Deregulation is the reduction or elimination of government power in a
particular industry, usually enacted to create more competition within
the industry. Simply put, deregulation is the removal of regulations.
It is said to occur when government (at any level: federal, state/province, or local) reduces or eliminates regulations it had
When a country decides to deregulate it means that it is ready to allow market forces determine the prices of goods or services. In this case we are talking about the deregulation of the petroleum sector or in a common man understanding the deregulation of petrol, which he uses to power his Keke NAPEP,
motorcycle or ‘I pass my neighbour’ generator!
A market force is a factor that has some ability to affect change in a market. Market forces of demand and supply determine the prices of goods or service in a market. Market forces occur naturally in a free market economy and are not controlled by government. There are four major forces in a deregulated good or service; one is Government.
Governments are one of the most powerful movers of the market;
International transactions. The strength of an economy and its currency is highly dependent on the flow of funds between countries; Supply and demand. Prices rise and fall on the interaction between
supply and demand; finally, you have Speculations and expectations.
Supply and demand is the major relationship between buyers and sellers
and in a free market economy, it sets and determines prices!
The forces of supply and demand interact to strike an equilibrium
price between buyers and sellers whereby the quantity of demand meets
the quantity of supply. By deregulating the petroleum sector as recently announced by the minister of state for Petroleum Resources, it means that market forces would now determine the prices of petroleum products in Nigeria. Minister of State for Petroleum
Resources, Chief Timipre Sylva, recently disclosed that the federal government is not currently in a position, financially, to pay subsidy, as the COVID-19 pandemic had impacted negatively on the country’s finances. Addressing newsmen in Abuja,
Sylva also disclosed that since the introduction of the deregulation
policy in March 2020, the country had saved about N1 trillion. Sylva
noted that the deregulation of the
downstream petroleum sector and the removal of subsidy was not a
political decision, but an economic one. It had simply become inevitable, especially with the effect of the COVID-19 pandemic. A situation further worsened by low crude oil prices and the reduction of Nigeria’s OPEC quota! All these had led to a drastic cut in government’s revenue.
He said: “It became necessary that the country cannot sustain subsidy
payments, hence the decision to deregulate. Government has stopped
subsidizing petrol at the pump, but will now play its traditional role of protecting consumers from exploitation, by ensuring that marketers do not profiteer at the expense of ordinary Nigerians and consumers of the product. “We are no longer in the business of fixing prices; we
have stepped back and allowed market forces to determine the prices.
Henceforth, if crude oil price go up or down, it would reflect at the. pumps “This is about the survival of the country and there are certain things the country can afford at this time. We have cut production to 1.412 million barrels, which had halved our earnings.” He added that the revenue that is currently available to
the government had reduced considerably, and has raised the question
of where would the government get the money to pay subsidy.
The marketers are also on the same page with the federal government on
this matter. The Depot and Petroleum Products Marketers Association of
Nigeria (DAPPMAN) recently urged the federal government to take a further step towards full deregulation of the downstream sector, saying it will enhance national economic growth. Commending the government for consistently seeking ways to reposition the oil sector for effectiveness and profitability, DAPPMAN Chairman, Mrs. Winifred Akpani, said DAPPMAN remained in full support of the implementation of afully deregulated regime which would make the downstream sector’s operations more seamless, enhance transparency, competitiveness and sustainable growth.
According to Akpani, deregulation will open up the sector for fresh investments, market deepening, diversification, and
expansion, culminating in stable demand and supply regimes which are critical to ensuring that consumers have uninterrupted access to affordable quality products without the huge financial burden currently borne by the government.
However, not all agreed. Already the labour unions, civil society
organisations (CSOs), student unions and others are calling for the
reduction of the pump price of fuel increased recently in line with
the government’s deregulation posture. Here we are concerned about the consequences of deregulation of the petroleum sector on the common man on the street whose formal and informal
activities revolve around petroleum product and any increase in price
increases the hole in his pocket.
Oil price increases can stifle the growth of the economy through their
effect on the supply and demand for goods other than oil. Increases in
oil prices can depress the supply of other goods because they increase
the costs of producing them. High oil prices can shift up the supply
curve for the goods and services for which oil is an input. A direct
impact of rising petrol prices is increase in what Nigerians spend on fuel every month for the same amount of travel.
High fuel prices over a prolonged period may force households to reallocate resources. If Nigerians have to increase a certain amount on fuel, then either they will be saving less or they will have to cut
down on other expenses. So if the higher
prices remain for a long time, it could affect demand for other
products or reduce savings by Nigerians. With fewer saving there will
be less money available for investment by Nigerians that will negatively impact the growth of the economy.
Increase in fuel price all affect essential commodities and goods.
Record high prices for fuel means that the cost of transporting goods
goes up across the country. In turn, prices of essential commodities
like fruit and vegetables as well
as other goods increases. It also affects the interest rates. Higher inflationm eventually lead the Central Bank of Nigeria (CBN) to consider increasing interest rates. Therefore, anyone thinking of taking a loan will get affected, which
is not good for a country in need of investors to grow the economy.
Listening to the minister of state for Petroleum, it is obvious that
deregulation is the best option to follow especially with the corruption inherent in the subsidy! regime However one is concerned about the common man who is affected by the deregulation. Government has to find a way to cushion the impact of deregulation on the ordinary Nigerians!