Prof. Pat Utomi, a professor of political economy and management in this interview with NETA NWOSU dissects the palliatives and measures designed by government to ameliorate the sufferings that Nigerian workers may experience as a result of the cost-reflective electricity tariff adjustments and deregulation of the downstream sector of the petroleum industry.
The Federal Government says it has deregulated, and out of subsidy completely. The government has also promised to introduce an alternate fuel, compressed natural gas, which would be cheaper than PMS. How feasible is this considering the fact that the average Nigerian has a car that runs on petrol?
Well, there are really two or three different questions in your question. One question is about compressed natural gas (CNG), another question is about deregulation, whether it’s out or not out. Let us begin with the question whether deregulation is complete. I have to state that my own position, which has been the same for the last 20 years, is that the Federal Government should deregulate the sector; that’s always being my position. My problem is that I don’t know what the government means when it says it deregulated because you see, there’s a crisis of understanding in the Nigerian political class about policy. Sometimes, some things are said for convenience.
And now that the country is literally broke and cannot afford, let’s call it the abuse of the system. The policy makers are saying that they have deregulated. I thought I heard a similar statement about four years ago in different terms of context and circumstances. So, I think the first thing is to get whoever the policy makers are to be honest to themselves first before they are even to the Nigerian people. Do they understand what it means to deregulate? Now, here is what I understand deregulation to mean. As a commodity and petrol which comes out of crude oil produced in Nigeria, arrives back to Nigeria after it has journeyed all the way to Rotterdam and wherever else in the world that it is being refined, and shipped back to Nigeria.
Anybody with standard six education will know that if you could cut out the transport cost from here to Rotterdam, petrol should ordinarily be cheaper in Nigeria than the one you have imported from Rotterdam or that is consumed in Europe. But of course, besides transport cost, there is efficiency of the process, in terms of how competitive your price is. NNPC deliberately for years mismanaged the refineries in Nigeria, I said deliberately, Nigerian politicians whoever they are, NNPC officials because refining is not rocket science.
It’s the same refining that they do in Rotterdam that is being done in Lagos. The same people who do it in Rotterdam can come and build a factory or refinery in Lagos and run it the same way, as efficiently, and still cut out that transport cost, and therefore make more profit. But because people are pushing all kinds of phony interests and corruption and everything, we have not done what should have been done 30 years ago. We have held unto refineries that we built, which we chose because of corruption to maintain in manners that have made them extraordinarily expensive, yet, non functional, and then, NNPC still carries a budget.
If you know how much it pays for maintaining refineries that are not working, it’s disgraceful. So, on top of this, the nation is bearing that burden. We say the refineries are not working, so, we import petrol, and then, we say okay we are partially deregulating or deregulating or whatever it is, okay marketers import petrol, marketers say, ‘we bring this thing that has gone from here to Rotterdam and back, it would cost so much.’ So, we say, ‘Okay, alright, we will pay you something if you bring it.’ And so, they get into another round of corruption with NNPC officials. They bring the thing, they take it out, they do whatever it is they do.
I challenge my friends, and I have many friends who are in that business. I say to them, ‘Tell me, why is it that whenever you say somebody is in the petrol business in Nigeria, people will say ‘Baba, rich man.’ Anywhere in the world, petrol is a commodity that the margins are so thin on that you don’t make money from selling petrol. This is why multinational oil companies such as Total, Mobil, they use petrol to attract customers because you must buy petrol, so, there’s traffic into petrol stations. But if they spend on the margin on petrol that they sell to you, they won’t be able to maintain the petrol station because the margins are very thin because the competition is stiff; it’s a commodity, there’s no difference between what you buy in this station and the next station.
So, they build supermarket inside their petrol stations. Total will call its own Bonjour, Mobil will call its own Mimimart. They make more money from those things they sell in those places than they make from selling petrol. How come in Nigeria, without those things, anybody who has a petrol station is considered a rich man? Simple! They are stealing the money! They are conniving with NNPC in the name of subsidy to rip the Nigerian people. In 2012, when they said ‘ah’, they wanted to remove subsidy, and some of us said no, and people said to us, ‘you are against deregulation.’ That’s nonsense. We said no because we know what they were talking about then that was deregulation is not deregulation. They wanted to increase the price of fuel, pretend that it is deregulation, and get those petrol importers to get more money, and give some of it to the government officials and some of it to the political parties to prepare for the next election.
We knew that, that was why we protested it. Now, when this government got to power, since it was one of those that criticized that whole practice, we expected that they would move very quickly to create an environment that would lead to investment in refining petrol here, which would always be more cost effective than moving it out and coming back. Aliko Dangote started working on it, they should have provided more incentives.
Instead of selling crude, why don’t you add some more value here, and create an incentive system that would make others, beside Aliko turn to petrol refining in Nigeria, so that they would be exporting it from Nigeria to consumers nearer to this place and save the money of going to Amsterdam or to Rotterdam, and coming back to Angola or coming back to Namibia; wherever it is they are selling petrol around this area. Nobody did that. So, we get to the dilemma of ‘ok, we need to keep petrol at a certain price’, and crude oil prices go up and down.
When crude prices go down, now, that is bad news for exploration companies, but it is good news for the refining companies because if the prices come low, their margins can be more. When crude oil prices go up, it’s good news for the exploration companies, but that is bad news for the refineries because their margin will gets thinner. So, at a time that crude oil prices crash to the kind of level they crashed to last year or whatever, if you really wanted to get out of this, and you say ‘look, we are out of the business of subsidy or whatever, that will immediately lead to a crash in the prices because what the input cost in Rotterdam and co are is very low, so whatever is coming from Rotterdam is very, very, cheap at that point.
But we didn’t exactly do that. And so, when we then started getting broke and couldn’t pay, they said ‘we want to remove this thing, and now, prices are going up. The price is now so much higher, and then people are exclaiming because people don’t understand this economics that I have just explained to you, and it is natural that they will shout that they are being ripped off, and then, we go to its vicious circle. All of us know that when MTN came here, they were charging us, they couldn’t do per second billing, they sold sim card to us at a high price and all of that.
By the time they began to compete with Airtel, Glo and the rest, sim card became virtually free, per second billing became possible. That’s what real competition would have done to crude oil prices. But, you need tactics, you need a strategy for it, and when crude oil prices are single digits or near that, it’s one of the best times to do that kind of thing, but we don’t do it when we should, and then, when we can’t pay, we say, ‘ok, let’s do it. You are going to have push back from people who feel you are ripping them off because they don’t understand the whole thing fully. So, that’s with the deregulation. I’m not going to shout and say they have deregulated because I don’t know what they have in mind; I don’t know whether they believe this is deregulation or whether this is a seasonal thing as has happened with attempts at deregulation in Nigeria in the past. In fact, the next thing therefore is CNG, I go along with that. Many years ago, I went to visit Bangladesh to look at how some of their poverty programmes are run.
I was kind of fascinated by the fact that most cars in Bangladesh are on compressed natural gas; their stations all over the place. There’s nothing that prevents us from doing that. From what I am hearing, I think the government said they will help people with conversion of their equipment for that to happen. So, that’s not a big deal, not a problem, as far as I’m concerned. Brazil is a country I watched growing. Brazil struggled to get off motor spirit for many years. They introduced gasohol like it was then called. The place was terrible, it used to smell terrible, it was an apology; you almost get drunk because of alcohol in the air. But today, Brazil has made so much progress that most cars running on the streets of Brazil are running both on biofuel and carbon space. So, it’s possible.
As part of the palliatives to cushion the effects of the petrol pump price, a fund is to be accessed by 240,000 workers under the NLC and TUC for use in agricultural ventures via CBN and Ministry of Agriculture. How effective do you think these palliatives will be, considering the enormous population of workers engaged in agriculture? Will this fund get to the targeted Nigerians, what is your take on this?
Well, you see the problem that we have in Nigeria is that as these conversations, these arguments come up, when we talk about relief, and we find something that has no relationship to what the problem is. I am all for supporting poverty alleviation in Nigeria, but I don’t see how a couple of 240,000 people going through agriculture has anything to do with the price of petrol. Anything that makes poverty less, improves agriculture output, and all of that, nice, but I am not going to say that is the solution to petrol price change or whatever.
At same meeting, it was also agreed that 10 percent of the on-going Ministry of housing and finance initiative will be allocated to Nigerian worker via NLC and the TUC?
Again, it’s the same problem that I have where fundamental issues that need grand national strategy, you dangle carrots before workers, so NLC won’t give you trouble, whereas, we have a fundamental housing challenge that we could create a grand strategy to solve, which if we solve, improves the economy substantially and improves the lot of everybody rather than a few people who come under the guise of NLC. We have been doing this for so long. I still remember it goes back to the 80s when we were having these kinds of things, they decided that the solution was to give buses to NLC to run transport service. NLC is not a transport company.
They don’t have the expertise to more efficiently run transport than Edegbe Bus Transport Company or God is Good Transport Company or Chisco. So, you create an opportunity for a little small empire for NLC, and people make some money, and they leave you alone, but we have not solved the country’s grand transport problem. Just as in this case, nothing we do here is going to solve the grand housing problem in the country, which we need serious commitment to doing something about. When the United States of America needed to deal with the problem of inequality in housing after World War II, they created a company, Fannie Mae that became the basis for one of the most revolutionary ways of looking into housing and access to housing, the creation of mortgages, and Fannie Mae took on a very audacious goal to democratize home ownership.
If you could vote, you should be able to own a house. The result was a revolution for the middle class in America. I think what we need is this kind of audacious ideas in housing. A couple of years ago, somebody was trying to get me to talk to the MD of one of the big banks to get a mortgage, and I learnt to my chagrin that they were less than 40,000 active mortgages in a country of nearly two hundred million people. Why can’t we commit ourselves to finding partners in terms of both the strategy, in terms of the resources for funding it. Essentially, we have a housing strategy; a national grand housing strategy, that can ensure that most Nigerians have their own homes.
They can bridge this housing deficit; I don’t know how many it is. Some study say 17 million, they say 19 million. I have talked to Babatunde Fashola who is the Federal Minister of Works and Housing, and he says, ‘Don’t mind them; it is not true that this housing deficit is like that. I don’t even know who to believe now on what the housing deficit is. But the truth is that there is a housing deficit in Nigeria. Can’t we come up with the serious effort to do what the housing development board did in Singapore, instead of all this let’s make NLC happy, give some mortgage to members of NLC. That’s not going to solve our national problem. They can do it; there’s nothing wrong with it. I’m not against it, I’m just saying these things are not the solution. It needs thinking, it needs honest commitment to serving the people, to make a difference in those places.
Are you satisfied with the way and manner the organised labour handled the negotiations with the federal government?
I don’t even have any clue, I didn’t bother to follow it, so, I have no way of making comment about it. We have been doing this for so long. I still remember it goes back to the 80s when we were having these kinds of things, they decided that the solution was to give buses to NLC to run transport service. NLC is not a transport company. They don’t have the expertise to more efficiently run transport than good transport companies. So, you create an opportunity for a little small empire for NLC, and people make some money, and they leave you alone, but we have not solved the country’s grand transport problem. ‘Giving mortgage to members of NLC will not solve our national problem’