Why Labour Must Accept Deregulation

By Adewole Kehinde

Since the announcement during the World Bank Nigeria Development Update, November 2021 edition titled “Time for Business Unusual” by the Group Managing Director and Chief Executive Officer of Nigerian National Petroleum Company Limited, Malam Mele Kyari that the price of the Petroleum product may range between N320 and N340 per litre, the Nigeria Labour Congress have been beating drums of war.

Since 2004 when the Federal Government started the policy of selling the crude oil earmarked for local refining/consumption at international price, it created a situation where the landing price of petroleum products was higher than the regulated pump price of petroleum products in the country.

The old system where crude oil earmarked for local refining/consumption was sold to the NNPC at a subsidized rate was able to take care of the price differential between landing cost and regulated pump price.

With the new policy, a system of subsidy payment was introduced to take care of the price differential.

But over time, the subsidy system became cumbersome and the Federal Government began to find it cumbersome and untenable.

For instance, the NNPC Limited had disclosed that the nation spent N10.413 trillion on fuel subsidy between 2006 and 2019, even as the country consistently grappled with low revenue generation over the same period.

The various attempts to end the subsidy regime by deregulating the downstream became a constant subject of bitter conflicts between the government and labour, sometimes resulting in debilitating strikes.

The leadership of organized labour have been beating drums of war, contending that a pump price increase would impose more hardship on Nigerians who are already battling the effect of a sluggish economy.

The Petroleum Industry Act did not make provision for subsidy payment as it provides that by the end of February 2022, the nation should be out of the subsidy regime.

For clarification purposes, the Act establishes incorporated joint companies under Section 65 of the Act. The NNPC Limited is to conduct its affairs on a commercial basis in a profitable manner without recourse to government funds and their memorandum and articles of association shall state these restrictions.

The NNPC is also required to declare dividends to its shareholders and retain 20% of profit as retained earnings to grow its business like any other incorporated entity incorporated under the Companies and Allied Matters Act, as provided under Section 53(7) of the Petroleum Industry Act.

The deregulation of the downstream through the Petroleum Industry Act will bring about liberalization of the sector which would make it possible for all petroleum products marketers to source their products from anywhere and sell at any price dictated by prevailing market forces.

The competition arising from that would have helped to force pump prices down to the benefit of the citizens.

Deregulation of the downstream and pump price increase have been very testy issues that have generated a lot of conflict between the government and labour for close to two decades.

One reality the Nigeria Labour Congress must realize is that subsidy removal would encourage investments in private refineries such as the Dangote Refinery, the BUA Refinery, among others springing up in the country presently.

Petrol subsidy would free revenues for the government to provide essential services and at the same time boost investments in the downstream sector.

There is no doubt that investments will increase. It will boost investments in private refineries such as Dangote Refinery, while those who will buy our dilapidated refineries that are under rehabilitation will also come.

Fuel subsidy removal would give operators the opportunity to recover their costs, adding that it would in the long run, encourage investment and create jobs.

Therefore, labour must learn to be objective in its resistance to the downstream sector reforms meant to eradicate the distortions in the market which have been responsible for bouts of scarcity and lack of investments in the sector.

If the labour leaders spearheading the resistance to deregulation are fair to themselves, they would recognise that the deregulation has largely stabilized petroleum products supply over this past year.

One of the key arguments of labour is that if the refineries were in operation, it would help reduce the prices of products and mitigate the hardship that deregulation would impose. But the reality on ground does not support that.

The revamping of the refineries will only result in a marginal decrease in the pump price of petroleum products since the only cost element it would affect is the freight cost. Since the refineries would pay international prices for crude oil, the benefit from local refining in terms of product pricing would be marginal.

The earlier the labour leaders understand this, the better for Nigeria and Nigerians.

The same people who are resisting the deregulation would be the same people who would turn around to castigate NNPC Ltd for not supplying enough fuel to guarantee zero fuel queues and for not making a profit at the end of its financial year.

The market stabilization that has been brought about by the past one year of deregulation should be enough to assure labour that full deregulation is the way to go if Nigerians are to enjoy the full benefits of their hydrocarbon wealth.

Resisting deregulation under the guise of fighting for the welfare of Nigerians is only an attempt to hoodwinking Nigerians into believing that they can eat their cake and still have it.

Adewole Kehinde is a Public Affairs Analyst based in Abuja and can be reached via 08166240846, 08123608662. E-mail: kennyadewole@gmail.com 

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