Fuel Price Hike Worsens Inflation, Says NEIC
PPPRA vows to leave pricing to market fundamentals
From Paul Ibe, Josephine Lohor in Abuja, Ademola Adeyemo in Ibadan and Donald Andoor in Port Harcourt
The National Economic Intelligence Committee (NEIC) in Abuja yesterday stated that the incessant hike in petroleum products prices has worsened the rate of inflation and made the objective of achieving single digit inflation in the 2004 budget difficult to achieve.
But in Ibadan, Secretary of the Petroleum Products Pricing Regulatory Agency (PPPRA), Dr. Oluwole Oluleye, yesterday said the agency will leave petroleum products pricing to market fundamentals.
The NEIC while presenting its second quarter report for 2004 to President Olusegun Obasanjo noted that it would be difficult to achieve the Federal Government's target on inflation if the present jump in prices of goods due to the current price regime of petroleum products persist.
"According to the data published by the Federal Office of Statistics, the inflation rate (12 month average) tended to increase within the first six months of 2004 at 15 per cent in January. The inflation rate climbed to 17.8 per cent in March and further rose to stay at 19.4 per cent in May and June," the NEIC report stated.
"Increase in the prices of food items accounted for the inflation rate in the period. The hike in the prices of petroleum products that fuelled transport fares engendered the increase in the prices of food items. Given the high inflation rate, the objective of achieving a single digit inflation rate in 2004 may not be achievable," it added.
The NEIC also noted that collecting banks and local branches of the Central Bank of Nigeria (CBN) have continued to default in remittances and transfer of revenue collected to the CBN.
Chairman of NEIC, Professor Ibrahim Ayagi, while presenting the report stated that "out of the revenue collected for January to June 2004, a total sum of N7.392 billion was yet to be remitted or transferred as at June 30, 2004. The amount collected in the month of June 2004 alone which remained unremitted was N5.953 billion."
Ayagi, who noted that "government lost a total revenue of N8.598 billion on goods with the Cost Freight and Insurance (CIF) value put at N30.998 billion between January and May, 2004 due to concessions/exemptions," said that "the new policy on (bank) capitalisation is progressive, desirable and should be encouraged. This decision has the potential of re-structuring the banking industry in Nigeria." Banks are expected to increase their capital base from N2 billion to N25 billion from December 2005. Many banks are merging to meet the deadline.
On revenue and expenditure, Ayagi stated that "the actual federally collected revenue of N1,773.92 billion overshot the estimated figure of N1,509.48 billion by N264.44 billion for the period of January to June 2004. Revenue from oil accounted for 85 per cent of the total federally collected revenue."
He stated that "government recorded a deficit of N124.29 billion as against a deficit of N90.56 billion expected in the first half of the year.
This did not induce government to monetise all the excess oil revenue to maintain macroeconomic stability."
The NEIC noted that the "Federal Government total expenditure was N577.17 billion, with a recurrent expenditure of N365.31 billion (63.29 per cent) and capital expenditure of N211.86 billion. Comparatively, the budgeted capital expenditure for January to June 2004 was N188.06 billion, which is less than the N211.86 billion released."
It added that "available figures indicate that direct foreign investment (net) almost doubled when it rose from N132.434 billion in 2001 to N259.250 billion in 2004. During the same period, Portfolio Investment (net) average N42.555 billion annually. Before May 1999, the macroeconomic environment and the political situation were not conducive for foreign investment. However, since the inception of the present administration, several measures have been put in place to attract foreign investment."
The committee which noted that "the policy of increasing the relative contribution of non-oil exports in total exports has not achieved its target objective," stated that "the foreign exchange market was relatively well funded in the first half of the year. From January to June 2004 the total amount of foreign exchange offered for sale by the CBN was $4.445 billion, representing 82.14 per cent of the total demand of $5.456 billion."
"The average monthly foreign exchange offered as a proportion of total foreign exchange demanded in January to June 2004 was higher than that recorded for the same period in 2003," the NEIC added.
Under the sub-title balance of payment development, the NEIC stated that "between 1999 and 2003, surplus characterised the current account of the balance of payments. The largest surplus figure of N713.024 billion was recorded in year 2000. However, the overall balance of payments position is wean as it tended to move between surplus and deficit."
On the state of utility services, it stated that "roads in Ekiti, Kogi, Abia, Anambra, Bayelsa, Cross River, Ebonyi, Imo and Plateau states were in a bad state. Availability of potable water and electricity supply were poor in many states, while the performance of telephone services in many states was good or fairly good."
Obasanjo, while receiving the report, said that the work of the Economic Intelligence Committee was good for cross fertilisation of ideas as it would continually put government on its toes and serve as a check on the executive in the implementation of its programmes.
While expressing satisfaction with the report, he, however, promised to raise aspects of the report which concerned states at the appropriate time.
Oluleye at the workshop on capacity building organised for Independent Petroleum Marketers Association of Nigeria (IPMAN), said: "We have no direct control on the prices of oil at the international market, we are not going to fix prices but we will keep a watch on the market."
According to him, government is only interested in what makes up the prices which are derived from market fundamentals.
"If the cost of food goes down, the price will also go down correspondingly, the foreign exchange has been relatively stable because government has direct control over that. We are not going to fix prices but we keep a watch on market prices," he said.
He said it was because the Federal Government has no direct control on prices that made Obasanjo to set up a committee to fashion out ways of cushioning the effects of the increase in petroleum product prices.
"What the PPPRA require is the kind of support Nigerians are giving to the communication industry for the deregulation process of the downstream oil sectors to sail through," he said.
Oluleye also pleaded with Nigerians to allow the oil market to settle. "Let the market fundamentals dictate the prices. Once that is done, nobody can fool you or increase the price arbitrarily," he added.
On the issue of private investors participating in refineries, he said the PPPRA will give correct signals to investors in terms of product pricing.
"The benefit is that when refineries are set up, we have people being employed here locally and whatever product produced, we have a large market already. It can be exported and used as foreign exchange component for the country," said Oluleye.
Meanwhile, two members of the Independent Co-ordinating Committee on Measures for Cushioning the Effect of Fuel Price Increases on Monday nearly exchanged blows an indication of the sharp division plaguing the panel.
The feuding members of the panel are Mr. Ben Durotoye who is President, National Council of Nigerian Youths (NCNY) and Dr. Timiebi Kovipamo-Agary, Permanent Secretary, Federal Ministry of Labour.
The committee headed by Deputy Senate President, Alhaji Ibrahim Mantu, which commenced deliberations on an acrimonious note following sharp disagreements on positions of members ended in a fiasco when Kovipamo-Agary withheld funds allocated to the youths. It took the intervention of other members of the panel to prevent the situation from degenerating to fisticuffs.
THISDAY gathered that following Mantu's call for submission of positions from members and stakeholders present at Monday's meeting at ECOWAS Parliament, International Conference Centre, Abuja, National Council of Women's Society (NCWS) represented by its President, Mrs. Bolere Ketebu called for the abolition of construction of mega stations by the Nigeria National Petroleum Corporation (NNPC).
Sources close to the meeting said her contention was that the funds should be channeled to the construction of more refineries since the prices of petroleum products at the NNPC mega stations are not remarkably different from those of other marketers.
On its part, the representative of the Nigeria Consultative Assembly (NECA) canvassed increase in the wages of workers.
The Manufacturers Association of Nigeria (MAN) was said to have warned that the rising cost of petroleum products would further stifle production, which has been on the decline.
Mrs. Modupe Adelaja, Director General of the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) urged for increased funding for the macro-credit scheme as a palliative to the increases in prices of petroleum products.
Director General of National Poverty Eradication Programme (NAPEP), Dr. Magnus Kpakol defended Federal Government's deregulation programme, but objected to the use of excess money from the sale of crude for subsidising fuel.
Durotoye said the youth have decided to embrace farming and demanded for the inclusion of N500 million in the budget of the cushioning committee as credit for the youth.
But Acting Chairman of the Labour Civil Society Coalition (LASCO), which platform executed last week's strike, Dr. Beko Ransome-Kuti, however, flayed all the submissions of stakeholders as not addressing the core issue - increases in prices of petroleum products - that gave rise to the inauguration of the panel.
He insisted that the position of the coalition is the reversal of the new fuel price regime.
President of the Nigeria Labour Congress (NLC), Comrade Adams Oshiomhole re-echoed Ransome-Kuti's position on reversal of the increases. He noted that the deregulation policy had brought untold hardship to Nigerians, crippled production and adversely affected all sectors of the economy. The NLC leader said the committee would be relevant even after the prices are reversed so that the effects of previous increases could be curbed.
Sylvester Ejiofor also of organised labour, however, drew the ire of Mantu when he threatened that if the prices were not reversed in two weeks "labour will go on strike and shut the country down."
Sources close to the meeting informed that it was at this point that Mantu warned Ejiofor and other labour leaders present not to threaten him.
A visibly enraged Mantu with fists banging on the table and fingers pointing in the direction of Oshiomhole and other labour leaders was said to have told them (labour leaders) that they could not be at the meeting and be threatening others with strike.
He restated that he was in no position to reverse prices and that he is not a member of the executive with any form of mandate to make policies.
At this point, THISDAY gathered that the President of the Civil Rights Congress, Kaduna, Mallam Shehu Sani intervened and urged a "ceasefire" from both sides.
Sani noted that the issue of pricing is key to the relevance of any other suggestion to be given.
He contended that if the committee cannot discuss the issue of price reversal, government should set up another panel that will parley with labour over the issue.
He observed that the N5 billion appropriated for cushioning the effects of the increases is peanuts when compared with the N400 billion realised from excess crude to be shared by states.
"Even if we are to buy cushions (chairs) for 120 million Nigerians, the N5 billion allocated for the cushioning effect would not even properly serve the purpose," Sani was quoted to have told the committee.
In the middle of these hot exchanges, Kaduna State Governor, Alhaji Mohammed Makarfi, was said to have left abruptly to attend to the crisis brewing in his state.
The meeting adjourned till Thursday.
Present at the meeting were minister of finance, Dr. (Mrs.) Ngozi Okonjo-Iweala his counterpart in labour, Dr. Hassan Lawal, Makarfi, Deputy Speaker, House of Representatives, Chief Austin Opara, Group Managing Director, NNPC, Engr. Funsho Kupolokun, Presidential Adviser on Civil Society, Engr. Mohammed Abba-Gana, Kpakol, Adelaja, Kovipamo-Agary, Oshiomhole, Ejiofor, Sani, Nkoyo Toyo, Ketebu, representatives of MAN, NECA, Prof Yusuf Obaje, chaplain of Aso Rock Villa and Durotoye among others.
And in Port Harcourt, Rivers State Governor, Peter Odili yesterday said it was undesirable that Nigeria, a major producer of crude oil, should import fuel from countries that have no oil.
"As one of the global producers of the product, we do not accept that the way we are performing in that sector is good enough" he said, adding "our petroleum sector leaves a lot to be desired."
Odili while exchanging views with the Senate Committee on Petroleum Resources, (Downstream Sector) said "there is no reason on earth why we should be importing finished products for such a long time."
He regretted the continued importation of refined petroleum products from countries that do not have crude oil. "It is difficult for those in government to explain to Nigerians why we cannot refine our products at home," he said.
Chairman, Senate Committee on Petroleum Resources (Downstream), Senator Emmanuel Agboti had earlier said he and his colleagues were in the state to inspect facilities at the Pipeline Products Marketing Company (PPMC), and the Port Harcourt Refinery as well.
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