ON WHOSE AGENDA IS DEREGULATION OF FUEL PRICE?

After reading this piece, you will understand why our leaders are fighting us to deregulate the downstream oil sector and remove subsidies where they exit; you will see why our people must cry so that their people can laugh. We are not free from the colonial magnate with our leadership. Read on.

The picture of unfavourable market forecasted by the developed countries concerning future price of oil is captured by this statement:

“The price of oil is likely to soar to an average of US$150 /bbl by 2010 and continuing to rise to over US$200/bbl by 2012”, said Jeff Rubin and Peter Buchanan, analysts with the Canadian Imperial Bank of Commerce. The CIBC report says this will translate into steadily rising prices at the gas pumps, rising to as much as US7 a gallon by 2012”

The reason for the pressure for price increases was thought to arise from the aggregate demand for fuel generated in the OPEC and independent producer countries, which subsidize fuel prices. The increasing local demand for oil would reduce the available oil quota for export, assuming oil production does not increase, and the reduced supply would instigate increase in international market price. See how the issues were raised:

“……there is little evidence to suggest that there is any compensating reduction in global demand growth. Instead, aggregate crude demand remains robust as burgeoning demand for crude oil outside of the OECD, and in major oil-producing countries in particular, has more than offset demand destruction in OECD markets. Juxtaposed against more limited supply gains, the resilience of demand in developing countries points to increasing global competition for increasingly scarce oil resources”

"Car purchases in Russia, for example, are exploding as US sales stagnate, while in India the advent of the Tata Nano, a car that will sell for as little as US$2,500 will allow millions of households in the developing world to own automobiles when they otherwise could not. It is the savings necessary to buy a car, not the price of gasoline that poses the greatest obstacle to fuel demand growth in those countries.

"For the most part, soaring rates of domestic fuel consumption, particularly in OPEC countries, can be traced to egregiously low pump prices. Gasoline in the 25-cents/gal range in Venezuela and in the 50-60 cents/gal range in Saudi Arabia, Kuwait and Iran, have not, surprisingly, spurred enormous fuel appetites in those countries. Not only is the demand for fuel there price-inelastic but the elasticity has the wrong sign. In other words, higher world oil price only serves to boost demand, because they bring even more money chasing massively subsidized fuel”

In Nigeria, the use of personal cars increased in the past 10 years and recently, importation of fuel-inefficient cars from USA and Europe is in vogue among the political class and elite businessmen. This is apparent, although data are usually unavailable in our setting. The growing economy is stimulated by heavy use of oil for energy generation and transportation. The increasing demand for oil products in the country is expected in the circumstance, but can be reduced if the policy direction encourages alternative energy generation. Until sustainable cheaper alternative energy resources are available to the industries, it is not advisable for the government to create new strictures in the energy chain. We can take China and the Asian countries as good examples. They used subsidies in fuel price to drive their economies and now my computer, fridge, torch etc are either from China or Asia and the prices are affordable. Growing from economic dependence to economic independence and interdependence is only possible with nationally motivated decisions. Those who advocate absolute free market are already in a position to gain from it because they have instruments to control the market forces. Where they are not able to do so, they use political forces that are loyal to them. They cannot agree that China and several other countries have used subsidies to give leverage to their economies and achieve good fiscal balance sheets. What are the fears that surround fuel subsidy?

"The more oil is consumed in oil-producing countries, the less oil will be consumed in the OECD. Since oil-producing countries effectively have first call on their own oil, the balance is the residual which the price mechanism must ration.”

“But by distorting fuel prices, China is encouraging fuel consumption and discouraging the use of new energy.”

“Fuel subsidies have exaggerated inflation in the developed world, while understating inflation in the developing world. China's inflation could well hit 15 percent if Beijing were to free up caps on energy prices, Morgan Stanley estimates.”

"If China is not able to take away the subsidy and cut down its demand, it will have huge implications for the world,"

“……many emerging economies employ subsidies that keep domestic fuel prices far below the world price. As a result, these countries consume far more fuel than they would otherwise. By one estimate, countries with fuel subsidies accounted for virtually the entire increase in worldwide oil consumption last year. Without this artificial demand stimulus, world oil prices would have been significantly lower.”

“Subsidizing fuel does nothing to reduce the inevitable suffering, and actually makes it worse. The problem is that when the price of a good is below its cost, people use it wastefully.”

(Frank, 2008)

The above statements show why the developed world is unhappy with countries like Nigeria. What are we expected to believe? The West does not care about socio-economic pressures in the developing countries, since financial aids from their gains will be given to ameliorate them. Their concern is more about socio-economic stability in Western world and little attention is paid to what it costs the developing world. See how it is scripted:

"Giving out subsidies is an easy and popular thing to do, but getting rid of it is like hell….. While the West is critical of China's energy policy, there is little outcry for change within the country.”

“Subsidy proponents cite the firestorm of political protest that would erupt if fuel were to sell at the international market price. That fuel subsidies are wasteful, however, implies that there must be less costly ways to keep the peace”

The foregoing referenced statements clearly show the insensitivity of the West to socio-economic stability in the developing countries. The West has fully studied their economic needs and is using every agency to promote the satisfaction of these needs. Calling it an economic war against the developing countries may be an overstatement, but it sounds to me an insensitive aggression against the socio-economic sensibilities of these struggling nations, which the West has not studied their internal dynamics.

Some truth should be faced about increasing international fuel price and it is acknowledged by a Western writer:

To be sure, subsidies are not the only cause of high crude oil prices. Strong global economic growth, particularly in Asia, is requiring a lot of energy. Political tensions between the United States and Iran and market psychology have played a role (Bradsher, 2008).

The fact that other factors may be responsible for propping the oil price, other than the steep demand for oil in oil-producing nations with fuel subsidy, was clear when oil price collapsed with changes in the fiscal climate in the West. The stalling demand in the West, because of credit crunch, drove the price down, even when the oil demand in the oil-producing nations had not abated. The Western demand was apparently propelled by excess fiscal liquidity from foreign reserves in the hands of market speculators. Also, it was this liquidity that encouraged banks in the West to give outrageous loans to home owners. This makes it possible for the dollar to depreciate without the naira appreciating despite our growing foreign reserve. But we do not have any choice. The reason is that our wealth can only be secured in the institutions of rich nations in the West. Economics is so mixed with politics that what is done is frequently what is expedient.

The solutions suggested are the use of cars consuming less fuel and electric cars using cheap electricity. These cars are not likely to reach the poor countries in subsidy band until their second-hand rates make them affordable.

Elimination of fuel subsidies, IMF claims, will ensure public spending is directed to more productive uses, encourage efficient use of energy and target social assistance at those that are truly poor, by increasing access to or improving the quality of education and health care services, improving physical infrastructure, or reducing taxes.

The education and health sectors are areas the West is not uncomfortable if the government does not embark on any deregulatory policy of subsidy removal.

A productive sector worthy of the governments’ attention like in USA is the productive energy sector that generates more fuel through their refineries or provides alternative energy that will make crude oil less significant. A substantial assistance was offered to private energy companies in USA to the tune of $6 billion dollars through Bush-Cheney Energy Bill, as a form of subsidy.

WE NEED POLITICIANS WHO THINK AND ACT FOR THE GOOD OF THE PEOPLE. WE MUST HAVE KWONLEDGE-DRIVEN DECISIONS

The entire subsidy as it is now in Nigeria goes essentially into the productive sector either directly or indirectly to entrepreneurs who need fuel for transportation to move people, goods and services, small-scale to large-scale industries that use energy to maintain some level of productivity. We have not had public power supply for more than a week in my part of the town and I have had to burn a gallon of petrol to be productive for my sake and for the sake of all Nigerians. I stop for today.

Loretta Okafor’s article can provide more information