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Socialist Democracy April-May 2018


29 March 2018

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FUEL SCARCITY: Fixing the Oil Sector is not Rocket Science!

For immediate repair of old refineries, building of new ones and nationalization of oil and gas industry

By H.T. Soweto

Every now and then, Nigeria finds itself in the throes of fuel scarcity. The latest crisis which started December last year persisted for several months with motorists buying the products well above official price. As a result, many people are beginning to call the president Buhari/Osinbajo APC regime "clueless" and "incompetent" the very same adjectives used to describe the Jonathan PDP regime some two and half years back.

We must make the point here that the assurances of the Buhari/Osinbajo capitalist government that there is no plan to hike fuel price should be taken with a pinch of salt. With the 2019 general elections in mind, the government could hold on to another hike in pump price in the immediate period but in the long run it has no other option than to give in to the desire of the private sector for full deregulation or continue to pay huge subsidy.

OLD WINE IN NEW BOTTLE

Last December was not the first time there would be fuel scarcity during the Christmas season dovetailing into the New Year. But because this was a regime that campaigned to end this kind of hardship, many are asking, why has Buhari in whom they placed so much hope failed to resolve the problem? The answer is quite simple. To resolve any of the socio-economic crises facing the working and poor people in Nigeria requires measures to end capitalism starting with its anti-poor policies of privatization of public utilities, commercialization of education and health and deregulation of the oil industry etc. In other words, you cannot resolve Nigeria's problems on a firm and sustainable basis without transforming capitalism and implementing socialist economic measures. Without this, any attempted reforms will succumb to the internal contradictions of the capitalist system and crumble.

It is striking that one of the first actions of the Buhari/Osinbajo regime after inauguration was to pay oil marketers millions of dollars which they were demanding from the Jonathan government back then in March 2015 as the exchange rate differentials of the subsidy for the petroleum products they imported. Instead of taking firm actions against oil marketers and subsidy thieves and the so-called oil cabals, the regime largely pampered them.

On refineries, the regime has not taken any significant step to build new refineries while the old ones are allowed to rot. Rather it has relinquished this responsibility to Africa's richest billionaire, Aliko Dangote, who is in the process of completing the building of an $11billion refinery and petrochemical plant at Epe free trade zone scheduled to take off in the year 2019. But when and if this refinery comes on stream, far from bringing any relief, it would mark the beginning of another cycle of unaffordable prices of petroleum products. As officials of Aliko Dangote's company have made clear, they are not building the refinery to help Nigeria solve its problems, they are doing so to make profit. According to Mr. Mansur Ahmed, the Executive Director Stakeholder Management and Corporate Communication, Dangote Group, the company went into oil refining on the expectation that it would not be affected by decision of local pricing. "We expect that we will buy our input, especially crude, at international market price, and that when we produce products, we will sell those products at international prices." (Punch, 30 March 2016).

PRICE MODULATION

The policy of price modulation was enacted in May 2016 and it cancelled subsidy and raised the price of petrol from N86.50k to N145 at a period when factors actually supported a reduction in prices. Price modulation means that prices of fuel products would reflect the movement in the market. At the time it was introduced, the real movement of fuel price was downward because of the low landing cost. Crude oil price was below $40 at the time. Therefore the N145 price hike was a gift to the oil marketers to help them recoup losses they would incur because of the volatile foreign exchange.

At the time, the government expected that at a ceiling of N145 per litre, prices would crash down with competition. Actually the Minister of State for Petroleum resources, Ibe Kachikwu openly claimed that in a post-subsidy scenario, competition would bring down pump price within 6 months. To make good on this false boast, a few weeks after the hike in pump price, the social media was filled with news of some petrol stations selling at N141 and N142 per litre below the official price. Now the sugar-coated post-subsidy scenario of competition driving down prices has collapsed.

Now as the price of crude oil has risen on the world market, so also has the cost of importing petroleum products increased. The price of crude oil on the world market is now around $68 per barrel. This together with the high exchange rate has led to a rise in the landing cost to between N154 and N155 per litre. On the basis of the price modulation mechanism, this means pump price ought to go up to at least N166 to N167 naira per litre for the oil marketers to make a profit.

The alternative is for subsidy to be restored something which actually had been restored through the back door for months now. Actually for several months, the NNPC has been importing at least 95 percent of the country's daily requirement for petroleum products in contravention of the price modulation mechanism/partial deregulation agenda.

NO WAY OUT ON THE BASIS OF CAPITALISM

The central issue behind periodic fuel scarcity is that the people of Nigeria do not have any control over their oil resources and consequently, the wealth that accrues from it. The oil and gas industry (upstream and downstream) remain under the grip of private profit-first interests i.e. International Oil Companies (IOCs), local oil tycoons and oil block owners, oil importers and marketers, ship owners and storage facility owners etc.

In reality, all Nigeria gets through the NNPC are signature bonuses, royalties and taxes. So long this remains the case, fuel scarcity and unaffordable prices of petroleum products will continue to be the lot of the working people

A SOCIALIST PROGRAMME

To fight the cabal and break its grip, Socialists canvass for the nationalization of the oil and gas industry under public democratic control and management. This means that the assets of the International Oil Companies (IOCs), the oil blocks and the local oil industries must be placed under public ownership with compensation paid to their former owners on the basis of proven need. The NNPC should be made a public institution run by a board made up of democratically elected representatives of the workers and management.

Secondly, we canvass for a programme to rapidly repair the old refineries and build new ones as well as putting in place functional distribution network of pipelines connecting different areas in order to end fuel importation and poor distribution. These measures if linked with a workers and poor people's government based on the collective ownership of the commanding heights of the economy under workers democratic control and management and a socialist plan can ensure that Nigeria's enormous oil and gas resources becomes a blessing rather than a curse to the working masses. (For the full version of this article, visit www.socialistnigeria.org).