Atedo Peterside, Chairman Stanbic IBTC Plc appeared on Sunrise Daily, a programme on Channels Television this week and argued that petrol subsidies were causing a disruption in the economy, calling for deregulation and proper foreign exchange pricing. BusinessDay recorded excerpts of the interview and reproduced it below.
The arguments and approach to the issue of petrol that we face in 2012, is it the same kind as we have today or is this one particularly different?
It is similar to 2012. If anything the position today is more serious and the case for deregulation is even stronger now than it was in 2012 for a variety of reasons.
The price of crude oil is somewhere around $45 and $50. I am among those who believe that the crude market has changed forever with the advent of shale producers.
The revenue profile of the nation is a lot worse today than it was in 2012. And the other argument if you remember in 2012 is that people said they won’t mind going through this adjustment if only the government can take some pain.
But this government has shown that they are willing to take some pain themselves, from the President, the vice president and others. If you don’t do it with this government, I don’t think we will ever do it.
Having said that I think I should make it very clear that there is some confusion. I like the word deregulation because that is what I favour. Deregulation exists in aviation fuel, deregulation exists in diesel. Petrol and kerosene are the problems.
What do we have in those cases (petrol and kerosene)?
For aviation fuel and diesel, nobody announces a price, It is between willing seller, willing buyer; demand and supply.
So those end products are trading at a price that is consistent with what is happening in neighbouring countries and also the world market price.
We’ve had this fixation with petrol in Nigeria and it is not caused by this government or the past one, it has been going on for decades. A government does not promise you the price of anything, not the price of rice, not the price of garri, not the price of housing but they want it to promise you the price of petrol.
What is the point of promising only one item? And the unions too are fixated on only the price of one item, almost as if they have been brainwashed by what happened 20 or 25 years ago.
I think it is important to know that as a nation, we are facing some crises we forget about partisan differences and pull together. And I’m happy to see one or two progressive unions have made it clear that they favour deregulation.
We have to free this economy from the burden of this distortion called petrol subsidy once and forever. And let me explain one thing, deregulation cannot co-exist with price fixing by government. If government wants to fix a price, NNPC who also sell petrol should announce their own price for their own petrol and leave others to bring in petrol and sell it at their own price. NNPC can be a reference price but I don’t like this idea of deregulating and you announce a maximum price for all because you do not control the dynamics. You don’t what the price of crude oil will be tomorrow, the exchange rate and so on.
So it is for NNPC as one supplier in the market to announce what its current price is and leave the rest of us to talk about deregulation.
Does it go contrary to the Petroleum Act if this is announced as a deregulation?
While I am not a lawyer but an economist, I am looking at it from a Federal government mandate and they have a firm mandate. A political party that control most of the state governments, the senate, house of representatives, with broad mandate you cannot take actions like deregulation who will take it tomorrow?.
Bearing in mind that in 2012 it was a house divided, even before the President announced deregulation the Speaker of House or Representatives was going in a different direction. Here we have a government with a broad mandate, it is still early in its tenure, has some goodwill so if you cannot harness that and pull all the elements together and deregulate, I don’t know if and when it can happen.
Also realize we have a poor revenue profile. I’m told Central Bank received $600 million dollar foreign exchange or so, petrol imports alone can consume half of that. So are we going to be a nation that consumes half of our forex on one item?
Common sense also dictates that the lower you make the petrol price the more of it we consume, especially the rich people with many cars and boats. The lower you make the petrol price the more it goes across the border to all our neigbouring countries. So you are fighting a battle against reality which you will lose eventually.
I think if anybody loves the idea of subsidy, there are ways you can dispense a subsidy in 2016 which were not available in1984. We have moved on in terms of biometrics, mobile phones, national ID Cards which payments used to be made through.
You can actually wake up today and have deregulation and have a subsidy payment, safety net payment that gives every Nigerian adult above eighteen N200 a month and tell him this is his own subsidy almost as it is done with fertilizer, that way there is no abuse.
If every eighteen year old got N200 a month, they will jump for joy and sing Buhari’s praise and what is the cost of it? Lets imagine that those over 18 year are about 70 million, at N200 for each person that is N14 billion a month, at 12 months that is N68bn. This is a lot less than we squander on the so-called petrol subsidy
Paying these large sums of money to a petrol mafia, an entire ecosystem that is built around fraud, that you see bridging payments supposedly to sell petrol at the same price all over the country. If you go to the far north, the border areas, riverine areas, some filling stations there have not seen petrol in 11 months. If somebody collects petrol supposedly for them, collects an extra payment, so called bridging for him to deliver in those areas at the controlled price and takes it across the border. This is not sustainable
Apart from the N200 suggestion, what better way is there that can help the average Nigerian?
What you are asking me is what other way apart from the best way. The best way is like I said with fertilizer, you can delay the subsidy element from the actual product and pay it to every adult directly using this newer instruments that are full-proof.
To answer your questions directly, when you link it to exchange rate, that creates more confusion. How can a government insist that the exchange rate is N200/1$ but that you are pricing petrol at N285/1$. Have you devalued the naira, if you have let’s know that. Even if you are arguing about devaluation or not, the reality is that we cannot afford to pay for petrol using all our scarce resources to give it away at a reduced price.
My palliatives if you notice was focusing on what can you do for the poorest of the poor. I know the government has safety net they mentioned in the budget, they are useful but I don’t like them because they are selective. There are 170m Nigerians, how do you pick out the 1m who are the poorest of the poor? My method, as long as you have the required instrument, ID card, you get your own share of this safety net. It gives people an incentive to register for the national Id card, there will be a stampede for it, it improves your control over Boko Haram and everything else and after a while you can decide that whoever does not have the ID Card as an adult is up to mischief, you have the fingerprints and biometrics.
We have to get creative, we cannot hang to the romantic ideals of 1984 in 2016, the realities are totally different, we are facing very hard times. This year, barring a miracle economic growth is going to be less than population growth which means that we are facing fallen living standards as Nigerians. If care is not taken we can be in that environment for three more years.
The responsibility of any good government is to make good use of today’s resources. If you are receiving in April $600m dollars only of foreign exchange (and it is that small because the exchange rate doesn’t encourage others to bring in dollars) and the last time I checked the parallel market is still illegal so how are people going to get dollars at N285 if it is still illegal?
This solution of yours why do you think this is not featured prominently and why has it not been adopted?
Remember four years ago, I used the expression fuel vouchers. What I have mentioned is just fuel vouchers in reverse. My point is that any arrangement where you create any electronic payment system that can deliver to the poorest people one by one is preferable than the hazy system built by the oil marketers.
The point I am making is that, we have take some big decisions. The government from May 29 last year, had to take three big decisions: Treasury single account, petrol and kerosene subsidies and facing the reality on foreign exchange.
We have taken one of those three big decisions. I think it’s time to take decision on the others. The announcement on petrol is a positive decisions but I wish they go all the way. This is a government that I think Nigerians will believe even it gets up and tell them the truth.
Also are you aware that 25 states can’t even pay wages? Do you know why they can’t pay wages – yes for some of them, we can say they fail to adjust, ghost workers and all- but there is also another reason. If you are converting dollars at N200 to a dollar and effectively giving them N200 to a dollar, and you are telling them to buy in the market at N285 and most of the goods in the market is at N300, effectively you are shortchanging them.
The governors themselves should sit down with the presidency and dialogue. Now I know that calls for painful adjustment. Under Yardua I was in the economic team, I advised strongly for deregulation it didn’t happen, under Jonathan I was in the economic team, I advised strongly about deregulation, each time around the reason for it stronger, global markets have changed; fortunes have changed as a country.
We have three biggest threats to investments in Nigeria, – book haram, herdsmen and militancy. So the combination of a poor revenue profile plus three broad sets of risks is fighting off investors plus an exchange rate regime which no body understand.
There is talk that in the next six months we may have government completely hands off that sector and that is when full deregulation can take place, do you see that happening?
My position on the economy generally is that the more things government hands off properly the more the economy functions. When the economy achieve a growth rate of close to 8 percent per annum, it wasn’t that government were doing some wonderful things it was because they were interfering less with everyday decisions and not bothering people with bad fiscal and money polices.
I believe this government is effective, taking strong actions in the area of Boko haram but they need to complement that on the economic side by taking the tough decisions as there are no alternatives.
My only concern is what happened to the poorest of the poor. If somebody have a yacht and boats he can afford to pay more. Let’s move first to deregulation. It helps private investors to invest in refineries and the downstream sector.
The scope for abuse with petrol is phenomenal unlike diesel. In banking and finance, all payments take place against document, which means that at the end of the day if somebody is claiming subsidy or bridge payment, it is on the basis of the document he has presented. If the document is inaccurate because people colluded those who are supposed to check him signed for something that did not happen e walks away.
If we wanted to deregulate, do you think we would be able to do it in the short term?
For diesel and aviation fuel, it was done over night. But you don’t do it without talking to your constituents, you control the national assembly, you have your ministers, an economic team, you pull people together and bring in the trade unions they are not all unreasonable. I don’t think they could get the same kind of traction they got last time.
I am also appealing to the trade unions, there is nothing worse than testing your strength and you find at the end of the day that there is no followership. It is better to say you decided on your own to call government and negotiate some actions and you will retain your …
Can we get this structure you are advocating right in the short-term
Yes, how was it done on fertilizer farmers, they were calling farmers and paying them through their mobile phones and the beauty with mobile phones and working with the NCC is that you can ensure one payment is made to those with multiple numbers.
How can we make doubters see reason …
As an economist, when you think of an action at the macroeconomic level, that is you are saying I want to do for the whole economy, you must also have the competence and ability to trace the impact to the individual unit, the households, the firm, the consumer at the micro economic levels. You must also have the ability in terms of trigonometric to measure the impact because there is no making a pronouncement at the top, at the macro level, and you don’t even know its impact at the micro unit and you don’t even know how to measure it.
Let me tell how you to measure the impact of petrol subsidies. If you go to remote parts of Nigeria, you will discover that there is nothing like petrol subsidies, if anything the price that people buy and sell petrol there is virtually equivalent or just marginally less than the price across the border because it makes sense because if you in the border area and Nigeria has over 4000 miles of border unsecured border area so you can move the product left or right.
The result is that the people who are living in all those far flung places have always being buying their own petrol at prices marginally less than those that prevail outside the borders. Everybody knows how to arbitrage, so they will simply sell outside.
Have you seen these NNPC floating stations in riverine areas, about 12 of them were brought in some years ago with fanfare as the solution to fuel crises, the oil producing areas will now have petrol at subsidied price. The last time I checked they are still floating edifices in the river and all the communities know they have not sold petrol for the last eleven months.
So it was just a contraption to deceive people. So the people take their boats to mainland and buy fuel.
It doesn’t seem as if the bridging experiment working…
With all due respect if they were phenomenally sincere and transparent, it was never going to work. In case, what is the use in an economy, you don’t equalize house rent, or the price of food stuff, or books… what is the point of equalizing only one item which is the most difficult one almost because you can move it around.
I am not looking at laws; somebody could have made a bad law years ago because it was designed poorly with poor logic in terms of the economy. I am looking at a government that wants to bring about change, and so when I propose a solution it involves government moving with legislature to expunge bad laws from our books and put in place real change that will improve the lot of the poorest of the poor and allow the economy to move and to thrive
How will this situation positively impact on the economy of the poorest of the poor?
When you go down to those remote parts of the country and you look at the price they are paying for petrol, that price is consistent with what is paid outside the border. Which means that their own protection was that the price can never go higher than the price across the border because if it did they will buy it across the border, so the point I am making is that they were already at that price and they have remained there for years.
But with the announcement of increase of the fuel price, prices of foodstuff also went up as well to some extent.
We have been through this before, when they increase the price in the past people say the inflation will jump at 15 percent or more but go and look at the statistics, I think the highest it got to was just about 10 percent.
You cannot argue that people are poor and at the same time argue that the unemployed and the poor can pay a lot more for everything. Initially, you can announce a huge price rise but it is difficult to sustain. If you hike prices unreasonably, soon you will have to beg consumers to buy especially if it is perishable. So it is not true that you can keep on hiking up prices, what tends to happens also is that shortly after any attempt to deregulate, unions kick in cause all these confusion which dislocates supply chains so the result is there is scarcity of product moving around and they manage to destabilize everything and people take advantage of scarcity in the immediate domain but this does not last very long.
Yes, if you deregulate and let people buy fx at a rate that can be sustained in the market, two things happen: because deregulation has increased the price of petrol for the people in Lagos and Abuja whom NNPC like to concentrate the petrol so that it seems they are meeting their goal, they pay a bit more when you deregulate. When they pay more their consumption decreases. It is companies with 200 cars and all that reduce their consumption not the average person operating a generator. So you consume less of the product and less of the product goes across the border.
It would seem that with this ceiling, it can’t be stopped…
I heard the minister say it is only a reference price. I wish the NNPC would just announce their own price, even then if NNPC kept a price that was way below everybody’s price you know what will happen, NNPC will take advantage of arbitrage price. It comes naturally to entrepreneurs.
I don’t know anybody who buys diesel and travels with it a very long way because there is no reason to, because the merchants sell it at prices not too far from the major urban centres.
What’s the guarantee that marketers will not come together and increase the price further?
People can abuse a market when you put in place some distortion. It is the distortions they are attacking, if you remove the distortions and you make sure that the market is being allowed to operate and there is competition, it is the profit motive that will make one player to try and increase market share over the other as happens in other products.
What makes you think that petrol is bigger than everything in this world. It is decade’s distortion in Nigeria by the petrol subsidy mafia. It is decades of brain washing of the whole nation that there is something unique about petrol.
But we’ve seen that with petrol, the economy almost shut down
It is because they use the unions that is why it shuts down and that is why I say that government must broaden their engagement with union.
Has NNPC always been having subsidies on its petroleum products?
The country does not need NNPC. NNPC exists by largely bringing in distortion in various parts of the upstream and downstream sector. You could almost remove NNPC over time, disengage them. You are better off removing them from various aspects of the economy they are bringing distortions.
A lot depends on what rate they are getting foreign exchange, if you give them at N200 then of course they can sell at a lower price, so let’s not dwell too much on NNPC as one agency I am more concerned about the change the country needs, the broad economic reforms.
People think NNPC is the regulator, Department of Petroleum Resources (DPR) is the regulator NNPC is actually an actor, most times taking part in the same sector.
But is that not why they were advocating for the Petroleum Industry Bill?
The original reason some of us advocated for PIB, it was to solve some problems – cash calls, free the economy from cash calls, ensure we had an oil sector operating independently and I don’t how it changed to restructuring NNPC, I disagree with that viewpoint but let’s not make that the subject of this discussion.
Did you try to advise previous governments?
Yes, some of us were advocates of deregulation. To answer your question about why one commodity should attract so much attention, the honest answer is it is the one an entire ecosystem, a mafia of sorts has been making billions of money and so they have invested their energy, and their resources to maintain this stranglehold and to confuse successive governments that they are doing something for the nation. And the truth is that, if you deregulate completely, many of them will be out of business because they are not efficient, they cannot compete, what they have done is that they have formed an unholy alliance of transporters, NNPC, trade union, they are hanging on the one item on which they loot the nation bare that’s all and it is for the nation to see through that and say enough is enough.
The impact it will have on the people should be considered, we don’t have good transportation systems, homes and cars use petrol, how do the people cope?
You can make the same arguments for medicine, you can make the same arguments for food, there are things that are important in an economy without which it can’t function. Perhaps it is the subsidy element and the huge sums of money that can be made by attacking this one distortion that has made many people venture into it.
Are you not surprised some years ago, when they want to assign cargoes to bring in petrol, if you look at the pricing template, it is supposed to be a business very thin margins yet the number of people who want to take part in that activity with very thin margins keep rising everyday because they know that sooner or later, the enforcement will fall apart and they will be able to cheat with volumes and documentation and that is why these guys will not deal with diesel because they will
