The Federal Government has been challenged to focus more attention on addressing inflation and economic bottlenecks instead of heeding the call for the removal of fuel subsidy. Henry Boyo, an economist gave the advice in a paper he presented a paper on Petroleum Pricing, Economic Realities and the Future of the Petroleum Downstream Sector, at the 2015 Business Clinic organised by the Petroleum Downstream Group of the Lagos Chambers of Commerce and Industry, LCCI.
Boyo argued that there is a correlation between exchange rate and the pump price of petroleum products, adding that subsidy should be removed in a manner that is realisable. He also said the rate of corruption being highlighted as the crux of the subsidy programme is a function of surplus Naira.
“The means of processing dollar is a cesspool of corruption which should be tackled …‘Save Naira, Save Nigeria’. Once you remove the element that encourages subsidy, the oil marketers who have benefited from the subsidy scam would be cut off from the system,” he said. He advised Mr. Godwin Emefele, governor of the Central Bank of Nigeria (CBN) not to submit himself to the pressure by international investors to further devalue the Naira.
According to him, if the Naira is allowed to be further devalued, pump price of petrol will be sold for N400 per liter in 12 months’ time even after subsidy removal. He said that without subsidy, the price of fuel will increase beyond what Nigerians can accommodate.
“An economic process must be denominated on economic principle. Eight per cent inflation rate means 50 percent drop in the purchasing power. The fact is that the investors that are mounting pressure on CBN are not interested in the growth of the economy. They are only concerned about consumer demands which cannot be superfluous when inflation is low.
“Nigerians must be aware of the collateral damage subsidy removal of PMS, would do to the economy before yanking it off. The reality is that every six months, the government will have to be increase the pump price. This is because the exchange rate is a function of excess liquidity. This is responsible for high cost of funds, which is responsible for high interest rate and inflation.
“It is falsehood to believe that subsidy will solve a critical aspect of the country’s problem. To address this, Nigerians must be willing to stop CBN from making dollar available at the parallel market,” he said. According to him, it is out of place to believe that Nigerians will benefit when the price of crude oil falls, as the pump price cannot go down if the cost of Dollar remains high.
“By the time the CBN substitutes the Naira allocations issued to the three tiers of the government and the MDAs, the liquidity blot would have been so much that interest rate will be impossible to reach. We would have to accommodate a situation where interest rate would revolve around 23 and 26 per cent.
“Since 2009 when the prices of Diesel and Low Pour Fuel Oil, LPFO, were deregulated, the products have not been sold at cheaper rates, due to the weakness of Naira against Dollar.”
Mr Boyo said that it was amazing that despite the licenses given to 20 corporate organisations, private refineries have not seen the light of the day. According to him, private refineries have not taken off in Nigeria because of the issue with the foreign exchange that is weighing down on investment in the sector. “There is no way that the removal of oil subsidy will ensure transparency in the activities of Nigerian National Petroleum Corporation, NNPC. If the foreign exchange issue is addressed, corruption in the system would go,” he said.
By Dike Onwuamaeze