Channels TV Interviewed Atedo Peterside on their Sunrise Programme on 16 May, 2016. Business Day Newspaper published excerpts of this interview on 17 May, 2016. Full transcript of the Interview:-
Atedo Peterside CON, Chairman Stanbic IBTC Holdings Plc appeared on Sunrise Daily, a programme on Channels Television this week on Monday 16 May 2016 and argued that petrol subsidies were causing a disruption in the economy, calling for deregulation and proper foreign exchange pricing. BusinessDay recorded excerpts of the interview and reproduced it on Tuesday 17 May 2016.
Below is the full interview:-
The arguments and approach to the issue of petrol that we faced in 2012, is it the same kind as we have today or is this one particularly different?
It is similar to 2012. If anything, the position today is more serious and the case for deregulation is even stronger now than it was in 2012 for a variety of reasons.
The price of crude oil is somewhere around $45/$50. I am among those who believe that the crude oil market has changed forever with the advent of shale producers.
The revenue profile of the nation is a lot worse today than it was in 2012. And the other argument, if you remember in 2012, was that people said they won’t mind going through this adjustment if only the government can take some pain.
But this government has shown that they are willing to take some pain themselves, from the President, the Vice President and others. If we don’t do it (deregulate) with this government, I don’t think we will ever do it.
Having said that I think I should make it very clear that there is some confusion. I like the word deregulation because that is what I favour. Deregulation exists in aviation fuel, deregulation exists in diesel. Petrol and kerosene are the problems.
What do we have in those cases (petrol and kerosene)?
For aviation fuel and diesel, nobody announces a price, It is between willing seller, willing buyer; demand and supply.
So those end-products are trading at a price that is consistent with what is happening in neighbouring countries and also the world market price.
We’ve had this fixation with petrol in Nigeria and it is not caused by this government or the past one, it has been going on for decades. A government does not promise you the price of anything; not the price of rice, not the price of garri, not the price of housing but they want to promise you the price of petrol?
What is the point of promising the price of only one item? And the unions too are fixated on only the price of one item, almost as if they have been brainwashed by what happened 20 or 25 years ago.
I think it is important to know that, as a nation, we are facing a severe crises. We should forget about partisan differences and pull together, and I’m happy to see one or two progressive unions have made it clear that they favour deregulation.
We have to free this economy from the burden of this distortion called petrol subsidy once and forever. And let me explain one thing, deregulation cannot co-exist with price fixing by government. If government wants to fix a price, NNPC (who also sell petrol) should announce their own price for their own petrol and leave others to bring in petrol and sell it at their own price. NNPC can be a reference price but I don’t like this idea of deregulating and you announce a maximum price for all because you do not control the dynamics. You don’t know what the price of crude oil will be tomorrow, the exchange rate and so on.
So it is for NNPC, as one supplier in the market, to announce what its current price is and leave the rest of us to talk about deregulation.
Does it go contrary to the Petroleum Act if this is announced as a deregulation?
While I am not a lawyer but an economist, I am looking at it from a Federal Government mandate point of view and they have a firm mandate. If a political party that controls most of the state governments, the senate, house of representatives, with a broad mandate cannot take actions like deregulation then who will take it tomorrow?.
Please bear in mind that in 2012, it was a house divided, even before the President announced deregulation the Speaker of House of Representatives was going in a different direction. Here we have a government with a broad mandate, it is still early in its tenure, has some goodwill so if you cannot harness that and pull all the elements together and deregulate, I don’t know if and when it can happen.
Also, please realize that we have a poor revenue profile. I’m told Central Bank received $600 million dollar foreign exchange or so last month. Petrol imports alone can consume half of that. So are we going to be a nation that consumes half of our forex on one item?
Common sense also dictates that the lower you make the petrol price the more of it we consume, especially the rich people with many cars and boats. The lower you make the petrol price the more it goes across the border to all our neigbouring countries. So you are fighting a battle against reality which you will lose eventually.
I think if anybody loves the idea of subsidy, there are ways you can dispense a subsidy in 2016 which were not available in 1984. We have moved on in terms of biometrics, mobile phones, National ID Cards through which payments can be made.
You can actually wake up today and have deregulation and have a subsidy payment, or safety net payment that gives every Nigerian adult above age eighteen N200 a month and tell him this is his own subsidy almost as it was done with fertilizer – that way there is no abuse.
If every 18 year old got N200 a month, they would jump for joy and sing Buhari’s praises. And what is the cost of it? Lets imagine that those over 18 years and above are about 70 million in total. At N200 for each person that is N14 billion a month, over 12 months that is N168bn. This is a lot less than what we squander on the so-called petrol subsidy
Paying these large sums of money to a petrol mafia leads to an entire ecosystem that is built around fraud. You see bridging payments supposedly to make it possible to sell petrol at the same price all over the country. Yet, if you go to the far north, the border areas, riverine areas, some filling stations there have not seen petrol in 11 months. Somebody collects petrol supposedly for them, and collects an extra payment, the so called “bridging” for him to deliver petrol in those areas at the controlled price only to take it across the border. This is not sustainable.
Apart from the N200 suggestion, what better way is there that can help the average Nigerian?
What you are asking me is what other way apart from the best way? The best way is like I said with fertilizer, you can delink the subsidy element from the actual product and pay it to every adult directly using these newer instruments that are full-proof.
To answer your questions directly, when you link petrol price to exchange rate, that creates more confusion. How can a government insist that the exchange rate is N200/1$ but that you are pricing petrol at N285/1$. Have you devalued the naira? If you have let’s know that. Even if you are arguing about devaluation or not, the reality is that we cannot afford to pay for petrol using all our scarce resources and then give it away at a reduced price.
My palliatives, if you notice, are focusing on what can you do for the poorest of the poor. I know the government has safety nets that they mentioned in the budget. They are useful, but I don’t like them because they are selective. There are 170m Nigerians, how do you pick out the one million who are the poorest of the poor? With my method, as long as you have the required instrument, e.g National ID Card, you get your own share of this safety net. It gives people an incentive to register for the National ID Card. There will be a stampede for it and it improves your control over Boko Haram and everything else and after a while you can decide that whoever does not have the National ID Card as an adult is up to mischief, you have data on fingerprints and biometrics.
We have to get creative. We cannot hang on to the same romantic ideals of 1984 in 2016. The realities are totally different, we are facing very hard times. This year, barring a miracle, economic growth is going to be less than population growth which means that we are facing falling living standards as Nigerians. If care is not taken we can be in that environment for three more years or even seven years.
The responsibility of any good government is to make good use of today’s resources. If you are receiving, in April, $600m dollars only of foreign exchange (and it is that small because the exchange rate doesn’t encourage others to bring in dollars) and the last time I checked the parallel market is still illegal. So how are people going to get dollars at N285 if it is still illegal? – The government has to come together, pull in all the stakeholders and face some home truths.
This solution of yours why do you think this is not featured prominently and why has it not been adopted?
Remember four years ago, I used the expression fuel vouchers. What I have mentioned is just fuel vouchers in reverse. My point is that any arrangement where you create an electronic payment system that can deliver to the poorest people one by one is preferable to the hazy system built by the oil marketers.
If we received $600m in April, which is a very low inflow of foreign currency, it is caused by a variety of things; Low production, Low price of oil, Militancy etc. – we cannot afford to squander the money on that one item (petrol) that we know is fraught with abuse.
The point I am making is that, we have some big decisions to make. The government from May 29 last year, had to take three big decisions:- 1)Treasury Single Account (TSA); 2) Petrol and kerosene subsidies; and 3) Facing the reality on foreign exchange.
We have taken one of those three big decisions. I think it’s time to take decisions on the other two. The announcement on petrol pricing is a positive decision but I wish they would go all the way. This is a government that I think Nigerians will believe if it gets up and tells them the truth.
Also, are you aware that 25 states can’t even pay wages? Do you know why they can’t pay wages? – Yes, for some of them, we can say they failed to adjust, have ghost workers and all that, but there is also another reason. If you are converting dollars at N200 to a dollar and effectively giving them N200 to a dollar, and you are telling them to buy in the market at N285 and most of the goods in the market are priced at N300, then effectively you are shortchanging them.
The Governors should sit down with the Presidency and dialogue. Now I know that calls for painful adjustment. Under President Yar’dua I was in the economic team, I advised strongly in favour of deregulation it didn’t happen. Under President Jonathan I was in the economic team, I advised strongly about deregulation. This time around, the reason for it is even stronger; global markets have changed. Our fortunes have changed as a country.
We have three big threats to investments in Nigeria, – Boko Haram, Herdsmen and Militancy. So the combination of a poor revenue profile plus three broad sets of risks is frightening off investors, plus an exchange rate regime which nobody understands.
There is talk that in the next six months we may have government completely hands off that sector and that is when full deregulation can take place, do you see that happening?
My position on the economy generally is that the more things government hands off properly, the more the economy functions. When the economy achieved a growth rate of close to 8 percent per annum, it wasn’t that government was doing some wonderful things it was because they were interfering less with everyday decisions and not burdening people with bad fiscal and monetary policies.
I believe this government is effective and is taking strong actions in the area of Boko Haram and towards fighting corruption, but they need to complement that on the economic side by taking the tough decisions, as there are no easy alternatives.
My only concern is what happens to the poorest of the poor. If somebody has a yacht and many cars, he can afford to pay more for petrol. Let’s move first to deregulation. It helps private investors to invest in refineries and the downstream sector.
The scope for abuse with petrol subsidies is phenomenal unlike diesel. In banking and finance, all payments take place against documents, which means that, at the end of the day, if somebody is claiming subsidy or “bridging” payments, it is on the basis of the documents he has presented. If the document is inaccurate because people colluded e.g. those who are supposed to check him signed for something that did not happen, then he walks away with an illegal profit.
If we wanted to deregulate, do you think we would be able to do it in the short term?
For diesel and aviation fuel, it was done overnight. But you don’t do it without talking to your constituents. You control the National Assembly. You have your Ministers, an Economic Team. You pull people together and bring in the Trade Unions because they are not all unreasonable. I don’t think the Trade Unions can get the same kind of traction that they got last time.
I am also appealing to the Trade Unions. There is nothing worse than testing your strength and you find at the end of the day that there is no followership. It is better to say you decided on your own to call government and negotiate some actions and you will retain your esteem.
Can we get this structure you are advocating right in the short-term?
Yes, how was it done with fertilizer for farmers? They were calling farmers and paying them through their mobile phones and the beauty with mobile phones and working with the NCC is that you can ensure one payment is made to those with multiple numbers. Subsidy will be dispensed to both the rich and poor. In terms of trickledown effect, N200 per person in every village is a major boost towards the local economy.
How can we make doubters see reason …
As an economist, when you think of an action at the macroeconomic level, that is you are saying I want to do this for the whole economy, you must also have the competence and ability to trace the impact to the individual unit, the households, the firm, the consumer at the micro economic level. You must also have the ability in terms of econometrics to measure the impact because there is no point making a pronouncement at the top, at the macro level, and you don’t even know its impact at the micro unit and you don’t even know how to measure it.
Let me tell you how to measure the impact of petrol subsidies. If you go to remote parts of Nigeria, you will discover that there is nothing like petrol subsidies. If anything the price that people buy and sell petrol there is virtually equivalent or just marginally less than the price across the border because it makes sense. If you are in the border area (and Nigeria has over 4,000 miles of unsecured borders) you can move the product left or right.
The result is that the people who are living in all those far flung places have always been buying their own petrol at prices which are marginally less than those that prevail across the border. Everybody knows how to arbitrage.
Have you seen these NNPC floating stations in riverine areas? About 12 of them were brought in some years ago with fanfare as the solution to fuel crises in the oil producing areas who were promised petrol at subsidised prices. The last time I checked, they are still floating edifices on the river and all the communities know that some of them have not sold petrol for the last eleven months.
So it was just a contraption to deceive people. So the people take their boats to the mainland and buy black market petrol.
It doesn’t seem as if the bridging experiment is working…
With all due respect, even if they were phenomenally sincere and transparent, it was never going to work. In any case, what is the use in an economy? You don’t equalize house rent, or the price of foodstuffs, or books or medicines… what is the point of equalizing only one item which is the most difficult one almost because you can move it around?
I am not looking at laws; somebody could have made a bad law years ago because it was designed poorly with poor logic in terms of the economy. I am looking at a government that wants to bring about change, and so when I propose a solution it involves government moving with the legislature to expunge bad laws from our books and put in place real change that will improve the lot of the poorest of the poor and allow the economy to move forward and to thrive.
How will this situation positively impact on the economy of the poorest of the poor?
When you go down to those remote parts of the country and you look at the price they are paying for petrol, that price is consistent with what is paid across the border. Which means that their only protection was that the price can never go higher than the price across the border because, if it did, they will buy it across the border, so the point I am making is that they were already at that price (existing across the border) and they have remained there for years.
But with the announcement of increase of the fuel price, prices of foodstuff also went up as well to some extent.
We have been through this before, when they increased the price in the past people said the inflation will jump to 50 percent or more but go and look at the statistics, I think the highest it got to in 2012 was just about 10 percent.
You cannot argue that people are poor and at the same time argue that the unemployed and the poor can pay a lot more for everything. Initially, you can announce a huge price rise but it is difficult to sustain. If you hike prices unreasonably, you will soon have to beg consumers to buy, especially if it is a perishable item. So it is not true that you can keep on hiking up prices. What tends to happen also is that shortly after any attempt to deregulate, Unions kick in, cause all this confusion which dislocates the supply chain so the result is there is scarcity of products moving around and they manage to destabilize everything and people take advantage of scarcity in their immediate domain. But this does not last very long.
If we adopt this model (N200 per person) are we still going to be able to put in place infrastructure in the country?
Yes, if you deregulate and let people buy foreign exchange at a rate that can be sustained in the market, two things happen: because deregulation has increased the price of petrol for the people in Lagos and Abuja (where NNPC likes to concentrate the petrol so that it seems they are meeting their goal) they pay a bit more when you deregulate. When they pay more, their consumption decreases. It is companies with 200 cars and all that who reduce their consumption of petrol drastically and not the average person operating a small generator. So you consume less of the product and less of the product also goes across the border.
It would seem that with this ceiling, it can’t be stopped…
I heard the Minister of State for Petroleum say it is only a reference price. I wish the NNPC would just announce their own price. Even then, if NNPC kept a price that was way below everybody’s price you know what will happen; People will take advantage of the low NNPC price and seek to arbitrage. It comes naturally to entrepreneurs.
I don’t know anybody who buys diesel and travels with it a very long way because there is no reason to. The diesel merchants sell diesel in remote locations at prices which are not too far from those prevailing in the major urban centres.
What’s the guarantee that marketers will not come together and increase the price further?
People can abuse a market when you put in place some distortion. It is the distortions that they are attacking. If you remove the distortions and you make sure that the market is being allowed to operate and there is competition, it is the profit motive that will make one player to try and increase market share over the others, as happens in other products.
What makes you think that petrol is bigger than everything in this world? It is because of decade’s of distortion in Nigeria by the petrol subsidy mafia. It is decades of brain-washing of the whole nation that there is something unique about petrol.
But we’ve seen that with petrol, the economy almost shuts down
It is because they use the Unions that is why it shuts down and that is why I say that government must broaden their engagement with the Unions.
Has NNPC always been having subsidies on its petroleum products?
The country does not need NNPC. NNPC exists by largely bringing in distortions into various parts of the upstream and downstream petroleum sector. You could almost remove NNPC over time or disengage them. You are better off removing them from various aspects of the economy where they are bringing distortions.
A lot depends on what rate they are getting foreign exchange. If you give them U.S. dollars at N200 per dollar then of course they can sell petrol at a lower price, so let’s not dwell too much on NNPC as one agency. I am more concerned about the change the country needs. The broad economic reforms.
People think NNPC is the regulator, Department of Petroleum Resources (DPR) is the regulator NNPC is actually an operator, most times taking part in the same activityas the private sector.
But is that not why they were advocating for the Petroleum Industry Bill (PIB)?
The original reason some of us advocating for a PIB was to solve some problems – cash calls, free the economy from cash calls, ensure we had an oil sector operating independently and efficiently etc. I don’t know how it changed to restructuring NNPC. I disagree with that viewpoint but let’s not make that the subject of this discussion.
Did you try to advise previous governments?
Yes, some of us were advocates of deregulation. To answer your question about why one commodity (petrol) should attract so much attention? The honest answer is that it is the one that an entire ecosystem, a mafia of sorts has been making billions of money out of and so they have invested their energy, and their resources to maintain this stranglehold and to confuse successive governments that they are doing something for the nation. And the truth is that, if you deregulate completely, many of them will be out of business because they are not efficient. They cannot compete. What they have done is that they have formed an unholy alliance of transporters, NNPC, trade unions etc, they are hanging on to the one item on which they loot the nation bare (petrol) that’s all and it is for the nation to see through that and say enough is enough.
The impact it will have on the people should be considered, we don’t have good transportation systems, homes and cars use petrol, how do the people cope?
You can make the same arguments for medicines, you can make the same arguments for food, there are things that are important in an economy without which it can’t function. Perhaps it is the subsidy element and the huge sums of money that can be made by attacking this one distortion that has made many people venture into it.
Are you not surprised by what happened some years ago, when they wanted to assign cargoes to bring in petrol? If you look at the pricing template, it is supposed to be a business with very thin margins and yet the number of people who wanted to take part in that activity (with very thin margins) kept rising everyday. It is because they know that sooner or later, the enforcement will fall apart and they will be able to cheat with volumes and documentation and that is why these guys will not deal with diesel because they have no subsidy to abuse there.