of Subsidy and Deregulation

It’s important to clearly separate removal of fuel subsidy and deregulation.

fuel subsidy is a quick fix, it’s essentially price control, it’s the FGN attempting at playing economics, deregulation is market forces determining, its essentially the market forces working to match demand and supply.

Fuel subsidy is when the Federation pays Importers to sell petrol at a set price. So a marketer eg Oando imports petrol at N100, official price is N87, subsidy the Federation will pay is N13 plus a profit margin.

However, deregulation is when the market forces determine what price petrol will sell at the pumps, e.g. Oando and Okoro & Sons will import petrol, determine their own selling prices in a competitive atmosphere based on demand and supply and sell to consumers.

The problem we have is the the FGN has fixed the selling price of a product it does not manufacture….in this case petrol.

So will anyone invest in an industry where the selling price is not a decision they make? What if a company invests $2b in a new refinery to sell petrol at N80, and FGN the next day says petrol will sell at N79, they lose. That why no large private petrol refinery has been built in Nigeria.

Today petrol price today is not uniform across Nigeria and also not available because the importation and distribution of petrol is done and paid by the government. The government does not understand business.

Look at your mobile phone how much did you buy it? The price is essentially the same across Nigeria? You can’t buy an IPhone for N80,000 in Abuja and then buy it for N150,000 in Jigawa, not possible, one trader would have seen the opportunity and “imported” IPhone from Abuja to Jigawa, that’s how the free deregulated markets work.

If the FGN had a Ministry of Mobile Phones, then the prices of phones would not be uniform or efficient, first off all, you will need an “import license” to import an IPhone, then you go to Dubai, buy the phone, fly back to Lagos and the Federation pays you back cost of the IPhone but also pays your air ticket to take your phone to sell in Abuja, at a government price, the Government will also pay your cost of storing your phones at home, sweet deal., best part of the deal is you can still sell your phone openly above the government price during “scarcity”. The FGN will call the scheme, the IPhone subsidy. In effect your taxes are being paid to private individuals to import and sell their own products across Nigeria…. I have just described fuel subsidy to you.

So I read fuel subsidy has been removed, and fuel price will come down, really? Fuel subsidy removed?

As we speak, fuel subsidy has not been removed, the price of crude has dropped, so subsidy cost has fallen, if subsidy was removed, we won’t have a pricing template from PPPRA, (there is no pricing template on mobile phones from Ministry of Communication).

Once crude oil prices rise again, subsidy will rise again…so the question to ask is why not scrap it 100% as was done in 2012?, deregulate the sector formally, pass a bill to take the government out of the business of petrol importation and distribution, that a job for the private sector…. not the Federation.

The solution is not adjusting pricing templates, or piecemeal removal of subsidy, that’s not enough, the final solution remains the full deregulation of the sector, that what the PIB sets out to achieve, full deregulation.

Deregulation will pull in new investors, new investors will compete, prices will fall, just as the prices of imported phones fall and we now we see phones being assembled in Nigeria.

Price fixing is not deregulation; fuel subsidy removal is not deregulation…. Deregulate the sector by passing the PIB, the government has no business in business…

It’s our problem, we can fix it….