Date Published: 03/07/10
Deregulation is Neo-liberalism Running Amok By Idumange John
As a pedestrian economic analyst, I reject the policy of deregulation and the logic behind it even though I do not quarrel with the logic behind moderate liberalization. The Nigerian oil industry is divided into two sectors; the upstream sector (deals with Exploration and Production) and the downstream sector, which deals with refining of crude oil for domestic consumption. With a near-comatose refineries built in the 1970’s and a rent-seeking Nigerian National Petroleum Corporation (NNPC), and vampire independent marketers, most Nigerians were persuaded that deregulation of the downstream sector would save the oil industry from total collapse.
The administration of former President Olusegun Obasanjo pushed for deregulation because he saw an economy that was near comatose economy and heavily yoked in a debt peonage. Government realized that it would be necessary to boost production levels of the refineries by inviting local marketers to apply for licenses to build private refineries. This neo-liberal paradigm failed because independent marketers were solely driven by driven by the desire to maximize profit. The failure of this attempt led to deregulation of the downstream sector in the country, while efforts were made to effect turn around maintenance on the refineries.
At that time, it was thought that the liberalization of the down stream sector would dismantle the natural monopoly of the state owned enterprise, create competition in the downstream, reduce the cost government spends on subsidizing the sector and can consequently used the resources freed up to handle the socio- economic and welfare needs of the Nigerian people. Boost in Foreign Direct Investment to the Nigerian economy.
The Nigerian government is aware that it cannot face the problems of the downstream sector in isolation and is well aware of the potential effects on the labour market. It is possible that in the short term unemployment may arise due to price increases and the attendant problem of potential job losses by workers in the refinery, this will be done by investors who aim to maximize efficiency, once they acquire control. Potential savings in the downstream sector are defined as the difference between the actual cost of supplying petroleum products to consumers and a benchmark cost corresponding to the procurement of these products from world markets under competitive conditions; and are subdivided into three categories: procurement, refining and distribution.
The question that arises is how does government stimulate competition? Well that is the challenge because since the refineries to be privatized are natural monopolies. Government must effectively make sure that collusion does not happen once the refineries are sold; government also must still be able influence price mechanism without actually fixing price ceilings otherwise the exercise of privatization would have been in futility.
There is no doubt that Nigeria is a bourgeosified economy where you are either rich through primitive accumulation or poor as a lumpen proletariat. Since democracy resurrected in May 1999, some bourgeois have confused the less-intelligent populace that market fundamentalism is a sure way out of the dependency trap. This has been applied in the down stream sector of the Petroleum Industry. We were told from the year 2000 to 2007 that increase in the pump price of petroleum products and the deliberate incursion of private forces in the industry would lead to competition and ensure two things: regular, uninterrupted supply of petroleum products, and forcing down prices. In addition, Nigerians were convinced that the deregulation policy would play its messianic role of salvaging the petroleum industry. But Mr Akpatason argued that “a deregulation policy founded on petroleum products importation is an open invitation to chaos and crisis, as the facilities in place, particularly those for storage and distribution are grossly inadequate to manage the volume of imported products sufficient to meet local demand. The issue of Customs duties at the ports for imported petroleum products should be addressed before the policy can work.”
Deregulation imposes two types of policy conditions, namely quantitative and structural. Quantitative conditions are imposed at the macroeconomic level of the poor Nigerians, while the structural ones are for institutional and legislative policy reforms. All of them prove to be not relevant to tackling the challenges that Nigeria faces, moreover the policy is unfair, undemocratic, ineffective, and inappropriate mainly because they undermine democratic accountability within Nigeria and will deprive the poor of the access to services (education, health, etc) at a low cost. Yet the influence of the oil industry bill to open up the domestic market trend is so powerful that the government cannot resist or deny their illegitimate influence and power.
Like Peter Akpatason the National President of the National Union of Petroleum and Natural Gas Workers, said sometime ago, “The greatest fear of members of the union is for a few persons with connections in the corridors of power to capitalise on the absence of appropriate monitoring, regulatory and enforcement framework to manipulate and hijack the deregulation when it takes off, thereby plunging pushing the country into deeper crisis.”. These are the same fears expressed by the ordinary Nigerian. Apart from the fear of hijack by cartels, those kicking against deregulation say government needs to first tackle all the unresolved issues. These include getting the refineries to work as well as creating the enabling environment for the establishment of private refineries, and putting in place infrastructures such as pipelines network, jetty and storage facilities, good road network, functioning railway system, and the role of industry regulators in ensuring equity and fair play among others.
Petroleum Minister Dr. Rilwanu Lukman and his junior counterpart Mr. Odein Ajumogobia may not believe that Nigeria has had an over dose of deregulation. Without the refineries working in their optimal capacities, the massive importation of petroleum product will only promote the growth of the foreign economies, to Nigeria’s disadvantage. If local refining is encouraged, some of the extra charges, such as freight/port and other landing costs in the pricing template, will be removed. The deregulation policy will inflict untold hardships on the poor and ordinary people who constitute more than 70 percent of Nigeria’s over 140 million people,”. These are fallacies. Previous attempts at deregulation, with the full deregulation of kerosene and diesel clearly demonstrate that deregulation cannot and does not reduce the hardships faced by consumers, rather it will increase it.
During the Obasanjo era the Petroleum Industry was deregulated to the extent that the pump price of Petroleum products was increased for about six times. Again, the same regime sold oil blocs to the political jobbers, cronies and sycophants under the rubrics of loyalty to the ruling People Democratic Party (PDP). The same compradors class that bought over the oil blocs, sabotages the economy by recruiting engaged in oil bunkering. Even the multinational Oil majors are no exception hence it is difficult to know exact how many barrels of oil Nigeria produces a day. This is more so because the British and Asians have vested interest in the illegal, informal and criminal economy.
Nigeria is facing a major fuel crisis following the deregulation plan of this government. The energy industries and our refineries lag well behind other sectors such as agriculture, eatery houses, oil-ware supply, ports, and motorways, in undertaking an open policy. Commuters suffered tremendously and transportation system is being affected because of the looming deregulation. However, this move inevitably come tied with conditions which appear as if it is a favour to the country’s economic growth and poverty reduction. The trend empowers desperate politicians in their choice to continue to bypass parliaments, a trend that is at odds with good policy making insistence on good governance. The NNPC, the local oil importers and private depots attach conditions with an intention of downstream deregulation which they legitimize through a range of documents including poverty reduction strategies.
Over the years, monies earmarked for turn around maintenance of refineries ended up in the projects of bourgeois contractors. The overarching goals is to leave the refineries to decay so as to alternate the capacity utilization of the refineries. This unedifying Status-quo provides welcome excuses for independent marketers to import fuel and sell at cut-throat competition. The independent marketers and the licensed oil bunkers also have access to huge bank loans. It was this mindless buccaneering class that wrecked horrendous havoc in the banking sector when leading to the mass sack of workers in the banking industry.
The spirited efforts made the Petroleum Minister to compare Nigeria and Venezuela have turned out to be an indictment on the administration. For the past 10years, Nigerians have not reaped the dividends of the privatization and subsidy on petroleum products. Would improve the lot of the citizenry and that the excesses would be channelled to the provision of infrastructure and social to the provision of infrastructure and social services is no longer appealing to Nigerian could be better of than the bill.
If Nigerian cannot enhances the capacity of the four existing refineries with huge excess crude oil monies, there is no level of private participation that would reform the sector. This is more so because those to participate in the industry are still the same Nigerians. No level of deregulation can expand the economic space or add value to the petroleum sector. The argument by Chief Rasheed Gbadamosi that opening up the downstream oil sector via deregulation would eliminate the ills of the sectors such as black marketeering, product adulteration and smuggling is not logical because these were the same arguments that justified, the astronomical increase in the price of Petroleum products. So far, there has never been any improvement in the human and physical infrastructure in the country; as investment in education, physical, health and other social infrastructure has nosedived.
The Federal Government has not been able to maintain the existing refineries let alone build new ones. Deregulation within the Nigerian context means handing over the industry to a few, self aggrandising capitalist hawks who constitute the bourgeoisie class that has access to huge funds to buy-up all the refineries and oil blocs, if the Federal Government implement a harsh deregulation regime, then the price of petroleum products would increase at geometric progression while salaries and wages of workers would stagnate. When there is spiralling inflation, it is only natural for workers to agitate for increased wages and salaries, so rather than bring about macro economic stability, the deregulation policy would aggravate the economic adversities of the working class, increase the misery index and stifle the war against corruption and induce sharp practices.
Deregulation would also liberalise oil bunkering since the same money bags who would bury up the refineries, and oil blocs are engaged in sabotaging the economy through illegal bunkering. Illegal oil bunkering would require the recruitment of violent youth or militant, who will protect the oil interest of the comprador class. Thus, deregulation would heighten militancy in the Niger Delta Region and bastardise the gains of the amnesty programme initiated by the Federal Government. In Nigeria, given the high corruption index, deregulation will surely encourage private investment unlike the advanced economies where the economy can absorb the sudden shocks that will follow the policy as the pump prices adjust automatically to the swings of products and crude oil price movements at the international oil market. The fear of the average Nigerian is that Independent Marketers would want to control the price regime that the current rigid products pricing regime will not allow them to effectively recover their costs, in view of high interests they have to pay on loans.
From what we have experienced so far, deregulation has increased criminality; moral depravity and official corruption, which are characteristics of a failed State. In Nigeria, successive administrations have not been able to harness the economic potentials of the State hence the over-dependence on crude oil and the resource curse syndrome. Our over-dependence on crude oil since 1960 shows that the Nigerian economy is in the hands of the capitalist hawks who determine the price of crude oil in the international oil market. With deregulation, Nigeria would complete the handing over of the economy to marauders and mindless exploiters who now control the commanding heights of the Nigerian Stock Exchange, the oil sector and the banking industry.
The negative effects deregulation has had on Nigeria are immeasurable, putting the country under increasing pressure to abide by the prescriptions imposed by the depots. As advocates of corporate globalization, the petroleum pricing and Regulatory Agency (PPPRA) and their allies work for domestic capitalism, exerting a heavy influence on nationwide oil consumption policies that mainly promote trade liberalization and public sector privatization. When this is combined with the ubiquitous seven-point agenda, it does appear that our knack towards development is gradually losing momentum. The Ag. President should stop this deregulation gamble and overhaul the hydrocarbon industry.
Independent Marketers would continue to blame government for creating an atmosphere of panic buying since those who could not wait for their allocation embark upon buying from private depots. Whereas some people blame the Banking sector hurricane for the crisis, the general logic is that It is better to pay more for petroleum products than to queue for hours because of scarcity. This logic has not worked in Nigeria because the vampires have a way of cutting corners and circumventing stipulated regulations guiding product marketing.
The deregulation policy of government in the downstream sector is not only a metaphor for poverty aggravation but a type of neo-liberalism running amok. This is more so because Nigeria is running a war economy. The deregulation option Nigeria’s oil operators and economic gurus are about to adopt is punitive, unpatriotic and exploitative. The continued emphasis on deregulation by government demonstrates that the well being of the people is not on the national development agenda. No oil-rich country on earth can wilfully inflict this kind of clandestine injury on her citizens without any sophisticated social security system. It is only in a decadent society like Nigeria that such brazen exploitation and ineptitude can be permitted, glorified and propagated the predatory capitalists.
Idumange John, is a University Lecturer and Activist
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