Now is time to free petroleum sector from administrative bottlenecks – Iledare
• PEF, PPPRA, PTDF Should Be Scrapped
Professor of Petroleum Economics and Policy Research and former president of the United States Association for Energy Economics (USAEE) Wumi Iledare, in this interview with KINGSLEY JEREMIAH, spoke on the prevailing challenges facing the nation’s oil and gas sector. He said the economic dilemma could be reduced if agencies that do not mean well for downstream liberalisation and deregulation are done away with.
Falling crude oil price means there is very little immediate incentive for exploration companies to continue producing considering cost of production and storage. Also, no production translates to no products to sell hence, no revenues. What are the implications for the sector and the entire country, and what is the way forward at this critical time?
In the shut run, yes price will continue to fall until it begins to rise when inventory is depleted or nearly so. But that depends on whether OPEC+ reduces production dramatically.
There is nothing the government can do, but to revise its budget and prioritise actual spending to stimulate the economy. I may actually suggest revisiting salary structure of some agencies and trimming down employment in wasteful areas. The Federal Government may also take another look at unsustainable budget items, and bloated overhead. It will take several months to reach the budget price of 57 dollars per barrel in a sustained manner.
The Federal Government whose revenue is highly dependent on oil revenue is in a dire situation. Perhaps, one can suggest to it to borrow money locally to fund economic stimulation. I would, therefore, advise the government to avoid foreign borrowings because our foreign debt is already beyond manageable level.
In the long run, the government needs to be less dependent on using the price of oil to define its budget, especially the concurrent expenditures. In the short-run, the government may also need to address the petroleum pricing issues.
Finally, I have addressed the petroleum pricing strategy. Petroleum products subsidy constitutes a major problem rocking our economy because of its unsustainability, and the amounts paid out over the years have never being budgeted. Hence the NNPC has had to absorb significant losses, which has impacted the commerciality of the corporation to meet up with government’s social obligations and economic populism.
But one must understand the market structure of petroleum end-users very well. Let us look only at PMS, because its subsidy is actually legal, but kerosene and diesel subsidies are illegal.
In the short run, price regulation in retail end must be deregulated now with price equalisation disbanded because it has outlived its usefulness under a low price regime. The Petroleum Products Pricing Regulatory Agency (PPPRA) is not also necessary under a deregulated environment, except for quality control. Its responsibilities must be redefined, but pricing at the depot must be apolitical. It requires professional determination of the price, which promotes allocation efficiency. This is because we have a single importer of PMS that must have cost reflective price, plus normal rate of return.
How do we redeem time lost in order to avoid a post-Coronavirus energy and economic crisis?
Pragmatically, plausible, but we need to get head-hunters to seek out the best for the oil, gas, and power sector management, more so the power sector. If the best qualification to have in Nigeria remains ‘Man-know-man’ and appointments in nearly all levels in the energy sector, (private or public) are driven by reward, patronage and sentiments, then, solving the energy crisis with economic depression will be tough.
The energy sector cannot deliver effectively to fuel Nigeria’s economy without using skillful professionals in the ministries, agencies and private firms. You don’t even need to hire new skills, per se, because Nigeria has competent skills in place. Yes the 20/80 rule can apply. Assign your best devoid of the illegal geopolitical structure that the country has been using as a cover in recent times.
Sections of the Oronsaye report talk about merger of some agencies in the energy sector. Would this be the right step to take?
The President needs to do beyond just adopting Oronsaye’s report on rationalising, merging or eliminating agencies. Here are some suggestions: Buhari needs to use more competent hands irrespective of political persuasion, or personal allegiance than before. The optic glaringly speaks to the facts as stated. He needs to not overtly control access to meet those, who are interested in the Nigeria project, especially in the energy sector.
He needs a competent and professional petroleum and energy advisor devoid of politics. He also needs an economic advisor that the public has confidence in like the Alukos , Soludos, Aboyades, Garbas as was the case in years past.
Nigeria is moving in the direction of Venezuela with its economic populism in my opinion, and Trump talking to President Buhari is inconsequential. The former is looking to rescue his political death. Economic populism is dangerous when resources are thin and not used effectively.
Yugoslavia is not Nigeria’s portion, but Nigeria needs to beware. There is a wolf at the door. It is called energy crisis post-Coronavirus. But this needs honest people, particularly in the energy sector to turn things around. One is talking about energy business investors, not buy and sell traders. The later have no understanding of the fact that the power industry requires massive investments with a payout period that is not today.
I hasten to opine as well that the oil and gas sector is the glue that keeps the Nigeria project together. So, a failure of the oil sector post-Coronavirus must be averted. Venezuela, which was driven to its abysmal status by economic populism offers a perfect lesson. Despite its homogeneity, the foundation of that country was shaken. Nigeria with its high degree of heterogeneity will suffer more.
So, what options are on the table if we must avoid situations like this?
Going forward, to avoid a post-Coronavirus crisis, an optimal strategy should begin now with regulatory dissolution of petroleum pricing authority. Deregulation cannot just be by an executive presidential order, or ministerial newspaper pronouncements, it must be supported by a National Assembly amendment of the Petroleum Act and/or perhaps, a total dissolution of PPPRA Act, and the Petroleum Equalisation Fund (PEF) to send a signal that the end to subsidy era is gone. The existence of PEF and PPPRA is antithetic to downstream liberalisation and deregulation.
Next to PPPRA, PEF is also PTDF. They constitute administrative overburden to the petroleum sector. When last did you see an advert for employment into these agencies? Yet the employees are hired, even if temporarily hired. Why? The reason is obvious, juicy agencies with no significant value added to the economy. Yet, the compensations in these agencies of the Ministry of Petroleum are significantly higher than those of the staff of the ministry and are comparable to NNPC structure. This is prebendalism at work!
Next is putting the energy commission out of the Ministry of Science and Technology because it does not belong there, and it needs commissioners like NERC. And I mean service-oriented professional commissioners appointed to serve and not be served with Nigeria’s thin resources.
I have not seen a country where public servants tend to forget that they are hired to serve, and not to be served like Nigeria. And I have been privileged to travel the world.
Next is the National Planning Commission. It does not belong to any ministry in my opinion. It is supposed to coordinate the planning division of every ministry headed by the Vice President as chairman. It is supposed to have commissioners in charge of each macroeconomic sectors. There is a Planning Commission Act and to the best of my knowledge it has not been dissolved by the NASS. The planning commission is to be independent of the Ministry of Finance if the VP is to head it. Otherwise the Act should be dissolved.
Certainly, Nigeria must keep hope alive because we know what to do, but for the prebendalistic governance (prebendalism) rooted in patronage and sentiments. Just follow the rules of law in governance and leverage on your diaspora resources- skillful, experienced and brilliant Nigerians, with abundance of wealth. South Korea did it. Ghana is doing it and India. Remember when Indians used to come to Nigeria for survival and as teachers. What went wrong, Nigeria? But, Nigeria is resilient and can easily overcome the post-Coronavirus pandemic. Nigeria’s hope is rooted in the faith of our fathers. That hope shall not disappoint.