Tinubunomics fuel price hike and market forces, by Adefolarin A. Olamilekan
The Tinubu government appears to have committed the citizenry to bite the bullet with the removal of fuel subsidy in its bid to rescue the nation from using its 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 a transparent pricing model in the oil and gas sector.
Although it is a painful choice considering the ripples on the economy, many analysts applaud the government while describing it as a modest approach by Tinubu and his economy team, with the resumption of fuel imports by newly licensed 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.
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Sadly, it was the Nigerian masses that suffered for it then, just as they are doing now under Tinubunomics opium that has put every citizen in a ‘si don look’ mode.
It was all the Nigeria National Petroleum Company Limited (NNPCL) needed to tactically hike the pump price of fuel while citing ‘market forces’ or what economists regard as ‘market fundamentals’ to justify the free entry and exit in an economy based on the theory of supply and demand, along with other vague external technicalities that include price elasticity, marginal profit, marginal cost, as well as the equilibrium principles.
Now, seeing the NNPCL made mention of market forces being behind the Petroleum Motor Spirit (PMS) price hike of N617 as against N537, we want to be critical and avoid classroom theoretics, because clarification is necessary.
Instructively, with recent development in the global crude oil price hitting $80 per barrel and a move from the previous shock and pandemonium of the Russia – Ukraine war outbreak which disrupted the free flow of energy sources, as well as a drastic reduction in imports of wheat and grain, iron and steel across the globe, that has led to induced economic downturn while creating headline and core inflation.
These factors made several central bankers the world over resulting in hiking interest rates 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 is opaque in operation and a cesspool of corruption.
However, if Nigerians could recall, these 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 monthly on one hand while claiming it was doing price reduction. Suddenly, the 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 the government’s approval of price adjustment from N121.50 to N123.50 per litre of PMS. 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 prices 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 on a monthly guiding price for all petroleum products, based on the prevailing market realities and other pricing fundamentals.”
The excuse of the then PPPRA now NMDPRA was that the plunge in oil price was occasioned by the outbreak of COVID-19 which slowed down the 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 between N161 to N170/ litre in filling stations across the country then.
The essence of the foregoing is to draw our attention simply to the action of the past, that the same market forces a few years ago were 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, and 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 deconstruct 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, the price would naturally be adjusted to reflect a true picture of the market forces at any particular period, high or low.
The question is how true the above statement is, knowing very well that the so-called market forces are hinged on supply and demand, anchored on the invisible hand of market forces, embellished by the 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 uncertain space, the manipulative tendency of market forces leaves us with concern.
One great pitfall of the market forces is its poor scientific outlook and the dangers it would 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 uncertain 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 predicted on free market capitalist economic principles, bedevilled with sharp practices and market manipulation, nor do they call for price caps.
Secondly, repositioning the sector is to attract much-needed investments in functioning refineries and pipeline 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 become 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 the monopolistic structure that market forces normally throw up to kill vibrant and competitive markets and a cyclical feature of a free-market economy.
We must say here that market forces are primitive accumulators and maximum profit-minded.
Adefolarin A. Olamilekan
Political Economist
Email: adefolari77@gmail.com
Tel: 08107407870
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