It is a misadventure that the government got itself involved in product importation in the first place with all the problematic protracted talk about subsidy.
Now government has finally decided that it is time to end its involvement in this matter and all hell is let loose! It is salutary to note how the government couched the notice it served regarding its decision to discontinue the extension of the subsidies. The government did say that it has decided to end subsidizing inefficiency, fraud and racketeering in the importation of refined petroleum products. How can someone for goodness sake quarrel with this articulation? How can it ever be conceived that offering subsidy that encourages what government has rightly characterised is anti welfare of the populace? If there should be any engagement at all on this matter, it should be at the level of disagreeing with the government on what ends the subsidy had served. And who is in a position to know better than the government on this matter? It would help to better put this discussion in its proper context by recalling the extent of the subsidy being discussed. We are told that last year alone,  a whopping amount of N640 billion was extended in this regard. That is almost the whole of the capital budget for budget 2009! And according to the Petroleum Product Pricing and Regulatory Agency (PPPRA), government spent a total sum of N1.85 trillion on petroleum product subsidy from 2006 to 2008. We have been informed that even at a pump price of N65 per litre which some of us have argued is not reflective of the extent of crash in the international price of crude, the government is still carrying a subsidy of N2.72 per litre of refined product.  It is also reported in the papers that there is a subsidy of about N30 per litre of kerosene.  And the major oil marketers have in fact served notice that they will very soon stop product importation because of the cost arising from the fact that the rate of exchange included in the PPPRA template is N117 to the dollar and that now, the Naira exchange rate has crashed against the dollar its membership had borne the burden arising therefrom which government has not done anything about. Where is all this going to end? you might be pressured to ask. Honestly I think it will be irresponsible of government to continue with this business of subsidy as it is. And I do not appreciate the practicability of phasing out the subsidy because that has been the endless journey we have embarked upon all this while!
The government has also served notice of its intention to privatize the refineries and again there is some resistance. The situation with the refineries is a very sad one as it is the main reason why the country has found itself in this sorry pass whereby it is solely dependent on product importation. The Obasanjo administration is reported to have spent over 730 million dollars in the maintenance of the refineries without any tangible results. And according to NNPC sources, government spent a whopping $800 million in the past six years on Turn Around Maintenance. Word out their informs  that even the technology of the existing refineries are obsolete and therefore further attempt at maintenance might be problematic from the perspective of difficulty encountered in the sourcing  of spare parts which have probably gone out of production. Therefore, the country would be lucky to find any private sector interests that would like to own the refineries except maybe at give away prices! I do not think there is anything wrong if the government decides to build modern refineries in the future to complement those owned by private sector interests. The advantage then is that the new refineries would be configured on state of the art principles with all the inherent benefits that would confer.  It is reported that about 20 licences were issued to private sector interests to establish refineries to no avail. That should not be surprising because investment in refinery is quite capital intensive and nobody would be going into it in an environment where prices are going to be dictated by the government. And this is one more reason why we should bite the bullet and embrace deregulation.
Labour gave government 21 days ultimatum to rescind its decision to deregulate downstream petroleum product market which I think is a bit precipitous. The government has set up the Governor Yuguda committee which has our comrade governor Adams Oshimhole as a member. I think discussions should be entered into with an open mind as all stakeholders jointly have an interest in furthering the welfare of the citizenry. In fact, for a functioning democracy, no one should be telling the government what policies to execute because it will swim or sink, depending on the success of such policies.  The welfare of the citizenry is of paramount concern and therefore that should be the focus of negotiations. If government says that deregulation is the way to go, the issue then is to put in place safeguards to checkmate any likely unpalatable consequences. But certainly the subsidy as is it today is clearly not sustainable and I think the earlier all stakeholders accept this glaring fact, the better for the rapid growth and development of the country.
Economists don’t like talking about subsidy because in the parlance of the economists it is often a misallocation of resources. Yes even America the bastion of capitalism is reputed to be offering particularly farm subsidy but this is properly targeted and not of a runaway nature like we are now experiencing in the country. And in the light of the nation’s experience with extension of subsidy, we cannot be encouraged. If we recall how the subsidy on fertilizer to boost farm yield was hijacked and became an instrument for political patronage and never reached the intended beneficiary, we have to be very careful in recommending the extension of subsidy in our environment.  Some commentators have argued that in the context of the global economic meltdown whereby all manner of stimulus packages are on offer, it is insensitive to be talking about removal of subsidy which as far as organized labour is concerned, would further pauperize the citizenry.  That mindset is certainly presumptuous. Who says that deregulation would automatically result in increases in the pump price of refined products if we can enthrone competition by castrating the cartel and discounting the cost implications of fraud and inefficiency as properly identified by government. Maybe in the short run, there could be some increases in pump price having regard to the psychology of the market and therefore discussions should be on how to cushion the effect of such increases. One is quite mindful of the fact that increases in pump price of fuel have far reaching implications from the perspective of economic agents who would see this as a reason to hike prices and tariffs unconscionably and thereby exacerbate inflationary spiral, but the overall effect might not be as deleterious as is being feared.