By Tanu Jalloh
I am not sure what or how much did the oil marketers in Sierra Leone do to let the public know that the current free-fall in prices of oil and related products on the world market is not sustainable. I am saying the Sierra Leone government should never have rushed into reviewing pump prices as a consequence of those externalities that do not resonate here well.
Inadvertently, we would be celebrating in a vacuum. Even those analysts, who were positive above more reduction in global oil prices, also feared that “the pressures for low oil prices in the long term include the possible lifting of sanctions on Iran and Russia and the ending of civil wars in Iraq and Libya, which between them would release additional oil reserves bigger than Saudi Arabia’s on to the world markets”. How close is the world to achieving this? Such external factors the government of Sierra Leone obviously didn’t take into consideration, apparently hoping that the free-fall was a windfall.
Here is what Robert Rapier, writing for the Sun (25 January, 2015),said: “When oil crashed in 2008 all hell was breaking loose. Lehman Brothers went up in smoke and stocks were in a nosedive. Oil has once again crashed -50% in only 6 months but equities haven’t followed - at least not yet! Will stocks hold up going forward?...If we learn from the past, this could be a second chance to make an absolute fortune.
“This is why I maintain that oil below $50 per barrel is simply not sustainable. If global demand was actually declining, it would be a different story. But with demand continuing to grow, and with the majority of the oil production added in the past 5 years coming from the shale oil fields in the U.S., there is simply not enough $50 per barrel to meet demand”. It might sound from a long distance but I have a duty to give it a local perspective. Here is what I feel.
I know, as per regulation, the Petroleum Unit must have advised, or ill-advised as the case may be, government to review downwards the prices of petroleum products. In case you didn’t know the Unit has a mandate to “manage the responsibility of effective monitoring, supervising and coordinating the petroleum downstream sector of Sierra Leone within a regulated framework”.
By virtue of that portfolio, it serves as the custodian of the petroleum pricing formula, in addition to monitoring and managing pump price reviews. The pricing formulae, according to one of the oil marketers in Freetown, is based on the actual cost of the product to which import duty is added, port charges, demurrage, inspection, freight levy and a storage fee, which is paid to the oil companies for use of their storage facilities.
The Unit, which oversees such and ensures due diligence, must therefore be seen to be providing “effective technical advice services to government and its agencies”, according to the ministry of trade.
Let me offer some business advice to the government and its advisors on this matter. They might have flunked it already, but from a business perspective and given the analyses available on how volatile the oil market is, it is my view that government should never have rushed into bringing down the prices of diesel fuel, petrol and kerosene from Le4,500 to Le3,750 in apparent response to the free-fall in global oil prices.
Oil prices could drop to as low as US$20 per barrel, observers have said, but a concomitant domestic adjustment to the prices of petroleum products in Sierra Leone is not prudent at this stage. At least not now. No matter how well-intentioned the president’s decision might be, it would soon make nonsense of the goodwill he had demonstrated by bringing down pump prices by Le750because of the consistent drop in oil prices from US$120 in 2011 to US$55 in late 2014. That is not enough and certainly not a good way to start the new year. It just might come back to haunt the gains intended.
Here are a few ways a delay in review of the prices of such essential products would have been justified, irrespective of the fallouts, which could be managed in much less away than when the review would later prove counterproductive, especially on the eve of elections. At the turn of the year and in the final issue of Politico for 2014, I had argued that if the government didn’t streamline its policies to addressing pressing needs engendered by the current state of affairs, it might not be able to pacify the public when the post Ebola economic recovery proved obstinate. And it will be.
In the first instance I think the government suffered the most and probably was the biggest and first casualty in the Ebola crisis. Faced with an emergency, which is still refusing to go despite instances that it was fast subsiding, the government went out of its way to divert funds meant for sustainable development and sound economic management. I can’t quantify the sums. Yes, it had to halt other equally pressing social needs to fix the health system while at the same time dealing with an emergency of epic proportion. Although this argument might be inadequate, it speaks to the fact that there was a grand plan to fix the economy, create more jobs and improve standard of living before Ebola struck. Nobody can deny that, albeit there were reservations about whether or not those plans would have been the panacea to the perennially convoluted problems of social service delivery.
Secondly, the government needed some time to recoup its investment in its people’s welfare that came in the form of fuel subsidy over the years. That capital would obviously run into hundreds of billions of Leones (hundreds of millions of dollars) in the last five years. A senior data processing officer at the Petroleum Unit recently told Politico that subsidy on fuel amounted to Le300 billion between 2013 and 2014.
In May 2011President Ernest Bai Koroma, in a nationwide broadcast announcing the reduction in pump price from Le5000 to Le4500, noted that the subsidy requirement increased from Le1.6billion per week in October 2010 to Le 4.72billion per week by March 2011, reaching a subsidy requirement of Le 6billion per week by end April 2011. Let’s just be hypothetical here for purposes of argument and take Le5 billion a week as the average subsidy and multiply that by 52 weeks in one year and you would end up with 260 billion.
“This amount, if saved, can build a modern highway, the length of the distance from Kenema to Pendembu every year, without donor support,” said the president. Money that was being used to cushion the burden of the ever increasing prices of fuel off the final consumer, the ordinary citizens, could have been expended on other services. Did we learn anything from that long shot?
Now that the government has had the opportunity to save some money from the non-payment or a reduction in payment of fuel subsidies for obviously challenging post Ebola needs, it had squandered it. The specifics might not be available now for access by some of us but government can attest to the fact that it could save some money it hitherto had spent on subsidy.
Finally, why don’t the government tell its people that the country lacks the capacity to deliver finished fuel products? That it did not have a refinery on its own? That the country imported all such petroleum products which meant that the country was still investing a lot to ensure “effective coordination of national product requirement vis-à-vis funds available to ensure uninterrupted supply of all grades of petroleum products; monitoring of import arrangements and supply; implementation and technical maintenance of strategic petroleum products stocks for Sierra Leone”, quoting the ministry of trade on the function of the Petroleum Unit?
© Politico 28/01/15
