MOMAN Outlines Agenda to Take Nigeria Out of ‘Subsidy Trap’

Nigeria’s petroleum product marketers, under the aegis of Major Marketers Association of Nigeria (MOMAN), have outlined a comprehensive agenda to take the nation out of the gasoline subsidy regime, which cost around $2Billion to service in the last one year.

The roadmap contains five clear messages, starting with the government divesting  the power to increase or decrease  petroleum prices, and including calls for annulling the Price Equalization Fund (PEF), discontinuation of Direct sales and Direct Purchase (DSDP)  programme, amending the law setting up the Petroleum Products Pricing Regulatory Agency (PPPRA) and inaugurating an open access to foreign exchange to all petroleum product importers.

This radical blueprint of reforms, from one of the several stakeholders in Nigeria’s downstream sector, is contained in a statement by Tunji Oyebanji, Chairman of MOMAN.

In it, the association requests:

  • A fundamental and radical change in legislation is necessary. The clear and obvious risk is that the country has never been able to increase pump prices under the PPPRA Act, leading to high and unsustainable subsidies and depriving other key sectors of the economy of necessary funds.
  • Purchase costs and open market sales prices for petroleum products should not be fixed but monitored against anticompetitive and antitrust abuses by the already established competition commission and subject to its clearly stated rules and regulations.
  • A level playing field. Everybody should have access to foreign exchange at competitive rates to be able to import and sell petrol at a pump price taking its landing and distribution costs into consideration.
  • Discontinuation of the Direct sales and Direct Purchase (DSDP)  programme. All foreign exchange proceeds from all sales of crude be paid into the same pool from which all importers can access foreign exchange at the same rate.”
  • The Price Equalization Fund mechanism should be discontinued and its law repealed as the cost of administration of equalization has become too high and the unequal application of payments by marketers distorts the market and creates market inequities and unfair competition. Internal equalization has been the practice with diesel distribution and sales since 2010 when diesel was fully deregulated.
  • The pricing system should allow internal equalisation by marketers which would be both competitive and equitable.
  • Fuel import should enjoy priority access in allocation of foreign exchange, again through a transparent auditable and audited process of open bidding. Conditions for accessing foreign exchange should be streamlined and specific delays before access imposed unilaterally on the downstream oil industry should be discontinued as being inequitable.”

MOMAN said it was stating its position, in the context of the announcement by Timipre  Sylva, Minister of State for Petroleum Resources, that the government would implement a policy of “price modulation”, which means, in MOMAN’s view, that the state will give effect to existing legislation enabling it to set prices in line with market realities through the Petroleum Products Pricing Regulatory Agency (PPPRA) as provided in its Act.

“The clear and obvious risk is that the country has never been able to increase pump prices under this law, leading to high and unsustainable subsidies and depriving other key sectors of the economy of necessary funds”, MOMAN stated.

MOMAN admits that “there is no country or economy where governments do not have the power to influence prices”, however, “Governments use economic tools such as taxes or interventions on the demand side or the supply side of the market and other administrative interventions to influence prices where it needs to”.

“The problem here is that government has retained for itself by law the power and the responsibility to fix pump prices of PMS which is what puts it under so much pressure and costs the country so much in terms of under-recoveries or subsidies when it cannot increase prices when necessary to do so.

”It makes sense to relieve itself of this obligation now when crude prices are low and resort to influencing prices using the same tools it does for any other commodity or item on the market”.

“Our current situation, laid bare by the challenges of Coronavirus to the health of our citizens in particular and and economy of our country in general, demands that we are honest with ourselves at this time. A fundamental and radical change in legislation is necessary.

“When crude oil prices go up, government has always been unable to increase pump prices for socio-political reasons leading to these high subsidies and we believe the only solution is to remove the power of the government to determine fuel pump prices altogether by law.”

MOMAN recommends a legal and operational framework comprising of a downstream Industry operations regulator, the Federal Competition and Consumer Protection Commission (FCCPC) or Competition Commission (for pricing issues) and the interplay between demand and supply which will ensure a level playing field, protect the Nigerian Consumer and curb any market abuse or attempts to deliberately cause inequities in the system by any stakeholder.

“In line with change management principles, consultation and engagement with market players should clearly spell out the path and final destination which is full price deregulation”.

 



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