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Tag: reduction

  • PMS pump price reduction and the economy: My takeaway

    PMS pump price reduction and the economy: My takeaway

    It is no longer news that the Federal Government has announced a reduction in the pump price of premium motor spirit (PMS), popularly called petrol.

    While I have made my position known on my Twitter handle that ‘a little over 10 per cent reduction in cost of the final (crude oil) product (PMS) in response to an over 50 per cent drop in the cost of the raw material is a good try and that Nigerians can get a better deal’, I am constrained to make this further intervention for a few reasons.

    There is a sense in the public space that this reduction is politically motivated, given the reactions that have followed it. To the extent therefore that there is a political nexus, it deserves further interrogation because it is an economic issue and this is a major issue in the elections as canvassed by both parties, especially at the presidential candidacy level.

    Gen. Muhammadu Buhari had seized the moment and the importance of the economic issue earlier this month. Through his campaign council he said:

    “Stop stealing from Nigerians and allow them enjoy the relief that has come to consumers of petroleum products globally.

    “For the Nigerian consumers, unfortunately the collapse of crude oil price since October 2014 has not translated into any change in diesel, kerosene and PMS prices across the country.”

    The second reason for my intervention is also economic, and it goes to interrogate policy, particularly this pricing policy, and the consistency of the party in government vis-a-vis its credibility before the Nigerian public.

    The economics of oil

    It must be obvious to any discerning mind that you cannot have a viable democracy without debating the management of the economy.

    This is because the real issue in elections is the way people’s lives have fared during the tenure of the incumbent.

    The question, sometimes spoken, sometimes not, but never forgotten, is this: – Has my life been better in the last few years or not?

    This question always involves an examination of the record of service of the incumbent and many have lost their seats in a bad economy.

    So, the present government must defend its record on the economy and this involves its management of prices and consumer indices.

    The cost of energy, fuel, gas, electricity for transport, cooking, heating and manufacturing is a direct determinant of the cost of living and how far people’s wages can take them before the next pay day.

    It is not therefore surprising that in the last decade and a half, many western countries have gone to war “in order to make peace”, especially in the Middle East, so that there is no scarcity of petroleum (crude oil) supply.

    The reason is simple. Scarce crude means high prices of crude oil, translating to high fuel, gas and production costs, leading to restive domestic population, which can translate to electoral defeat.

    If one remembers Iraq, Libya and Egypt; in spite of the democratic masks that those military interventions wore, it is difficult to dismiss a domestic, political (electoral) self interest in them.

    In the aftermath of these interventions and investment in shale oil as an alternative, leading to the crash of crude oil prices, what have these western countries done at home for their people in terms of oil price management?

    Let us look at a few examples:

    •United Kingdom (UK)

    Drop in price (dollar per litre): 0.52

    Percentage of price drop: 23.75 per cent;

    • United States (U.S.)

    Drop in price (dollar per litre): 0.39  Percentage of price drop: 36.57 per cent;

    • Singapore

    Drop in price (dollar per litre): 1.79

    Percentage of price drop: 21 per cent;

    • Nigeria

    Drop in price (dollar per litre): 0.03

    Percentage of price drop: 10.3 per cent

    My takeaway:

    •It is poor economic management to import the final product of a commodity whose raw material (crude oil) we produce in abundance.

    •A refinery in Nigeria, such as the 400,000 barrel refinery we are supporting by providing land for the Dangote Group in the Lekki Free Zone will keep jobs at home, (instead of in foreign refineries), create income for the Nigerian government by way of companies income tax, and give us better control of pricing by eliminating subsidies and demurrage charges by port delays paid to ship owners in dollars against a weak Naira; and it will eliminate many other charges that are passed on to ordinary Nigerians.

    •Clearly, an inefficient Port management that escalates shipping costs, a devalued currency, and an exorbitant interest rate on borrowing, which are economic failures of the current government, are part of the reasons why Nigeria cannot get a better deal from an over 50 per cent drop in crude oil price.

     Iinterrogation of policy

    In announcing the reduction of fuel pump price, the Minister for Petroleum Resources, Mrs. Diezani Alison-Madueke, stated the reasons for the government’s decision in her own words as follows:

    “As you may be aware, there has been a lot of volatility in the price of petroleum products, particularly crude oil, over the last few months. Invariably, this has meant that the price of the product in Nigeria has also been greatly impacted.”

    When addressing journalists she added:

    “After watching the price per barrel drop over the last few months, we have finally achieved parity… therefore this would be the best time to actually reduce the price. We have been watching very carefully over the last two weeks to ensure that the volatility did not destabilize this reduction in price and we think it’s safe to implement it at this time.”

    Please note she used the words (1) “price per barrel drop” and (2)  “achieved parity” in the oil price regime to justify the reduction.

    (i)       Price per barrel drop

    As I have pointed out, I doubt that a 10 per cent reduction is the best that we can get in response to a 50 per cent drop in oil price, and this is simple common sense.

    If a product is manufactured at X price and the price of the raw material drops by Y per cent, I think it is simple economics to reflect that Y per cent  drop in the price of the final product without doing any damage to the cost of packaging or transporting the product. And this should happen vice versa if the price of the raw material heads in the opposite direction.

    But let me be quick to acknowledge that these price changes may not necessarily be effected overnight in a period of volatility; and this is the relevance of the Minister’s point about “parity”, which I will come to later.

    But the quick additional point to make is that diesel has not enjoyed any subsidy for a long time and there is a loud silence on this product, as far as pricing policy is concerned; and nothing is said about Kerosene.

    So, if this was really meant to bring relief to the people, I think Diesel, which impacts on production costs, power costs in homes through generators, and Kerosene, which ordinary Nigerians use to cook, would have been the place for Government to demonstrate that it understands the plight of the people.

    This would have afforded some cushion against the austerity measures indicated by the  Minister of Finance.

    My takeaway: This price reduction is not-far reaching enough. It demonstrates a knee-jerk reaction to a serious economic issue where the majority of ordinary Nigerians are concerned.

    When we factor the fact that the majority of Nigerians generate their own power at four times the cost of public power, and they mostly use diesel, a reduction there would have reduced the pressure on their disposable income.

    (ii) Achieved parity

    My understanding of the Minister’s use of these words is that government now believes that oil prices will hover around the current prices of $50 per barrel, so that, according to her, “the entire country will benefit immensely from this reduction.”

    If this is correct, then who are we to believe?

    If we go back to the statement of the Minister of Finance, Dr. Ngozi Okonjo-Iweala, on December 17, 2014 when, while defending the oil budget benchmark of $65 for the 2015 Budget which some observers felt was too ambitious, she said:

    “This is what we have done by proposing a benchmark of $65pb. We recognise that prices might still fall further but we do not intend to revise the price further down as price intelligence indicates that prices might average between $65 and $70pb in 2015.”

    If the Finance Minister expects oil prices to get to $70 and the Petroleum Minister says we have “achieved parity,” there seems to be inherent contradictions within the same government.

    My takeaway

    •Are government departments talking to themselves?

    •Who is co-ordinating the economy?

    •Why was the Minister for Finance not part of this major pricing policy briefing?

    •Was this price reduction provided for in the 2015 Budget?

    P.S.

    As I concluded this intervention, my attention was brought to a response by Governor Peter Obi to a contribution I had made, in which he said in ThisDay newspaper that:

    “The President showed that the sound economic policies of his government have brought about macro-economic stability. This has been acknowledged by the renowned economist and former Chairman of the Asset Management Division of Goldman Sachs Group, Dr. Jim O’Neill, who coined the term BRIC (Brazil, Russia, India and China) and MINT (Mexico, Indonesia, Nigeria and Turkey), recognising these countries as the world’s fastest growing economies.”

    I have no issue with Governor Obi, because his role in government and policy making is still unclear to me.

    If he speaks as a party man, it is a measure of credit to him that he knows more about the programmes of a party he joined a few weeks ago, than those he met there.

    But for the record, the same Jim O’Neill, whom he quotes in support of this government’s policy and the leadership of President Jonathan, said:

    “If he (Jonathan) doesn’t get re-elected, and it’s because of Nigerian people wanting something different and something better, I think the markets would be happy with that. Foreign investors are pretty negative about Nigeria, so I don’t dismiss the possibility that if he lost, people actually might react positively.”

    Those who seek the truth should simply visit this link and verify the facts of what Jim O’Neill actually said: http://www.bloomberg.com/news/2015-01-08/o-neill-says-jonathan-vote-loss-may-be-seen-as-nigeria-positive.html

    My takeaway: I think Jim is right. Nigerians want “something different and something better.” They want Change.

     

    • Fashola is the Governor of Lagos State.

  • Petrol price reduction

    Perhaps, the reduction in the price of petrol from N97 per litre to N87 is the first time in recent memory the selling price of that commodity would come down in this country. All we have been treated to in the last several years have been constant increases in the name of fuel subsidy removal that pay scant regard to the wellbeing of our toiling people.

    So when the Minister of Petroleum Resources, Diezani Alison-Madueke announced government’s reduction of the selling price of petrol penultimate Sunday, it must have struck as a sharp departure from the norm. And reactions to it are bound to follow this mood.

    The measure which was dictated by the falling price of fuel in the international oil market has expectedly attracted reactions from segments of the Nigeria population. The Nigerian Labour Congress (NLC) commended the price slash but insisted that it is not deep enough. For drivers and commuters across the country, the reduction would make life a little better for them. There are also those who think the reduction is a design by the PDP government to catch votes in the coming elections.

    For the opposition APC, the reduction by just 10.3 per cent is a “mere tokenism” at a time the price of crude oil has crashed by about 60 per cent in the international oil market. It said the selling price should not be more than N70 and that at N87 the government was forcing Nigerians to subsidize the massive corruption in the oil sector.

    All these views have their merits and therefore cannot be dismissed with a wave of the hand. Not when it is recalled that since the decline in the price of oil commenced some months back, there have been calls on the government to slash the selling price of petrol in keeping with trends outside our shores. These calls were further reinforced by the fact that all along, the government had hinged fuel price increase on the high cost of the commodity in the international market. It was the same logic that was the raison d’être for previous increases in the price of petroleum products in the name of fuel subsidy removal.

    Moreover, the fear of further increase or removal of fuel subsidy as it is generally called was still palpable some months back such that the government had to come public denying such a  move.

    If by any circumstance, there is a sharp fall in the price of that commodity, it is only rational that it should be followed by a corresponding reduction in its domestic price.

    The government did not help matters when it appeared to have shut its eyes to reactions to the development by other oil producing countries. This is especially so when other African countries as Zambia and Tanzania had slashed the price of petrol to 23 and 16 per cent respectively. If the contention is that the reduction did no go that far as it only represented 10.3 per cent of the current price that point cannot be wished away. More so when weighed against the background of the raging poverty in the country and the huge corruption that pervades all spheres of the national economy.

    The scandalous corruption in the oil sector denoted by the exposed scandal in fuel subsidy payments is the more reason why the ordinary people should be made to take full advantage of any decline in the international price of crude oil.

    We are all witnesses to revelations sometime ago of how unscrupulous marketers ripped the nation dry by receiving payments for fuel not supplied. Much of the companies and individuals that were involved in that scam have their cases before the courts even as the wheel of justice is grinding very slowly.

    It is therefore not out of place to demand that the full benefits of the slide in oil price should be availed our toiling people who have over the years, borne the brunt of the misrule of various governments.

    It is not a matter that has to do with one government. It has little to do with who is in power now or the efforts to effect regime change through the current electioneering campaigns. This point has to be made and most unambiguously too otherwise we mix issues and get no where with them.

    Nigerians need the full benefits of the oil price slash. That could be the little token they get from the oil gift which nature bountifully placed at their backyard. That could form part of their share of the national cake.

    Besides, a further reduction in the domestic price of petrol will impact positively in the prices of goods and services that are largely patronized by the poor. It will not only force down the price of transportation but that of goods and services largely patronized by the poor.

    Being a populist policy, it is not surprising why it has been dubbed a vote catching strategy. But it is immaterial whatever capital the government of the day may wish to make out of the measure. Even if the target is to lure the larger public to the side of the government given the coming elections, what is important is that ordinary people will still be better with the reduction. That is a better way to look at the matter. We should align with those who want a further reduction rather than dissipate energy on whatever benefits the government may get from it.

    Even then, the rational for the reduction is hinged on events in the international oil market and this should be clear to everybody. It has not even gone that deep to correspond with the fall in oil price in the international market. So the issue of scoring political points through the reduction should be out of it. It is an economic decision that is universal to oil producing countries. If the current regime gains any political edge from it, so be it. Such should neither detract from the current reality in the oil market nor blur our understanding of the dynamics of international oil pricing.

    It is hoped that it is not being suggested that measures that will improve the lives of our people should be denied them just because someone somewhere may take political advantage of them. That will amount to carrying such matters too far.

    Beyond these, the slide in oil price should prick our collective consciences on the misuse of the revenue that has overtime accrued to the nation from that commodity. It should send the message very clearly that there is time for every thing. It is possible that we will someday find to our dismay that a golden opportunity to lift our country from the shackles of poverty and underdevelopment has been frittered away. We may soon discover that a golden opportunity to elevate our country in the development matrix has been lost.

    These are the foreboding issues that have been elevated to the fore by the sliding price of oil. In the ongoing electioneering campaigns, politicians have made issues out of the need to diversify the nation’s economic base. This is nothing new. It is only hoped it is not another vote catching gimmick that will give way to sectional and primordial considerations as a guide to economic decisions as soon as the elections are over.

  • Experts praise reduction of cement price by Dangote

    Experts praise reduction of cement price by Dangote

    EXPERTS have hailed the reduction of cement price by Dangote Cement Plc to N1,000 from N1,800. They said it is a good omen which  would encourage more developments and, by extension, more jobs not only for professionals but artisans who have been out of jobs because of stalled projects. National President, Nigerian Institution of Structural Engineers (NIStructE), Dr. Samuel Ilugbekhai, said the price reduction is an achievement which would benefit many, directly  and  indirectly.

    He said: “By this singular act of patriotism, cement is being made more available and more affordable for developmental purposes. Coming barely a week after the conference of the Nigerian Institution of Structural Engineers (NIStructE) on “The Effect of Cement Strength  on Concrete Performance” where we called on the regulating authorities to lay more emphasis on the manufacturing of cement to ensure that they meet national and international standards,  I am particularly gladdened by this development and I humbly encourage all other cement manufacturers to reduce their prices so that cement will be more affordable to  more Nigerians across the country.”

    President, Building Collapse Prevention Guild, Mr. Kunle Awobodu, hailed the price reduction, noting that it was part of their campaign which they recently took to the National Assembly when they presented a position paper to the Upper Legislative Assembly adhoc committee on cement. He said part of their argument was that cement is capable of causing building collapse due to its exorbitant price as builders may be tempted to cut corners.

    Awobodu, who is the third vice president of the Nigerian Institute of Building, canvassed a situation where a bag of cement will not cost more than N800 so that many can afford it. He regretted that the product was more expensive in Nigeria  of all cement producing countries, and hailed the reduction. He encouraged other companies to follow the example of Dangote Cement Plc.

    A town planner and immediate past Secretary General, Association of Town Planning Consultants of Nigeria (ATOPCON),  Mr. Ayo Adejumo said the reduction in the price of cement will increase activities in the construction sector. He noted the high number of abandoned projects in the country which is tied to high construction cost.

  • Experts praise reduction of cement price by Dangote

    Experts praise reduction of cement price by Dangote

    Experts have hailed the reduction of cement price by Dangote Cement Plc to N1,000 from N,800. They said it is a good omen which  would encourage more developments and, by extension, more jobs not only for professionals but artisans who have been out of jobs because of stalled projects.

    National President, Nigerian Institution of Structural Engineers (NIStructE), Dr. Samuel Ilugbekhai,said the price reduction is an achievement which would benefit many, directly  and  indirectly.

    He said: “By this singular act of patriotism, cement is being made more available and more affordable for developmental purposes. Coming barely a week after the conference of the Nigerian Institution of Structural Engineers (NIStructE) on “The Effect of Cement Strength  on Concrete Performance” where we called on the regulating authorities to lay more emphasis on the manufacturing of cement to ensure that they meet national and international standards,  I am particularly gladdened by this development and I humbly encourage all other cement manufacturers to reduce their prices so that cement will be more affordable to  more Nigerians across the country.“

    President, Building Collapse Prevention Guild, Mr. Kunle Awobodu, hailed the price reduction, noting that it was part of their advocacy campaign which they recently took to the National Assembly when they presented a position paper to the Upper Legislative Assembly adhoc committee on cement.

    He said part of their argument was that cement is capable of causing building collapse due to its exorbitant price as builders may be tempted to cut corners.

    Awobodu, who is the third vice president of the Nigerian Institute of Building, canvassed a situation where a bag of cement will not cost more than N800 so that many can afford it.

    He regretted that the product was more expensive in Nigeria  of all cement producing countries, and hailed the reduction. He encouraged other companies to follow the example of Dangote Cement Plc.

    A town planner and immediate past Secretary General, Association of Town Planning Consultants of Nigeria (ATOPCON), Mr. Ayo Adejumo said the reduction in the price of cement will increase activities in the construction sector. He noted the high number of abandoned projects in the country which is tied to high construction cost. He predicted a situation where their will increased activities for the professionals and artisans in the sector in the next two or three months.

    He said the overall effect of the price reduction will boost the over all economy and also lift the manufacturing sector.