Who benefits from deregulation?

Stories by Ayomide Owonibi, Lagos - Updated: Tuesday 03-11-2009

Dr. Rilwanu Lukman, Minister of
Petroleum ResourcesDespite assurances from the Federal Government that the intended deregulation of the downstream oil sector will bring about the much needed change in the Nigerian economy, this move has been met with fears that it is definitely not in the best interest of Nigerians, as it is being alleged that it would make life miserable for the masses.

The Minister of Petroleum Resources, Dr. Rilwanu Lukman, last week, gave assurance that the deregulation policy would be implemented in the best interest of Nigerians, adding that Nigeria was passing through a challenging time as its oil and gas industry and all institutions that help run it were undergoing transition and reforms, which, in the end, would be for the good of the populace.

According to stakeholders in the oil and gas industry, for Nigeria, deregulating the downstream sector is a very welcome idea, as it would make the country to be able to keep tabs on its import and export, with the aim of developing its ailing infrastructural base.

For Nigeria to achieve its Millennium Development Goals, there is the need to revamp the decaying infrastructure. If deregulation has so many benefits, why then the debate?

There are two sides to the debate on deregulation. One side is from the government, which says that when deregulation becomes operational, huge money expended on subsidy could be channelled towards the provision of basic social amenities for the citizenry.

The other side of the debate is from the workers, who see government’s intention as another way of impoverishing the masses. They believe that government can still subsidise petroleum products while developing infrastructures. The workers’ representatives believe that if government removes subsidy, prices of petroleum products would go up and increase hardship for the masses.

Compared to other oil producing nations, basic infrastructure such as roads, railway, transportation, health and education in Nigeria continue to receive little attentions, even though government commits so much on subsidy.

Between 2006 and 2008, the government said it spent over N1.2 trillion on subsidy. Before the end of this year, it is estimated that government will pay not less than N600 billion on subsidies.

The amount committed on subsidy, if appropriated and focused on the development of infrastructure, it has been estimated that about 45,000 km of roads will be built. It is also projected that about 15, 000 megawatts of electricity could be generated too while so much will still be left to construct over 615, 000 blocks of classrooms.

The projected N600 billion to be paid on subsidy for 2009 is far more than the amount devoted to critical infrastructure such as power, aviation, works, transport, petroleum resources and infrastructural projects within the Federal Capital Territory.

The amount is also over four times the budgeted capital expenditure for human capital development in the areas of health, education and the Millennium Development Goals (DGs).

An interesting thing about subsidy is that the money paid to marketers by the government is sourced from the country’s foreign reserves, which are supposed to help stimulate the economy for the rainy days. Using foreign reserves to pay subsidies makes the prospect of continuous deregulation unwise.

Some analysts believe that deregulation is not a bad idea but the problem is the modality used by the government. According to them, if government is determined to remove subsidy, necessary measures should be put in place to avoid its negative effect on the people.

Speaking with the Nigerian Tribune, Dr Oladiran Fawibe, an industry expert, is of the opinion that the government should deregulate when the price of oil is very low.

“If the government wants to deregulate, the best time to do that is when the price of oil is low. When the price of oil goes up, it is at an up time high, it will translate to high crude oil prices. If we deregulate under that circumstances, the effect tends to be very drastic and it may be harsh on the consumers. It is something that government may not be able to run away from in the long run.

“The basic issue is that if government is doing this and you are now working on the supply side of the economy, then one would say that you are hard to ensure that you mitigate the effect of deregulation. But a situation where you deregulate, you are coming to import and continue to import and you cannot meet your requirement, either from the existing refineries or you are not embarking on establishment of new refineries, then there is problem”, he stated.