Nigerians were probably jolted by the Petroleum Minister, Ibe Kachikwu’s confirmation to a Joint Committee of the National Assembly, last week (4/1/18), that the current landing cost of petrol is about N171/litre; consequently, the minister suggested that it would be unsustainable to sell at the present N145/litre pump price, unless NNPC received forex allocation at a concessionary rate of N204=$1. Incidentally, the deregulated price of petrol is about $1.00(N305)/litre in Ghana, our oil-producing neighbour. However, in the wake of the pseudo deregulation of the petroleum downstream by President Obasanjo in 2004, which provoked robust opposition from Labour and the Nigerian public, on the adverse impact of higher fuel prices, this writer published two articles titled “The Mother and Father of Fuel Prices” (22nd Nov. 2004) and “Only a Stronger Naira Will Stop Rising Fuel Prices” (22.08.2005) in Vanguard Newspaper, see www.Lesleba.com. Expectedly, the solution proposed, still remain solidly valid over 12 years later. A summary of both articles is produced below, in the hope that government will heed this counsel that will successfully resolve the ‘annual’ dilemma of higher crude prices and weaker Naira exchange rates. Please read on. “The economic and social benefits of deregulation are evident from the demonstrated success in several countries, where proceeds from erstwhile subsidy payments are ploughed back into regenerative infrastructure. Deregulation would mean competitive market-determined prices for fuel, and should equally drive improvement in supply and customer services in the downstream sector. Furthermore, our comatose refineries would be sustainably operated, while investors would eagerly establish new refineries, with the assurance that survival and profitability would not be dependent on market manipulations or distortions by Government. Similarly, petrol smuggling and hoarding would cease to be an attractive venture while Governments’ Treasury will be conversely boosted from the plug of the ‘usual’ heavy leakages from subsidy and the illicit cross border trade. Nonetheless, the oppressive inflationary impact of deregulation, since its commencement, seems to be the exact opposite of popular expectation; for example, instead of lower prices, pump prices have conversely continued to rise with a debilitating impact on the Nigerian patient, while the palliatives earlier promised workers still remain elusive. Consequently, Organized Labour has become buoyed by vibrant public support to insist that the promised palliatives to deregulation and the resultant higher fuel prices are insignificant and not likely to restore the Nigerian patient to good health. The NLC and the Federal Government, obviously share similar aspirations, for improved social welfare, that would restrain inflation, and support a growing economy, that is efficiently driven by competitive market forces. Furthermore, Nigerians also expect that deregulation will attract, new refineries, to adequately supplement domestic supply, and provide a surplus for profitable export. Evidently, both Labour and government clearly desire the same basic objectives, of increasing job opportunities with diversification and expansion in industrial capacity; regrettably, the pursuit of these objectives seems to have chosen different tracks and yet neither party is anywhere nearer the expected goals. Specifically, however, the following factors are often popularly canvassed as primarily responsible for higher fuel prices: these are the poor shape of refineries, additional cost of imported fuel, corruption and smuggling, rising crude oil price and the Naira exchange rate. However, a careful examination of these major price instigators may reveal that, even if the present existing refineries run at full capacity and new refineries are also built, the local price of petrol, in a deregulated scenario, may only be cheaper than the imported fuel, by not more than 10-15 per cent! The difference is the additional cost of transporting crude oil abroad and the cost of shipping refined petrol to Nigeria. The potential cost savings from relatively cheap local labour in the refinery process may also be invariably nullified by the particularly high cost of running own power infrastructure, and the high-interest rates that investors have to pay on their loans. Undeniably, corruption and smuggling indirectly affect petrol price, just as inefficiency and lack of accountability in public service could also lead to indiscrete resource allocations with attendant market distortions and higher prices. Although, massive crude oil smuggling from some exporting countries, may help to stabilize or lower the level of international crude oil price, however, cross border smuggling of imported PMS instigates a bloated domestic demand and also represents a substantial open-ended subsidy to our ECOWAS neighbours. It is plausible, however, that smuggling and corruption, by themselves, do not fully explain the geometric leap in domestic fuel prices from less than N1/litre in the 1980s to its present oppressive level of over N50/litre (2005). Indeed, the popular welfarist argument that Nigerians should enjoy lower prices for their natural resource endowment, may inadvertently jeopardize the multiple advantages of free-market pricing and unwittingly truncate foreign investments in local refineries, to expand production capacity beyond local consumption. Furthermore, the hundreds of billions of Naira subsidy allocation to stabilize lower petrol prices, will ultimately kill the existing public refineries. For example, if the NNPC continues to absorb daily subsidy values in excess of N350 million (over N150 billion annually) as reported by the Group Managing Director Funsho Kupolokun recently, this monstrous burden would ultimately sound the death knell for private investment in local refineries! Nevertheless, it is also realistic to expect that even if international crude oil prices rise significantly, the induced increase in domestic fuel prices, should be cushioned by a stronger value naira vis-à-vis the dollar (the crude oil value denominator), since increasing dollar revenue, which automatically accrue from higher crude oil output and prices would also boost our foreign exchange reserves to provide extended import cover which should engender a stronger naira exchange rate. Instructively, such a responsive exchange rate mechanism will either stabilize or even reduce domestic fuel prices even when crude oil prices rise. Although Nigerians will technically be able to buy fuel more cheaply with a stronger Naira exchange rate, when crude oil prices rise, conversely, petrol smugglers will, however, be liquidated, as a stronger naira will erode profit margins and make petrol smuggling business unprofitable! Thus the stronger the naira rate which evolves from increasing dollar reserves, the lower, ultimately will be the domestic fuel price. Furthermore, it will become expedient and not unduly oppressive to supplement government revenue with a 10-15 per cent petrol tax, as in other more successful economies; the fuel tax so consolidated can be dedicated to regenerating critical social infrastructure in areas such as in education, health and transportation. From the preceding, it should be evident that the single most important factor in the determination of local fuel prices, is actually the naira exchange rate. Indeed, in a deregulated domestic market, fuel prices will invariably move in sympathy with international crude prices, but the appropriate and sensible management of increasing dollar revenue from higher crude prices, will determine the naira exchange rate and consequently the domestic fuel price. Thus, in such an enabling marketplace, with the correct infusion of oil export dollar revenue into the economy, the self-evident benefits of deregulating the oil industry’s downstream will become manifest as local fuel prices will become market-determined. Thus, when crude prices rise, Nigerians would earn more dollars which will strengthen the Naira rate to induce cheaper petrol prices locally, without a kobo subsidy, but with the benefit of a possible petrol sales tax. The impact of a cheaper Naira pump price will trickle down in a cascading positive impact on the economy, as transport cost collapse and foodstuffs become cheaper to transport from the farms to the cities. Conversely, however, the Naira rate will inevitably continue its downward spiral even with higher crude prices and dollar revenue, so long as the CBN retains its monopoly in the forex market and continues to auction rations of dollar for higher Naira bids, in a market, that is undeniably already suffocated with excess Naira supply.” SAVE THE NAIRA, SAVE NIGERIANS!