Last week the Minister of Agriculture, Audu Ogbeh came under fire when he warned fertiliser companies to stop exporting fertilisers at the expense of selling to local farmers. Understandably, that setup a spate of rebuke from some Nigerians who have seen this as yet another socialist policy of this current government that will as usual end up badly.
As the controversy raged on, the government had no choice but to explain better the reason for the Minister’s remarks. Oil and Gas analysts Adedamola @damoche on twitter explains why the Minister might be correct afterall. Below is an excerpt of his blogpost.
Lots of emotive discussion during the week around Audu Ogheh’s threat to fertilizer companies in Nigeria. He warned them from prioritizing exports over domestic supply in a very Chavez-esque way triggering lots of vitriol and condemnation. I am constrained to use very mild words about Audu Ogbeh’s performance as Agric Minister especially when we had Akin Adesina just a dozen plus months ago. Seems a huge step down. I am convinced that the problem with the fertilizer scarcity is around the corruption along the supply chain, an issue Adesina tacked quite successfully during his tenure.
But is Audu Ogbeh totally wrong to seek concessions from fertiliser producers in Nigeria? No. I am wary of absolutism because it stifles the opportunity for healthy discussions. Government has a role to play in influencing prices especially farming inputs like fertilizer. Until 2015, the US did not allow exports of crude oil while the Jones Act still forbids intra-country journeys with non-US flagged ships.
As an incentive, fertilizer companies in Nigeria pay substantially low prices for their major input, natural gas. The average fertliser plant in Nigeria by regulation pays less than $1/mscf for gas while power plants pay $2.5/mscf and others pay beyond $3/mscf. The argument is that for gas based industries, the low gas prices would support investments, jobs, local supply of fertilizers etc. Infact, a key crux of the gas aggregation process is for gas producers to ‘share in the pain’ of supplying to these fertiliser companies. It’s a necessary form of ‘price socialism’.
So when these fertilser companies prefer to export to the global market where their competitors are paying for gas at $5/mscf, they have an undue, subsidized advantage. Government has the leverage (not right) to demand for lower domestic prices albeit under a clear, unambiguous and well-structured framework. Maybe a ‘domestic supply obligation’ can be introduced especially for those who want to benefit from the low gas prices. For those who are ready to pay ‘market’ prices, they may be free of such obligation.