Our Energy Problems (1)

The developmental quest of any serious nation is premised on a cornucopia of factors that ranged from stable political environment to solid economic infrastructure.

Without sounding restrictive, a well-crafted and functional energy policy with implementable targets is the bedrock of economic development of any nation. A synergic world that thrives on centripetal web in the production and distribution of goods and services can only be oiled and sustained by flawless availability of energy resources. The poor management and opaqueness of our two principal energy sectors is arguably the prominent reason our developmental strides have been perpetually stunted.

The ministries of Petroleum Resources and Power have demonstrated absolute lack of focus in both policy directions and implementations. When a policy is anchored on faulty foundation, its failure becomes a foregone conclusion irrespective of the expertise of the individual on the driver’s seat. A few examples will suffice in this instance. In our usual manner of putting the cart before the horse, the Federal Government through the Finance and Petroleum Resources ministries pursued a policy of deregulation of fuel without a solid foundation for its sustainability and accruement of the intended benefit to Nigerians. In the bizarre frenzy at pushing a price increment down the throat of Nigerians, our technocrats in demonstration of barefaced sophistry “forced” Nigerians to believe that our economic liberation hinged on the policy. They simply confused increase in pump price with deregulation.

The thoughtless nature of that policy is manifesting in so many ways today and it is obvious that the government is preparing to unleash another round of fuel increment while navigating the same route. Most Nigerians warned that “deregulation” without the essential factor of workable refineries at home will not only destroy the economy but encourage unfettered importation of more petroleum products into the country. This is simple economic theory: it is cheaper and more lucrative to import finished petroleum products than building a refinery.

The pro price increment group churned out statistics and propaganda to convince us that it will engender the construction of new refineries. They even went to the unimaginable comparison of the deregulation of the telecommunication sector with the downstream petroleum sector neglecting the elementary parallel between the two. The chicken has come home to roost because even the three “Greenfield Refineries” His Excellency, President Ebelemi Jonathan promised Nigerians will no longer be feasible until 2015. What manner of joke is this? The implementers of the President’s vision must at all times understand that he is the embodiment of the dignity and respect of all Nigerians. His words cannot be treated like merely chewing kola nut and spitting same out.

It is an absurdity that we now deal with ex depot price of petroleum products which is usually an insignificant factor instead of ex refinery price. To fully appreciate the effects of the quantum importation of finished fuel in our economy, a comparative analysis with home refined products will suffice. The major price determinants for home refined fuel are:

*The cost of crude oil

*Exchange rate stability

*Cross subsidization levy (Equalization)

In the case of imported fuel, the determinants are:

*International Price of crude oil

*International Price of refined petroleum products

*Exchange rate stability

*Landing cost

*Depot cost

*Cross subsidization levy (Equalization)

Apart from the cross subsidization, the rest of the price determinants of both home refined and imported products are mutually exclusive in the real sense of it. It is also obvious from the above that we are wasting scarce foreign exchange in importation on two fronts: the differential between the international price of crude oil and the fixed NNPC allocation for local refining. Since our local refining capacity is far below the NNPC allocation, what happens to the remainder of the allocated crude oil? Are they shipped abroad for refining? If so, how are the refined products accounted for? My point is that it is unacceptable to ship out crude oil purchased from NNPC at subsidized rate and price the refined products on international market rate. It appears that we could be subsidizing a few individuals at the expense of the masses. The second is the payment of refined products in foreign currency. While the first might appear latent, the implication is there for all to see.

What is surprising to most Nigerians is the inability of the managers of the sector to condition the award of future oil blocks and fuel importation licenses on the ability of the beneficiaries to construct refineries either jointly or individually to meet national fuel demand.

This dovetails into the subsidy debate and the just ended National Assembly probe of the management of both appropriated and non-appropriated public funds used to “cushion” the fuel importers. It is strange that the National Assembly approved a whopping sum of N888 billion for the 2012 fuel subsidy regime. This NASS simply ridiculed itself by this passage considering the incessant noise it orchestrated on the subsidy administration. A far bigger issue is how the Federal Government arrived on this huge figure. Prior to the recent increase in pump price of fuel, N141/lt was presented to Nigerians as the non-subsidized price of petrol. This in real terms amounted to N76/lt increase in price and at a daily consumption rate of 35,000,000 liters, the additional recoverable revenue could have amounted to about N970.9 billion/year (that is using the government figures).

Following the reduction from N141/lt to N97/lt, the daily recoverable revenue is now N32/lt which amounts to N408.8 billion/year. The above has shown that the deficient subsidy regime amounted to about N562.1 billion/year. The question is what would the additional appropriated sum of N325.9 fund? The NASS should not expect Nigerians to be interested in another circus show in the name of probing the subsidy expenditures next year. To further smear its reputation, the National Assembly has failed to make public the result of the Lawan Farouk led committee that entertained us on national television.

The bitter truth is that our energy ship and its crews are sinking and we need experienced and tested divers to the rescue. Pretending that this ship will miraculously save herself is not only wishful but delusional. In a country with epileptic power supply, the maladministration of the petroleum sector will totally kill the businesses of ordinary Nigerians that is powered by generators. The time to act is now.

…………To be continued.