The lies in deregulation, bad refineries’ claims — Esele, ex-TUC President
By Charles Kumolu, Deputy Editor, Sunday
A former President-General of Trade Union Congress, TUC, Peter Esele, in this interview, discusses the removal of subsidy on petroleum products and its attendant fuel price increase, deregulation of the downstream sector, and hike in electricity tariff, saying government ought to have long initiated measures that would cushion the effects on Nigerians. Esele, a former President of Petroleum And Natural Gas Senior Staff Association, PENGASSAN, who was involved in resolving issues arising from past increments of fuel pump price, reveals why it may be difficult for Nigeria’s redundant refineries to work again.
Government has justified fuel price hike, insisting it can’t keep spending money on fuel subsidy. Some oil industry experts and renowned economists also share the same view. As someone knowledgeable in fuel subsidy matters, what can you say?
What government is saying is that there is nothing wrong with deregulation. When I was President of TUC and PENGASSAN, the question we always asked any time deregulation issue came up was: what would people get in return when subsidy is removed? Would you say you are not paying subsidy while your recurrent expenditure is still very high?
Government is just trying to be economical with the truth. What has happened now is because government has no money. The price of crude oil has fallen but the pump price has not fallen. The reason pump price has not fallen is what government is not telling us. The reason is just because our currency has been devalued.
For example, when you buy crude oil in dollars and sell in naira, during the process of conversion, the price becomes high because of the devaluation of the naira. What has made it this way is because the naira has fallen. And if we are not careful between now and December, pump price may be selling between N180 and N200.
The reason for that is still the rise in exchange rate. It is between N386 and N390 in the Central Bank of Nigeria, CBN, and N400 in the parallel market. The difference between the CBN and parallel market is about N50. If the CBN decides not to make dollars available, marketers will now have to go to the parallel market to buy dollars and the difference would be passed on to the consumers. The truth is that there are tough times ahead. It is the responsibility of government to mitigate whatever pains that are going to come. That is the gap in the current policy.
You talked about government not planning for the pains the hike has brought about. And you were involved in past negotiations on fuel price increase. In retrospect, what were those things proposed that government ought to have put in place to mitigate the effects?
From the second year of this administration, they already knew they had to deregulate to survive. They knew they could not continue with subsidy. The first thing to have been done would have been massive investments in areas that would ameliorate whatever hardship that may come.
We don’t have a friendly transport system in this country and we don’t have a friendly healthcare system. When they are comparing our price with other parts of the world, they forget that those places had better infrastructure than us.
It is easier for people to pay according to market price in Europe and America because education, healthcare and transport systems are efficient. These are areas government should have invested in to cushion the effects of price increase.
They are now talking about Compressed Natural Gas, CNG. That is a wonderful idea but they knew about CNG long before now. Why didn’t they invest in it? People always say that Nigeria is an oil-rich country, but we are not. We have more gas deposits than crude oil. Why not invest in gas?
It may not happen overnight but government must be able to show that it is the direction they are going. There are so many policies and documents that can change us from being a third world country to a first world.
Unfortunately, we lack the discipline to go through it all. What government is trying to do now is to go out of the box, which is not bad. But doing that requires critical thinking. It requires a disciplined process that will help government make decisions.
The indiscipline I have noted is also obtainable in the power sector. When they privatized power, they told us it was going to be given to foreign investors. In the end, there was no single foreign investor. It was a ‘’man know man” privatization that was done.
We supported privatization because we would have received cheap funds if foreign investors were involved. If you are investing$1 billion in power for example, a foreign investor can get that $ 1billion at two percent. But if a Nigerian investor is investing N400 billion, he would not get it at anything less than 20 percent. So, the cheap funds were not there.
Now, Nigerian investors borrowed money from the banks, and if government goes ahead to do what it is proposing, our banks would be in trouble. What we also have in the power sector is that the federal government is confused due to no fault of theirs but what they met on the ground.
The GENCOS and DISCOS are also busy blackmailing the government. That is why government is not moving forward except it does their bidding. It is a very dangerous game that we are playing. What I expect government to do is to conceptualise where it wants to go with this subsidy removal and how it would affect the ordinary man in the long run.
It is also being claimed in some quarters that government is still paying subsidy…
What government is probably trying to do is to reduce it in phases. If you look at the current happenings, those experts saying government is still paying subsidy may not be far from the truth. If you look at the devaluation of the naira from N306 to N386, we will be talking about more than 30 percent increase. We are moving from N145 to about N160.
That is also between 10 and 15 percent increase. The devaluation of the naira and the current price of Premium Motor Spirit, PMS, suggest that subsidy may not have been totally removed.
What about other payments like Equalization Fund and…?
For example, if the product is selling at N160 in Lagos and it is moved to Bauchi, for it to be sold at the same price as Lagos, government pays Equalisation Fund. It covers the cost of transporting the product from Lagos to any part of the country.
If you now say you have fully deregulated, you can no longer have an Equalisation Fund. I also understand where government is fighting from. There is a chain of corruption involved in the subsidy regime and sanctions are not applied. I have not heard of anybody that has been arrested for subsidy fraud or any of them who has lost operating license as a result of fraud.
There was a time some repaid money into the coffers of government, but nothing was made public for us to know how fraudulent these people were. If someone is not used as an example, they won’t stop the fraudulent practices.
Government is just trying to run away from it but the method it is using is breeding challenges. What government is doing in the petroleum industry is more of adhoc. It is taking this decision because it no longer has money. If government had money it would have continued with subsidy. Government is just doing what it thinks is right because it is broke and every Nigerian is bearing the brunt.
Are there quick fixes or better still, interim measures government can take to address the hardship arising from the stoppage of subsidy payment?
What most governments do around the world in such a situation is to reduce taxes. They reduce the burden on the people. The first thing for them to do is to reduce the taxes companies and individuals in the informal sector pay. That is even what many governments are doing now because of the hardship arising from coronavirus.
But the difference is that our government is broke. They are now looking for money in many ways. If it is possible to collect the money we use in recharging our phones, they would do it. That is to tell you how broke government is. What I expect them to do is to reduce the tax burden. I am not advising that they increase salaries because doing that would increase the level of inflation. Government also needs to lead by example.
If N15 million is being paid to a senator, for instance, it should be reduced. Reduction of tax burden is among the catalysts for economic growth. The man who earns N100 or N200 and spends the money is growing our economy more than a man who has N5 million in the bank.
If truly deregulation is in the interest of the people, why is labour against it or is the meaning of deregulation different in the Nigerian context?
It is not that labour does not understand what deregulation means. Labour is saying that you don’t put the cart before the horse. This government cannot say that it was not aware that it had to deregulate to survive two years ago or three years ago.
If you talk about PENGASSAN and NUPENG, I will say that we have always talked about the need to deregulate, but with a caveat that there must be something on the ground for the common man. I would rather say that if government is taking A, it has to replace it with B.
If government is taking subsidy away, it should reduce the tax burden and increase investment in key sectors. If such measures are taken, people can easily accept the increase. If people realise that they now have more expendable income owing to the reduced tax burden, they would accept the new price.
Would it be right to say that labour is part of the problem, especially owing to what some described as the failure to ensure that government implements agreements that should have mitigated the impact of fuel price hike?
That is not true. Labour was the only group after the subsidy protest that went to the National Assembly, NASS, and made a presentation about the corruption in the system. Labour is not different from Nigerians. They also have their conversations.
Right now, there are fault lines in the labour movement, because there are those who want it and others who are opposed to it. I have heard a lot of criticisms that labour is not acting, but when labour acts, they would say that labour is acting because it has collected money. Labour is just being pragmatic about how it is following the issue.
Nigerians are now being told that for there to be a lasting solution, the refineries need to start refining to service domestic consumption…
Irrespective of whether we fix our refineries or not, the problem of our refineries is systemic. Many past presidents of PENGASSAN have successively called for the Nigeria Liquefied Natural Gas, NLNG, model in managing the refineries. Nobody hears about any problem in NLNG.
The federal government has a share but the operators are Shell, Chevron, Total and other oil majors. They run everything seamlessly without political interference. In Nigerian National Petroleum Corporation, NNPC, there is political interference.
That is why as PENGASSAN and TUC President, I consistently called for the NLNG model. And I still believe that is the only way refineries can function. It should be a model of 51 percent for the private sector and 49 for government. But if we insist that we are allowing government to have 100 percent ownership, nothing good would come out.
We have been having this conversation since 1999 when Obasanjo became President. This democracy is 21 years old and at no time has Nigerian refineries worked at 40 percent capacity. Unfortunately, millions of dollars have been spent on turnaround maintenance. Turnaround maintenance is often politically motivated.
A lot of political influence is involved in the award of contract for turnaround maintenance. When a contract is given to someone who has no skill, he would take his share and give the contract to a company that would do it and the same company is more concerned about profit than doing a quality job. I am still saying that NLNG is the way to go.
If NNPC does not wake up, Dangote Refinery is commencing operations next year and the combined capacity of all the refineries under NNPC is not up to the capacity of Dangote Refinery. It is either government makes the right decision concerning the refineries now or they die a natural death and nobody would talk about them again.
What I am saying is that even if government has 51 percent and the core operator has 49 percent, the core operator must be the one to operate it. In such an arrangement, government should only expect profit the way it is making so much money from Eleme Petrochemicals that was privatised.
However, I am commending the current GMD of NNPC for doing all he can to make the refineries work and to make the operations of the NNPC transparent. This is the first time in more than 40 years that we are seeing an audited account of the NNPC.
Where we need to commend, we would commend, but the buck stops at the President’s table. Buhari needs to find a balance between the fuel price increase and not making life difficult for the people.
Written by Kartia Velino