Fuel Price Hike: Few Preliminary Thoughts

By Moses Ochonu

The astronomical hike in the price of petrol announced in Nigeria yesterday has nothing to do with the "cost of production" argument we have become accustomed to hearing. Yes, there is some cost involved in refining the crude abroad and transporting it to Nigeria, but with crude being so cheap, the previous price of 86 Naira a liter had already accounted for all the cost, give and take a few naira.

With the price of crude inching up slightly in the last few weeks, it should add no more than a few naira to the price if indeed we want to let market fluctuations modulate the pump price. This increase has everything to do with government's last ditch effort to end the scarcity, which is caused by the inability of fuel importers to secure foreign exchange, a problem which was in turn caused by the government's rigid restrictions on access to forex.

It was unrealistic to expect fuel importers without access to forex at the official rate to continue to import fuel with forex sourced from the parallel market ($1=N320) and then sell the same fuel at N86. They would have lost money. It was a disincentive to fuel importation business and many importers simply stopped importing, especially since the government announced sometime in February or March that it would no longer pay subsidy, i.e the difference between the total cost of importing fuel plus a small profit margin and the pump price. Now, with the deregulated regime, fuel importers can source forex from the parallel market, import fuel, and sell at a price that would allow them to recoup their cost and make a small margin.

In other words, the government created a problem of restricting forex, which caused many fuel importers to quit the business, and the same government is now deregulating the sector fully so that it does not have to

(1)           pay subsidy, and

(2)         subsidize forex for fuel importers.

The government also desperately wants to end the fuel scarcity, which has eroded its political goodwill. In plain language, the government wants to kill three birds with one stone. It wants to transfer the burden of solving a fuel scarcity problem caused by its forex restriction policy to Nigerians. The government is throwing Nigerians to the jaws of fuel marketers in the hope that, as long as fuel becomes widely available, Nigerians will forgive the insensitivity of the policy, especially since this will mean the end of the fraudulent subsidy regime.

It is a risky political calculation. Theoretically, once fuel importation becomes attractive again, the resulting competition should not only make supply abundant but should also eventually drive down the pump price. That is theory though, which hardly conduces to reality in Nigeria. In Nigeria, many things, including the pump price of fuel, often defy the law of gravity. Things that go up hardly come down. Instead they tend to keep climbing up.

The main problem still remains the absence of significant local refining capacity. The NNPC boss, Ibe Kachikwu, along with the president, promised to fix the local refineries to meet domestic fuel demand. Despite many proclamations of turnaround maintenance and repairs and of purported resumption of domestic refining, it is clear that the bulk of our fuel is till being imported and that this will continue until Dangote's refinery bails the government (and Nigerians) out. Yesterday's announcement is a complete surrender on the failed promise of revamping the refineries. Had the government been able to turn the refineries around, the questions of fuel scarcity, pricing, and forex restrictions would not even have arisen in the first place, let alone forcing the government to take this drastic measure.

The president will get a pass on this policy because most Nigerian's still trust his intentions if not his policies, and because he is still seen as a man of integrity who does not waste their money and is not beholden to a cabal of subsidy fraudsters. However, if the scarcity does not abate and/or marketers find dubious ways to further mark up the price, this trust will quickly vanish.

Many of those who participated in the 2012 ‪#‎OccupyNigeria movement to protest the hike in fuel price are now on the defensive, spewing both valid and nonsensical alibis for their present indifference. There is no need to be too defensive. I agree that the times are different. Buhari's personal integrity and the public trust that that engenders makes a difference between 2016 and 2012. Moreover, in 2012, the subsidy fraud had just broken, among other corruption scandals, so there was an ongoing narrative of waste and corruption that the protests mapped onto and derived oxygen from.

That said, many of those who are ONLY invoking circumstance, time, and leadership as factors that make reaction to this price hike different from that of 2012 are disingenuous and are being only half-honest. If they are completely honest they will cite another important factor. In 2012, the Save Nigeria Group (SNG), a motley crowd of ambitious politicians and activists bankrolled mostly by the current governor of Kaduna State, Malam Nasir el-Rufai, provided organizational and logistical leadership to the protests in an opportunistic quest to discredit Jonathan and give themselves political leverage. They also had the Lagos-Ibadan press, the primary agenda-setting organ of Nigerian politics, behind them. Today, many members of the SNG have been coopted into the ruling APC government, and the Lagos-Ibadan press is still upholding the Tinubu-led Southwestern elite political consensus that brought Buhari to power.

So, even if Nigerians are as angry today as they were in 2012 over the hike in the price of petrol, they lack the financial, media, and organizational leadership necessary to coalesce into a coherent protest movement in the mold of ‪#‎OccupyNigeria2012.

*Moses Ochonu, a professor of history, shared these thoughts on his facebook page