Company Limited (NNPCL) needed to, tactically hike the pump price of fuel citing ‘market forces’ or what economists regard as ‘market fundamentals’ to justify, free entry and exit in an economy based on the theory of supply and demand, alongside other vague eternal technicality that includes, price elasticity, marginal profit ,marginal cost as well as equilibrium principles.

Hence, the NNPCL made mention of market forces behind Petroleum Motor Spirit (PMS) price hike of N617 as against N537. Here, we want to be critical and avoid classroom theoretics, because clarification is necessary.

Instructively, with recent development in global crude oil price hitting $80 per barrel and a move from previous shock and pandemonium of the Russia – Ukraine war outbreak which disrupted free flow of energy sources, as well as drastic reduction in imports of wheat and grain, iron and steel across the globe, has led to induced economic downturn, creating headline and core inflation.

Those factors made several central bankers world over to result to hiking interest rate and other tightening monetary measures.

The Nigerian economy was not spared from this global phenomenon with food inflation hovering over us as a nation.

Again, the news of the NNPCL hiking fuel price didn’t come as a surprise, going by the prevailing circumstances around oil and gas sector activities in Nigeria, that is opaque in operation and a cesspool of corruption.

If Nigerians could recall, this same market forces played out under the Buhari administration. For instance, the defunct Petroleum Products Pricing Regulatory Agency (PPPRA) now Nigeria Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), was fixing PMS Price on monthly basis on one hand, claiming it was doing price reduction.
Suddenly, it said price would reflect market fundamentals.
And this happened in 2020. The Federal Government through the PPPRA, announced a new fuel price regime. First, it was the reduction price regime from N145 to N125/litre that came into effect on March 19, 2020, followed by government’s approval of price adjustment from N121.50 to N123.50 per litre of PMS. Then, again, there was the N141.80 to N143.80 per litre of petrol adjustment in June, 2020.

Secondly, the Petroleum Products Pricing Regulatory Agency (PPPRA), said, “Going forward, pricing of the PMS will reflect market fundamentals,” in a circular dated Wednesday, July 1, 2020, to oil marketers, with PMS pump price being increased from N143.80 to N145 /litre.

It noted that the essence of “the price band was to ensure price efficiency that would be beneficial to both consumers and oil marketers, PPPRA will continue to monitor price trends and advise monthly guiding price for all petroleum products, based on prevailing market realities and other pricing fundamentals.”

The excuse of then PPPRA now NMDPRA was the plunge in oil price occasioned by the outbreak of COVID-19 which slowed down global oil demand, with direct bearing on petrol, thereby pushing it to a level below the pump price cap of N145/litre.

With the caution that Nigerians should be ready to pay high or low prices for petrol following the price liberalisation scheme currently in place and that what we have in place is a market reflective pricing system, the fact of the so called market forces increase in PMS (Petrol Motor Spirit) price from N145 to N151.56/litre; was that in reality, fuel was being sold majorly between N161 to N170/ litre in filling stations across the country then.

The import of the foregoing is to draw our attention simply to the action of the past,that same market forces, few years back was used to exploit Nigerians.

Presently, the landing cost of PMS is N565, and various prices across the country posit N588 in Lagos, N617 in Abuja, Port Harcourt N625, Kano N630.

Moreso, from the aforementioned, it stands to reason that there is a glaring contradiction that would be creating controversy and confusion soon especially with the term, “market forces.”

The crux of this piece is to disconstruct the genuity and ingenuity of market forces that the Tinubu government and NNPCL have so much put their hopes on to drive the pump price of PMS in Nigeria.

Accordingly, price will naturally be adjusted to reflect a true picture of market force at any particular period, high or low.
The question is how true the above statement is, knowing full well that the so called market forces are hinged on supply and demand, anchored on the invisible hand of market forces, embellished in profit maximization drive of global capitalism.

Regrettably, with the shamble and rot in the midstream and downstream sector of Nigeria’s oil and gas industry, the government throwing the sector up into the risky and uncertainty space and manipulative tendency of market forces leaves us with concern.

One great pitfall of market forces is its poor scientific outlook and dangers it will pose to our economy. The petroleum products marketers in this realm would be market forces.
To this end, we are confronted with the following questions: Will the market forces not exploit consumers with arbitrary pricing and round-tripping of PMS? Would the market forces not create artificial scarcity of PMS? Will the market forces not put pressure on the naira? Will the market forces not join forces with forex speculators to sabotage, distort and deflect our foreign reserve? How would the uncertainty challenges of accessing foreign exchange be addressed?

The way forward? Firstly, if the government is serious about the deregulation of the sector, it is not by surrendering PMS price to market forces that are predicated on free market capitalist economic principles, bedevilled with sharp practices and market manipulation, neither do we call for price caps.

Secondly, repositioning the sector is to attract the much-needed investments in functioning refineries and pipelines transport construction in the country with incentives for investors in those sectors.

Thirdly, the government should also avoid creating a situation where the market forces in PMS importation becomes a nightmare to CBN’s sustained and painstaking efforts to keep the naira stable.

Lastly, we expect healthy competition among marketers that would enhance value for consumers without monopolistic structure that market forces normally throw up to kill vibrant and competitive market, a cyclical feature of free-market economy.

We must say here that market forces are primitive accumulators and maximum profit-minded.

 

By Adefolarin A. Olamilekan

Adefolarin is a Political Economist, wrote in via adefolari77@gmail.com

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