Deregulation? Close but no cigar

As you no doubt have heard, there has been a change in the official fuel pricing policy. You can read the official press releases here and here. First the good news. Any Nigerian entity can now import fuel from wherever they like with forex from wherever they can get it from. This is all “subject to existing quality specifications and other guidelines issued by Regulatory Agencies”. This is good news because it means the import side of things should get more competitive. A more competitive space implies a more competitive price which is mostly good for everyone.

 

There are still significant risks of course. “Subject to existing quality specifications and other guidelines issued by Regulatory Agencies” could mean anything from a lets-just-make-sure-that-is-really-fuel type rules to lets-form-a-mega-cartel type rules. Given that the licensing body is the DPR then one cannot have too much confidence. But we can give them the benefit of doubt.

 

The not so good news? The subsidy at this point in time has been removed but the price fixing remains. The official line is there is a price band of between N135 and N145 per litre. Practically though that just means the price is fixed at N145. It feels a bit of a missed opportunity. There was a real chance to get rid of the price fixing behavior once and for all. However, it seems this regime is going to do what other regimes have done. Remove the subsidy, fix the prices, and when future prices increase tactically bring back the subsidy.

 

As you might have read in my previous posts, the subsidy isn’t really a policy that is implemented but something that just comes about when the government fails to adjust prices to match with the market. The stage is set for that again. The DPR and PPPRA have managed to politically retain their price fixing positions. You can bet that when crude oil prices go up, and they always do, the PPPRA and DPR will lobby for the subsidy to come back. If history is anything to go by the FG usually obliges.

 

It appears the FG has made this move not because it really wants to deregulate the oil industry, but because its hand has been forced. You have to wonder what it will do when it actually has a choice. The price fixing means the big thorn in the flesh of the downstream oil industry is still there. The FG has relinquished only very little control and still holds all the keys. So make long-term investments at your peril.

 

There is also the question of the cartels. The MOMANs and IPMANs and NUPENGs and PENGASSONs. No point moving price-fixing power from the government to the cartels. And there is also the FX question which will need to be resolved sooner rather than later.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s