Fuel consumption, smuggling, subsidy, public accounts and allegations of corruption have continued to generate heated controversies that dominate Nigeria’s public space. Why has the simple business of purchase, supply and distribution become a labyrinth of mysteries and uncertainties? Who is hiding the data? As Nigeria grapples with the burden of dwindling public revenue and mounting debts, the puzzling regime of oil subsidy is at the centre of public finance and macroeconomic debates. In this report, JOHN OFIKHENUA examines the underlying issues and asks whose interest is fuel subsidy serving?
At the moment, nothing plagues the Nigerian economy as the Premium Motor Spirit (PMS), otherwise known as petrol. It has taken a toll on it. Not only is it ravaging the fund that should create investment for the future, it has also cast a shadow of doubt on the integrity of its managers. This has provoked shades of views with some putting question marks on the costs of subsidy.
The subsidy fever aggravated recently when the Minister of Finance and National Planning, Hajia Zainab Ahmed, dropped the hint that of the N19.76 trillion budget the government has proposed for next year, fuel payment would gulp N6.7 trillion. This and cost of debt services, according to her, in the 2023-2025 Medium Term Expenditure Framework and Fiscal Strategy Paper to the House of Representatives, are likely to deny the country any capital project implementation in 2023.
Besides, the anxiety over the subsidy imbroglio further elicited concerns when the Nigeria Customs Service (NCS), Comptroller-General, Col Hameed Ali (retired) picked holes in the figures that the Nigerian National Petroleum Company Limited (NNPL) was parading on the subsidy payment. In his presentation to the House of Representatives, Ali countered the NNPC’s position that Nigeria was consuming over 60 million litres daily.
In questions seemingly directed at the NNPCL Group Managing Director, Mallam Mele Kyari, Ali wondered why the company approved the release of 98 million litres daily since the daily consumption is 60 million litres per day. On the whole, he vehemently disagreed with the NNPC that the country can even consume 60 ml/d, almost raising a widespread concern that smuggling has been accountable for the rising figure. Thus, the Customs boss challenged NNPCL to justify the N6.4 trillion annual subsidy cost that it was brandishing.
His words: “I remember that last year, we spoke about this. Unfortunately, this year, we are talking about subsidy again. The over N11 trillion we are going to take as debt, more than half of it is going for subsidy. The issue is not about smuggling of petroleum products. I have always argued this with NNPC.”
Continuing, he argued that “If we are consuming 60 million litres of PMS per day, by their own computation, why would you allow the release of 98 million litres per day? If you know this is our consumption, why would you allow that release? Scientifically, you cannot tell me that if I fill my tank today, tomorrow, I will fill the same tank with the same quantity of fuel. If I am operating a fuel station today and I go to Minna depot, lift petrol and take it to Kaduna, I may get to Kaduna in the evening and offload that fuel. There is no way I would have sold off that petrol immediately to warrant another load. So, how did you get to 60 million litre per day? That is my problem.”
Responding, the NNPCL issued a press statement, insisting that daily petrol consumption in Nigeria is 68ml/d. It expressed readiness to submit the subsidy transaction to a forensic audit. In the statement, the company’s Group General Manager, Group Public Affairs Division, Mallam Garba Deen Muhammad, revealed that if not for subsidy, Nigerians would have been buying petrol at N462 per litre as the actual cost. He added that the federal government has been paying N279 per litre to subsidise the product supply. The NNPCL spokesman said: “The Nigerian National Petroleum Company (NNPC) Limited has offered to submit itself for forensic audit of fuel supply and subsidy management, insisting that daily fuel supply is 68 million.”
According to him, from January to August this year, the company shipped 16.46 billion litres of petrol into the country, translating to 68ml/day. The statement recalled that last year, NNPC imported 22.35 billion litres, which was 61ml per day. He noted that “between January and August 2022,” the total volume of Premium Motor Spirit (PMS) imported into the country was 16.46 billion litres, which translates to an average supply of 68 million litres per day. “Similarly, import in the year 2021 was 22.35 billion litres, which translated to an average supply of 61 million litres per day.”
The NNPC said the average daily evacuation (depot truck out) from January to August 2022 “stands at 67 million litres per day as reported by the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA),” while “daily evacuation (depot load outs) records of the NMDPRA do carry daily oscillation ranging from as low as four million litres to as high as 100 million litres per day.”
The company said that rising crude oil prices and PMS supply costs above PPPRA (now NMDPRA) cap had caused oil marketing companies’ withdrawal from PMS import since the fourth quarter of 2017, saying: “In the light of these challenges, NNPC has remained the supplier of last resort and continues to transparently report the monthly PMS cost under-recoveries to the relevant authorities.”
Commenting on the landing cost, the statement revealed that the average international market determined landing cost in Q2 2022 was “US$1,283/MT and the approved marketing and distribution cost of N46/litre.” Also, it said the combination of these cost elements “translates to retail pump price of N462/litre, an average subsidy of N297/litre and an annual estimate of N6.5 trillion on the assumption of 60 million litres daily PMS supply.”
The NNPC promised to ensure “compliance with existing governance framework that requires participation of relevant government agencies in all PMS discharge operations, including Nigerian Ports Authority, Nigerian Midstream and Downstream Petroleum Regulatory Authority, Nigerian Navy, Nigeria Customs Service, NIMASA and all others.”
Reiterating the menace of smuggling in the petrol supply chain, the spokesman said: “As a responsible business entity, NNPC will continue to engage and work with relevant agencies of the government to curtail smuggling of PMS and contain any other criminal activities.”
This simple analysis of volume of consumption has not gone down well with some marketers, experts and industry players. Operators, who requested for anonymity because of the sensitivity of the issues, have discredited the figure. On a simple scale of verification, some aligned with Ali that it was impossible to convey the NNPC acclaimed volume from depots to filling stations on a daily basis. A common search shows that for the deplorable condition of Nigerian roads, it takes a week for a truck of petroleum product to arrive Abuja from Lagos. Besides, if the trucked out figure is tantamount to consumed volume, it foreclosed the possibility of breakdown trucks that are prevalent on the highways.
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Meanwhile, a reliable source and a member of the Depot and Petroleum Products Marketers Association of Nigeria (DAPPMAN), who pleaded for anonymity, challenged the NNPC to reveal how it arrived at the 68ml/d. According him, trucked out figure should not equate consumption in the country. He declared that adopting the volume of petrol loaded from the depots as a yardstick for determining volume of consumption in Nigeria is crafty. Doubting the sincerity of the NNPCL, he said “I cannot confirm the figure until they (NNPC) tell me how they arrived at the volume. The volume they have been presenting is based on trucked out; it is not what was consumed. If they cannot tell me how they arrived at the volume, I cannot say anything about that but if they are using loading from the depots, it is not going to work.”
On the propriety and sustainability of the payment, he said the association has always remained an advocate of full deregulation. The payment, he said, is not sustainable, praying that Nigeria does not become a country like Venezuela, which has nothing to show for its oil wealth. His words: “We have always been clamouring for deregulation and that is what we stand for till tomorrow. We cannot sustain it and I pray we don’t become like Venezuela.”
Commenting on whose purpose the subsidy payment regime serves, the DAPPMAN member said it was only benefitting the wealthy Nigerians, who reside in choice areas of the country. He was of the view that in as much as the masses only board mass transit buses, which consume the Automotive Gas Oil (AGO) diesel and only generate electricity with the smallest plants, they only gain the least from the subsidy support. He said: “Yes, government is paying subsidy but who are we subsidising? The government is subsidising those who have two cars in Lekki, Magodo, and Surulele. The volume that I better pass my neighbour is using is far lower compared to what people who have two or three cars are consuming. So, to us, the government is subsidising those that are rich more than the common man.”
Responding to the discourse, the Special Adviser to the Senate Committee on Gas, Mr. Sowunmi Olabode, who spoke with The Nation on phone, sought the investigation of the NNPCL subsidy claims. He wondered about the parameters with which the company arrived at its total cost. “Go and find out how much subsidy exists and how it is calculated first. The process of you doing that will answer all your questions,” he declared.
Meanwhile, the Independent Petroleum Marketers Association of Nigeria (IPMAN), President, Alhaji Debo Ahmed, urged the federal government to stop the subsidy payment and allow local refineries to function. Depicting the subsidy support as a burden on the government, he tasked the decision makers on waiting for the local refining of petrol before exiting the payment regime. He said: “They have to make sure subsidy is removed. They should allow the refineries to work. They should make sure all the refineries are working and they can now remove the subsidy.”
Asked whose interest does the payment serve? Ahmed expressed fears that the removal of subsidy without local petrol production would plunge the masses into the worst hardship. “Looking at the situation of the country now, the subsidy payment is partly in the interest of the common man. This is because if petrol subsidy is removed prices will definitely go up and the common man will be down and seriously affected. So, it serves the masses interest too,” he said.
The Major Oil Marketers Association of Nigeria (MOMAN) Executive Secretary, Mr. Clement Isong, who also spoke with The Nation on phone, submitted that in the long run, the payment of petrol subsidy is not in the interest of the common run of the country. The subsidy, according to him, has drained the fund that would have been appropriated for the healthcare of the masses, infrastructure, education and technology. “The fund must be invested in primary healthcare rather than channeling the national wealth through subsidy,” he declared.
The Executive Secretary said that money should be better invested in infrastructure that can assist the masses climb out of poverty. He stressed that, “if you spend the money in transport and you use the transport cost for them, you will reduce the cost of bringing primary goods to the urban centres and there will be an overall investment that will reduce their cost. Those are the investments that will help them chase prosperity.”
According to him, the subsidy regime has warded off investment in the downstream sector of the Nigerian oil and gas industry. In a very lucid explanation, Isong posited that the subsidy support, which has hampered the full deregulation of the downstream, has also shrunk local content development. He explicitly noted that for absence of competitiveness and return on investment, the downstream has not fascinated the funds that would have developed it. The infrastructure in the downstream has been long overdue for replacement, maintenance or acquisition of recent technology but owing to the country’s reluctance to deregulate the price of petrol, the equipment at the midstream, depots and retail outlets now epitomise decadence.
Describing the sordid state of the industry, he said: “If you allow prices as they come to be competitive, if you allow people who invest to recover their investment, then they will invest. The downstream infrastructure is degraded because we are not making the required money, the required returns on investments on the infrastructure. Your refineries are not working, your pipelines are all in need of repair, and the fuel stations are in need of change of the underground tanks. A lot of the filing stations need to be completely knocked down and rebuilt. The entire distribution infrastructure of depots, trucks to filling stations require investments but these investments will not be forthcoming if you do not allow the investors to recover his investment.
“Any business needs to renew its equipment. Maintenance needs to keep it running from time to time to keep aside the old ones which are difficult to maintain and acquire the new ones which are more efficient. Any business that uses equipment, you need to maintain the equipment, when it is too expensive to maintain or when technology has brought a significantly more efficient equipment, you need to upgrade your equipment bring in the new ones.
“Some have not done that in Nigeria for the past 30 to 40 years because of your price ceiling at the pump. That is why the vessels that carry your product at the sea are old. The barges and your depots need repairs and you just need to buy new trucks because the trucks on the roads need to be off the road. The filling stations, the vast majority of them need to be completely refurbished. The underground tanks are still steel tanks and the world has moved beyond steel tank to develop other tanks. The pipelines underground at the filling stations should no longer be steel.
“These are rules that are already in place in Nigeria but are not being implemented simply because the business does not generate enough money for the maintenance or the replacement of the equipment at the stations. That is how it affects the downstream industry. That is why one of the downstream industry’s position is to deregulate. But beyond that we are all Nigerians and we can all see what the fuel subsidy is doing to our country and to larger economy. We can all see that if we do not invest in the prosperity of this country; education, human development, will be a continued downward spiral. You will have Nigerians that are not educated, which will lead to increase in banditry and increase in insecurity.”
Isong said it was an irony that Nigeria’s revenue is significantly down, it does not have enough money to service its debts, pay bills yet instead of prioritising it on the most pressing needs; the country is wasting it on petrol subsidy. To him, since the situation has degenerated to payment of over N6 trillion in a year on subsidy, it is terrible. Thus, he submitted that the subsidy has never been sustainable, and it is still not sustainable, stressing “we are heading into bankruptcy as a country. We simply cannot afford it. It doesn’t make sense. That money is better channelled to healthcare, human development, Infrastructure, rather than simply being burnt in consumption. ”
As scaring as the removal of subsidy seems, experts say it may lift the country out of its current abyss of penury. However, before that reprieve, they add that the NNPCL and Ministry of Finance and National Planning need to manage the fuel subsidy scheme prudently and efficiently for the benefit of the citizenry.