Expectedly, the plan by the Federal Government of Nigeria to remove the subsidy on petroleum products with effect from 1st January, 2012, has generated heated debate and stiff opposition from many Nigerians. The government, as usual, has promised "palliative measures" to cushion the negative impact of the policy on the citizenry. Many spokespersons for the government have rightly argued that the subsidy is not
economically sustainable. But the issue of "sustainability" is just one issue. A more important question is the issue of AFFORDABILITY. Can the Federal Government afford saddling the already impoverished Nigerian with higher prices for petroleum products? Can Nigerians afford to pay higher prices for imported petroleum products? Is the continued importation of petroleum products sustainable given our depleting foreign exchange reserves and the vagaries of the international market for refined products which make the control of prices uncontrollable?
I am not in support of the removal of petroleum products subsidy. But there are is an alternative which I believe the Nigerian government and Nigerians can live with.
Below is my proposal. It is quite simple:
1. The Federal Government will use its resources and restore ALL the refineries and get them operational ...within three months or whatever period is feasible;
2. It will outsource the management of the refineries to a reputable international refinery operator through an open bid process which will run the refineries for six months;
3. During the six month period of management by the international refinery operator, the Bureau of Public Enterprises will oversee the privatisation of the refineries through an Initial Public Offer (IPO) with a reputable and credible Nigerian company like Stanbic IBTC as the issuing house. The IPO will only be subscribed by individual Nigerians. There shall be no "core investor";
4. After the IPO, under the supervision of the issuing house and the oversight of a firm like Accenture, Deloitte, PWC or KPMG, a management team shall be head-hunted to run the refineries.
5. When the refineries are fully operational at 100% installed capacity and local demand is met by supplies from the refineries, the Federal Government shall BAN THE IMPORTATION OF ALL PETROLEUM PRODUCTS.
6. The Federal Government shall THEREAFTER deregulate the pump prices of petroleum products to ensure sustainability of prices. But the refineries shall purchase the crude oil for local refining from the NNPC at a PRICE EQUIVALENT TO THE BUDGET BENCHMARK OF CRUDE OIL SALES. Hence, the refineries would be able to sell their products at prices affordable to most Nigerians.
The Federal Government would only bear the OPPORTUNITY COST of selling crude oil at the Benchmark Crude Oil Price rather than at the prevailing international market price. This is an economic cost that we can afford and sustain as a nation!