Finally, FG Opts for Full Deregulation

http://www.thisdayonline.com/nview.php?id=136795

Finally, FG Opts for Full Deregulation
•Sets up panel on time-frame •No systemic risk to banks, says Muhtar
From Juliana Taiwo in Abuja, 02.27.2009

Months of speculations about the direction of government in the management of the downstream sector of the economy ended yesterday.
The Federal Government endorsed the full deregulation of the downstream sector following the recommendations presented to President Umaru Musa Yar’Adua by the Presidential Steering Comm-ittee on the Global Economic Crisis.
Government said it had been subsidising inefficiencies, fraud, racketeering in the whole production chain, resulting in it’s spending nearly N640 billion in the last one year and an estimated amount of N1.63 trillion on subsidies.
The government also said it would re-examine the role of Petroleum Product Pricing Regulatory Agency (PPPRA) while admitting that there was a need for regulatory institution.
Addressing State House Correspondents after the meeting chaired by President Yar’Adua, Finance Minister Mansur Muhktar said the move had ended speculations on the direction of government in the management of the downstream sector.
He was accompanied at the briefing by Central Bank of Nigeria Governor Chukwuma Soludo, Bismark Rewane (representing the private sector), Petroleum Resources Minister Rilwan Lukman and the Director-General, Budget Office, Bright Okogwu.
The finance minister also said there was no systemic risk to banks and as such government was not thinking of any bailout for them.
Muhktar said a committee headed by Bauchi State Governor Isah Yuguda had been set up to design the action plan and time-frame for the commencement of the full deregulation process.
Other members of the committee are Edo State Governor Adams Oshiomhole, Attorney- General of the Federation and Minister of Justice, Michael Aondoakaa, Minister of Petroleum Resources, Lukman, Minister of Labour, Adetokunbo Kayode, Muhktar, Minister of National Planning, Shamshudeen Usman, Soludo, Chief Economic Adviser to the President Tanimu Yakubu, and representatives of labour and private sector.
The committee has been given the leverage to incorporate other members from the society any time it deems fit.
Muhktar said the Federal Government could no longer continue with the regime of corruption and inefficiency in the sales, marketing and distribution of petroleum products in the country, stressing that “the huge fiscal burden on the government is unsustainable.”
He said President Yar’Adua had fully endorsed the comprehensive review of the price template, the strengthening of PPPRA, open general licensing, offshore refining, boosting strategic reserves, competition bill and the privatisation of the four refineries in the country.
In designing the direction for the full deregulation of the sector, the committee will meet and have dialogue with all the stakeholders including labour before the full implementation of the recommendations.
He said: “On petroleum sector, as you know, over the years, there have been discussions in relation to the supply, distribution and pricing of petroleum products. In this context, basically in the recent past, there has been concern about the huge amount of money being spent by government by subsidising inefficiencies in the fuel supply and distribution. The magnitude of this amount was very staggering. In the last year, we are talking about nearly N640 billion that has been spent on subsidies to petroleum products.
“Now to put this in context, this is about one and a half times actual capital spending of the Federal Government in the year. That is what the Federal Government gets and when you consider that, not all of these are being expended given that there was delay release, that it was still work in progress. Over the last three years, an estimated amount of N1.63 trillion has been spent in relation to this.
“Now, in the context where revenue position of government has deteriorated considerably, given the decline in oil prices, given the difficulties we are facing in meeting our quotas, given the huge infrastructure deficits that we face, clearly we felt we had to look at this very carefully.
“The huge fiscal burden we cannot continue to meet. We have found out that we are really subsidising inefficiencies, fraud, racketeering in the whole production chain and in that context basically given the competing needs for scare resources, government felt we needed to do something. We are also subsidising other countries.”
On PPPRA, the Minister said: “We want to start with a comprehensive review to the PPPRA template. We believe that there are so many inbuilt inefficiencies there. In the first instance, the current system is characterised by the absence of competition, there are questionable risk allocations practices in which government is made to bear the brunt of exchange rate risks or interests rates risk.
“So the first aspect is to review the template and make sure we are dealing with the correct figures because really I think the whole system has been compromised.
“Secondly, we need to move towards market determined pricing order that will ensure that all the inefficiencies characterised by the system are not passed onto the consumer.
“We need to really strengthen regulatory institutions. For the PPPRA, there is major regulatory deficiency here. There is a major institutional weakness here that needs to be addressed. We need to also re-examine the legislation around the functions and the role of the PPPRA, we are also thinking of reintroducing competition bill to address oligopolistic tendencies in the system not just in this system but in other spheres of economic activities. We must ensure we don’t have oligopolistic threats, we don’t have cartels emerging that will really reap off consumers; we must be really fair.”
On the banks, Muhtar said there was no apparent systemic risk to the banking system.
But he said the CBN would consider making it mandatory for banks to use the IFRS reporting standard as soon as possible.
“This will of course be done in consultation with the Nigerian Accounting Standard Board and certainly other stakeholders,” he said.
He also said the committee endorsed the earlier plan by the CBN and the Bankers Committee to adopt a common year end for banks in relation to financial reporting.
“Based on this, the economic management team had constituted a group comprising the CBN, Ministry of Finance, Debt Management Office, NDIC and the private sector representatives to look into this issue. And based on an assessment of current situation including the existing data in comparison with the information available to various parties, it was clear that there was no apparent systemic risk to the banking system.
“We appreciated though that there is continuous concern about the lingering situation and the rising lending rates in that context, government felt at the moment there is no case for intervention in terms of bailout of stock markets given the present situation. We felt that we cannot remain complacent in relation to the banking and financial sector. The first point is there is no risk that will merit government’s intervention in the stock market at the moment, nonetheless government stands ready and will continue to monitor the situation and will take measures as needed,” he said.
Lukman said government was no longer prepared to spend any money on the rehabilitation of the refineries, stressing that so much money had been spent in the past which he lamented was mismanaged by those entrusted with the responsibilities of managing the refineries.
“We are not ready to put any money into the refineries again. No more. Our refineries have not been well run in the past. They have been mismanaged and the problem was compounded by the regulatory agencies and that is why we want to address the issue. If we have the correct ambience, people will come to build new refineries,” he said.
The minister said if the four refineries were still working at full capacities, Nigeria would not still be able to meet her domestic consumption of petroleum products.