The Nation Newspaper

Tag: Fuel subsidy

  • BudgIT to FG: end fuel subsidy regime now

    A civic technology organisation, BudgIT has urged the Federal Government to end the controversial petroleum subsidy regime after 13 years of operating it.

    According to BudgIT, Nigeria has spent close to N10 trillion on importing petroleum products under the guise of subsidy between 2006 and 2018 to the detriment of socio-economic developments.

    In a statement by its Principal Lead, Gabriel Okeowo, BudgIT noted that Nigeria was dancing on the edge of a razor blade by continuing the subsidy regime.

    BudgIT said its research showed that Nigeria currently imports an average of 91 percent of its daily petrol needs, saying that this exposes local petrol prices to price shocks from international factors of production and exchange rate volatility.

    “There is a near perfectly inverse relationship between the fall in the value of Naira and the rise in the cost of imported petrol. That is, when next the Naira is devalued, Nigeria’s subsidy bill can be expected to jump,” the statement said.

    It explained that the continuation of petrol price regulation perpetuates safety nests for “exceptional forms of corruption within the country’s subsidy regime.”

    The statement added: “Import subsidy creates petrol price arbitrage – the differential between the regulated price in Nigeria and the high petrol prices in neighbouring countries – which is big enough to incentivise smuggling of subsidized products to neighbouring border towns. According to NNPC, there are 2,201 petrol stations in Nigeria’s porous border towns and coastal frontiers, with a combined fuel tank capacity of 144.9 million litres. Analysts argue, ringing corruption alert that the population around that area is far from justifying the size of the petrol market.

    “BudgIT notes with dismay that ‘fuel subsidy’ deprives Nigeria of funds needed for critical socio-economic development as it discourages investors, who generally prefer a deregulated industry, from investing in the downstream sector especially in the area of refinery construction and operation. For instance, the 10 trillion consumed by the subsidy regime is sufficient to construct 27,000MW of electricity or build about 2,400 units of 1000-bed standard hospitals across 774 local government areas of Nigeria, found our research.

    “We equally note that the Nigerian masses worship low oil prices. More so, the political class fears that increases in petrol price (and in the cost of living by extension), occasioned by a deregulated price regime, could become a flashpoint for mass uprisings and political instability. Nonetheless, we can never shy away from the opportunity cost of the corrupt subsidy regime.

    “Nigeria’s population is expected to balloon to 398 million people by 2050. With no strategic framework to end its subsidy program plus zero political will to reform the entire sector, the Nigerian government risks carrying the financial burden of a program that could drown out the development of its other sectors over the next 15 years.

    “It’s high time fuel subsidy is removed. Efficient palliative measures should be provided for those that will be worse hit by the removal. Four sectors – Transportation, Power, Health and Education – should be prioritized to cushion the effects.

    “While we are calling on President Muhammadu Buhari to do the needful, we also believe that funding for cheaper mass transit and subsidies to public institutions should be targeted for these groups.”

  • ‘Fuel subsidy stalls economic growth’

    Unreliable refineries, reliance on imported products, weak infrastructure and shortage of gas – the oil sector is challenged. The Managing Director of the Nigerian arm of Petrocam Trading Company, Petrocam Nigeria Limited , Patrick Ilo, in this interview with AKINOLA AJIBADE, speaks on the industry’s challenges.

    What is your assessment of the global oil market?

    The industry, like any other, is growing and requires time and commitment of every stake-holder in the country to see to the rightful implementation of the policies that are put in place by both the government and the private sector in order to strengthen it. Globally, the oil industry, has experienced difficult times, as evident by the falling prices of crude  since 2008.

    Nigeria had its own share of the problems. International prices of crude oil was at its lowest point at a period, as crude oil was exchanged for as low as $20 per barrel, a development, which has constrained the spending of the Federal Government.

    Though the global oil industry experienced some breakthroughs in 2017 and greater parts of 2018, as international price of crude between $65 and  $74 per barrel, the feat was shortlived as the price began a downward journey. However, with patience, perservance and absence of volatilities in the market, the price would pick up again and oil producing countries, including Nigeria, would be better for it.

    What is the likelihood that Nigeria’s crude oil production will hit 2.5 million barrels per day or more?

    The probability is high and the reasons are not farfetched. The major reason lies in the peaceful nature of the oil producing Niger- Delta region. Once Nigeria exceeds the cap period placed on it and Libya, by the Organisation Petroleum Exporting Countries(OPEC). The decision by the Federal Government, to restore peace in the region through engagements with stakeholders, especially communities, where oil is produced came in handy.

    At present, Nigeria’s daily crude production is in the region of between 1.75 million and 1.8million barrel of oil. It would be a different ball game for Nigeria, whenever it increases daily crude production.

    How much does it cost the government to import fuel into the country?

    To answer the question would be difficult, as I’m not in the government to know the amount spent on importation of fuel. Petrocam is a private entity and as a result of this, I’ m a private operator. However, the landing cost of fuel is in the region of N175 per litre or more. This is the cost at which fuel is brought to the country. The government has been magnanimous to import fuel at N175 per barrel and directed marketers to sell at the regulated price of N145 per barrel.

    How can Nigeria overcome the problems of importation?

    The country can fix its refineries, build new ones and pay the outstanding of the debts owed marketers, by the Federal Government, in form of unpaid subsidy arrears. The government has licensed some private operators to build modular and traditional refineries, which would refine crude oil at higher capacity. This is done in a bid to stop the problems recorded through the importation of fuel. The problems include funding, rising foreign exchange, inability by the Federal Government to fully deregulate the oil and gas industry. Above all, the government must try and pay the debts it owes marketers.

    What would happen to marketers if the government is unable to clear their arrears?

    Inability of the government to pay the subsidy arrears owed marketers, is going to have dire consequences on their operation. The effects are multidimensional. First, many businesses that are either owned or partly owned by the fuel marketers would die natural death. The reason being that marketers get the bulk of their capital from their fuel imports and inability to get money to finance their operation would kill their businesses. Mind you marketers neither have their own refineries nor enjoy any financial backings outside the country. It is the money, which  they generate from the sales of petroleum products that keep them going and the moment that source is closed, it means the end of their operation.

    Also, marketers would experience a drop in the sales of fuel once they do not have enough capital to create new businesses or sustain the ones they are doing. Besides, the issue would lead to increase in the interest rates charged by banks.  Often times, financial institutions capitalise on the demands made by companies in need of loans. The moment a bank realises that clients are in dire need of money, what the banks do is to look at the portfolios of the firm and provide the firm with facility needed for operation. Once the portfolio is big enough, banks would increase the rates at which its giving out loans to the company in question. Conversely, if the prospective loan seeker has a small portfolio, the bank may not increase the lending rate. But in most cases, banks respond to the needs of their clients, by increasing the lending rates.

    What are the benefits of the full deregulation of oil and gas?

    The benefits are many and varied. First, a fully deregulated oil and gas sub-sector will open up opportunities for operators to improve investments and create new ones. For operators who have opened retail outlets, it would be easier for them to introduce some innovative measures, with a view to improving their businesses. Measures such as introduction of Point of Sales (PoS) and other strategies for their customers came in handy. The measures include, but not limited to production of   their own lubricants, as part of winning more customers.

    Secondly, a fully deregulated market would engender competitions among operators. The issue would bring more players into the industry. Once more operators are doing the same business, as in the case of selling fuel to consumers, the tendency to compete with one another is high. Of note is the issue of Kerosene and Diesel, the two products that are not regulated by the government, and this has resulted in the huge prices commanded by the two products.

    So, in the event that the government fully deregulates the sub-sector, more people would go into importation and sales of the products. The more the number of operators in the business, the more the competition and by extension, the lower the prices of those products. This would bring about what I called Demand Push, Supply Push syndrome. This means the more the demand placed on fuel by consumers, the higher the supply of the product in the market.

    Thirdly, full deregulation would bring about investments in refineries. Marketers, like any other businessmen, are more comfortable with cheaper products to expensive ones. Once the marketers know that they can get refined petroleum products locally and cheaper, they would certainly pool resources together to invest in either modular or bigger refineries. They know full well that the refineries,  no matter how small their capacity,would get fuel to sell. This would make them to invest in refineries. When this happens, the country would depend less on imported fuel.

    But payment of subsidies is good sometimes, as it makes marketers incur fewer expenses.

    There is no doubt about that. The payment of subsidies to marketers has saved them from incurring some cost. By paying subsidies, the government is indirectly defraying the cost  which marketers incur on importation of fuel. The only period, in which marketers complain about subsidy, is when the government fails to pay it. A typical example is the face-off between the government and the marketers over the issue of unpaid subsidies.

    But the price of fuel is still very high, despite the payment of  subsidies?

    Marketers do not own vessels that brought the product to Nigeria. They hire vessels and pay them. The cost of shipping fuel is often times high and needs to be factored into the cost of doing business. Why would the price of fuel not be high, except the price is deregulated like that of PMS, which is N145 per litre. Even those consumers are still complaining. Look at the unregulated products such as kerosene and disesls. You would observe that the two products are being sold between N210 to N225 per litre.

    Some stakeholders are calling on the government to cancel subsidies and fix the refineries?

    It would be good, if the government would listen to such calls and do the needful, by cancelling subsidies paid to marketers. The payment of subsidies is a drain on the pockets of the government. Imagine in a situation, where government is paying billions of naira as an arrears on the subsidy owed the marketers. The government has neglected infrastructural development for subsidies. Roads were left untarred, hospitals are dilapidated and many other infrastructure programmes were unattended to, following the decision by the government to pay subsidies owed marketers. This is not good enough for the economy that is grasping for breath.

    Are there countries that have implemented full deregulation?

    Yes, there are countries. Dubai and Canada are some of the countries. Different people can be selling fuel at different prices. I can sell fuel at a price, which I think is good for me; so also any other person. The most important is that people are looking for areas where they would be given the best services to identify with.

    What are the other benefits? How economical are the calls by marketers that Vitol and other foreign firms should invest in refineries in Nigeria?

    Once the industry is fully deregu-lated, investors would come into invest in refineries, knowing full well that they are going to make their profits. Deregulation is preventing investors from investing in refineries in Nigeria and once the government fully deregulates the sector, it means that the coast is clear for operators to invest in refineries and other facilities that would strengthen activities in the industry. When crude oil is refined locally, the refiners would minimise losses and they would sell their products at prices that are beneficial to the people that is consumers, in the sector. But as long as the price cap is on the petroleum products are still there, due to absence of full regulation of the sector, the price of fuel would remain high.

    What are the factors hindering fuel importation?

    The problems are many and varied. First is the scarcity of foreign exchange in the country. Inability of firms to get enough dollars has hampered their operation. For instance, the rising cost of naira to dollar has denied operators in the oil sector, especially marketers the opportunity to import fuel into the country. The development has provided the Nigerian National Petroleum Corporation (NNPC), which has the opportunity to access enough dollars to be the sole importer of fuel in the country. Being a Federal Government owned institution and a regulator for that matter, the job has been easier to control importation.

    Does that mean that NNPC has barred other companies from importing fuel?

    No, NNPC did not stop anybody from bringing fuel to Nigeria. As I said earlier, forex and the rising landing cost of fuel problems affecting importation. The landing cost is in the neighbourhood of N175 per litre of fuel or more, while the regulated price of fuel is N145 per litre. Based on this, the landing cost of petroleum products is higher than the pump price of the product, because of the subsidy regime. Recall that the Federal Government has pegged the price of petrol at N145 per litre, a development, which means that nobody must sell the product above that price. This implies governmet that bring fuel into the country would be selling at a loss, going by the landing cost of N175 and N145 retail price of the product in the country. The government has been magnanimous enough by directing NNPC to supply fuel to everybody. The Product Petroleum marketing Company (PPMC) gets fuel from NNPC and sells it to marketers. It is only kerosene and diesels that are not regulated a development that allows Nigerians to import them into the country.

    Is NNPC not part of the problems?

    No. NNPC is not part of the problem. The Corporation should not be blamed for the offence it has not committed. The issue of importation is not economically viable for the operators, due to the huge foreign exchange and landing cost, which many operators unable to bear.

    How did Petrocam begin in Nigeria?

    Petrocam is a South African firm, with specialty in the trading of crude oil and other commodities in Africa. Established in 2004, the firm has traded in oil with some notable companies in Africa. Due to successes recorded in its activities, the firm decided to expand its operation to Ghana, Nigeria and other countries in Africa. This resulted in the establishment of Petrocam Trading Company Limited in Nigeria.

    Initially, Petrocam Nigeria was trading oil with local and international oil companies in Nigeria. To play a more active role in the country, the firm invested in the downstream sub-sector of the oil and gas industry, by opening retail and distribution outlets in Lagos. One area, in which Petrocam has performed well was when the Nigerian National Petroleum Corporation (NNPC) introduced an idea known as Direct Sales Direct Purchase (DSDP), in order to ensure availability of fuel entry.  This culminated in the opening of retail outlets, by Petrocam, in Lagos state.

    How many firms were approved by NNPC to engage in DSDP?

    Petrocam and 10 other firms were licensed by the Federal Government, to participate in the Direct Sales and Direct Purchase model.

    What are the names of the multinational oil companies in DSDP?

    The number of the firms approved to participate in the scheme was 11, including Petrocam. However, it is not ideal for me to mention their names on the pages of the newspapers.

    What is the Unique Selling Point (UPS) of Petrocam?

    The unique selling point of the firm lies in its ambience. The firm has a beautiful and uniform structure. The firm’s structure is different from any other operators; so also the services it renders to the people. The firm built its outlets facing the equator in order to generate its own electricity, through solar means. Through this, the firm is able to store kilowatts of electricity annually, in order to render its services effectively to the people that are buying fuel and others. For instance, the firm provides electricity free to residents of the streets adjoining, where the outlets are located. We believe that filling station is about services, trust and we have never shied away from them.

    How many stations have been set up by Petrocam?

    The firm has built seven fuel stations in Lagos. The stations are in Idimu, Aja, Epe and other areas of the state. The retail outlet was commissioned recently, and the firm is planning to build three more stations in early 2019, in order to bring the figure to 10.

     Do you partner with refining companies abroad?

    What we do is that we give crude oil to refiners to process it into petroleum products, before we ship them to Nigeria. However, when crude is refined locally, marketers would stop relying on importation. They would have access to fuel, without paying landing cost on the product.

    Does Petrocam operate a tank farm, where fuel is accessed for onward distribution to consumers?

    No, Petrocam does not own a tank farm. The reason is not because the firm does not have the  financial wherewithals to build a tank farm. It is just that the company does not believe in operating a tank farm, before it can perform creditably in the downstream sub-sector. What Petrocam does is that it uses tank farms owned by other operators and has no regret over it.

  • NNPC spends N623.16b on fuel subsidy

    The Nigerian National Petroleum Corporation (NNPC), said it has spent N623.16 billion on under recovery otherwise known as subsidy from January to November, 2018.

    The Corporation said it made this known to the Federation Account Allocation Committee (FAAC)  at the last meeting in Abuja where revenue generating agencies gave account of their performances in the year.

    The NNPC in its report dated 19th December, 2018  revealed that it also has an arrears of N67.23 billion for deductions made from FAAC.

    The report said there was a total FAAC deduction of N676.49 billion comprising of N599.74 billion as under recovery for Direct Sales Direct Purchase (DSDP) arrangement and N23.43 billion as under recovered from it’s refineries.

    The document said that the amount incurred by the NNPC as under-recovery was deducted from the Federation Account as follows: January N45.78 billion, February N59.51 billion, March N34.03 billion, April N77.9 billion and May N88.9 billion.

    The breakdown of the N623.16 billion under-recovery showed that N51.24 billion was incurred in January, while February, March and April recorded N58.66 billion, N36.09 billion, and N82.4 billion respectively.

    In the month of May, the amount of under-recovery incurred by NNPC on PMS dropped to N36.87 billion, but rose to N53.41 billion in June, N52.43 billion in July and N63.18 billion in the month of August.

    In the month of June 2018, the Corporation deducted about N68.6 billion, in July, August, September, October and November, it made deductions of N52.5 billion, N60.6 billion, N71.56 billion, N51.18 billion and N65.86 billion respectively.

    Apart from the deductions from FAAC, the amount spent on subsidy, or as under-recovery by the NNPC went up to N71.8 billion in September, before dropping again to N51.18 billion and N65.86 billion in the months of October and November respectively.

    From the document, it was indicated that NNPC is currently subsidising Premium Motor Spirit, popularly known as petrol through its under recovery arrangements.

  • Fuel subsidy through the back door

    Pity a country that never gets its sums right; where what you see is not necessarily what you get; a country where good and bad are intertwined; one in which those charged with public policy perennially play on semantics to hoodwink, confuse and confound.Yours truly refers to the latest ‘spat’on the subsidy starring the Senate, the NNPC and the Ministry of Finance over the recurring issue of oil subsidy.

    Recall that Abiodun Olujimi, Senate Minority Leader had at plenary on Oct. 16 and in a point of order, alleged the existence of a $3.5 billion dollar “Subsidy Recovery Fund” being managed only by the GMD and Executive Director, Finance, of the NNPC”. The Senate in apparent consternation had immediately set up a committee, chaired by the Majority Leader, Sen. Ahmed Lawan to investigate.

    Recall also that Ben Akabueze, Director General of the Budget Office, had alerted Nigerians to the existence of a N53 subsidy on every litre of petrol consumed by Nigerians which at the current petrol consumption level of 45 million litres comes to a princely N2.38 billion in daily under-recovery.

    But then, simply because we are dealing with a notoriously opaque entity that has long lost its rationale both as a business concern and as a national oil corporation, an ordinarily simple and straight-forward matter has not onlybeen made complicated but has been, quite characteristically, shrouded in the corporation’s dubious semantics.

    After initially denying that a $3.5 billion dollar subsidy fund exists in a statement on Oct. 17, last Thursday, NNPCthrough its GMD, Maikanti Baruhas now admitted to a”revolving fund of $1.05 billion dollars to defray the cost of under-recovery in the importation of fuel”.

    Pressed by the lawmakers to differentiate between subsidy and the “cost of under-recovery”, heclaimed that whereas subsidy was usually captured in the national budget, the latter was not! Ostensibly sensing an implied affront to the nation’s organic law, he would later claim justification in section 7 (4) (b) of the NNPC Act, which mandated it to defray its operational costs from its revenue!

    “This $1.05 billion is being administered under a steering committee that was set up, and a working committee that handles daily operations of this fund.

    “These committees comprise representatives of the Minister of Finance, Minister of State for Petroleum Resources, Accountant General of the Federation, CBN, Petroleum Pricing Regulatory Agency, Petroleum Equalisation Fund Management Board, Directorate of Petroleum Resources and the NNPC. “The fund is being transparently administered according to laid down processes and governance.

    “The actions of NNPC” he said “were in compliance with the National Assembly directive that NNPC, as the supplier of last resort should, and has, maintained robust petrol supply and distribution to the nation. Currently, no other oil company imports petrol due to the high landing cost above the N145 per litre price ceiling on sale of the product, and also due to the lack of provision for subsidy in the Appropriation Acts since 2016”.

    Although well said, it is no less self-indicting. In the first place, good intentions cannot be a substitute to law. The law is clear enough on how public funds can be spent, which is through the appropriation instrument. The management of the corporation ought to know, and the point is elementary, that NNPC Act cannot be superior to this simple requirement. As for the steering committee set up to administer the so-called under-recovery, surely, Nigerians would be interested in knowing the legal instrument that set it up and the relevant law applicable.

    Read also: NNPC denies alleged existence of $3.5bn fuel subsidy fund

    These are strange times indeed.

    The issue really is that the fuel subsidy issue, once emotive, is no longer what it used to be. Indeed, while majority of Nigerians would seem to have long incorporated the concept into the nation’s fiscal lexicography, only those in government, for reasons best known to them, continue to, in the manner of ostrich, play the hide and seek over a matter borne of simple arithmetic and common sense.

    So, where is the difference in the claim by Olujinmi of a “Subsidy Recovery Fund” (which she alleged was created surreptitiously by NNPC) and so-called revolving fund for under-recovery which NNPC admits is actually in operation – a pool neither known to law nor within the contemplation of the Nigerian constitution?

    For a government ever so eager to brandish the implementation of the Treasury Single Account as achievement, it comes as curious novelty that NNPC could claim the leeway to operate an account neither known to law nor subject to the dictates of parliamentary appropriation. So where is the difference between the reforming Buhari-led administration and the ancien regime which it so trenchantly vilifiesat every turn?

    More fundamentally, what does one make of the bizarre economics under which the country gets to burn off billions of naira under the disgraceful subsidy regime, cloaked as it were, with the veil of secrecy which ensures that business of under-recovery is guaranteed to thrive?

    Think of the double whammy: the country spends some $8 billion annually to bring those auto-contraptions we so much love to advertise on our pockmarked highways; citizen-entrepreneurs forage the scrap-yards in Europe and America for used auto-parts in what some estimates put at $4 billion business; our self-serving elite, ever so ready to conflate their rentier interests with the public good thinks nothing of government shelling out some $3.5 billion in petrol import alone of which approximately $1.5 billion is borne by the government in under-recovery and associated rent on behalf of the owners of the 12 million vehicles on Nigerian roads.

    And now with energy prices on gallop, we are suddenly finding that we need more and more of scarce funds to underwrite the subsidy.

    Hardly common sense or economics; it is more appropriately, profligacy.

    I understand why the subsidy issue is an emotive subject. I have heard the argument, and it is a familiar one, that a country which exists only in name and where the limited available resources are cornered by rapacious elite and basic social services are non-existent have no business denying the ordinary citizen his enjoyment of one of nature’s most beautiful gifts! Nothing disagreeable in the sentiments – if you ask me; the debate about what to do with the wasting asset is unlikely to be resolved either now or anytime soon. But then, what is not going to help is the denial of its econometrics and the recourse to outlawry by an administration supposedly sworn to change.

  • Nigeria losing trillions to fuel subsidy cabal – Saraki

    Nigeria losing trillions to fuel subsidy cabal – Saraki

    Senate President, Bukola Saraki, said on Monday that fuel subsidy scheme designed for the benefit of poor Nigerians has become a cash cow for few people who continued to milk the country dry in trillions of naira.

    Saraki said the fraudulent activities of the fuel subsidy cabal had continued unabated under a process so opaque and insulated from public scrutiny.

    He noted that the Federal Government has failed to curb fraudulent practices associated with the fuel subsidy regime.

    The Senate president said the Senate was working to unearth the subhead under which fuel subsidy had been funded without budgetary provision.

    Saraki spoke while inaugurating an investigative hearing on subsidy payment by the Nigeria National Petroleum Corporation (NNPC).

    The hearing followed a resolution which mandated the Senate Committee on Petroleum (Downstream) to probe subsidy payment by NNPC.

    Saraki said: “For years, our country has been plagued with the issue of fuel subsidy and for too long, a scheme designed to reduce the burden on the poor has become the cash cow of a few who continue to milk the country dry in trillions under a process so opaque and insulated from public scrutiny called fuel subsidy.

    “You would recall that it was only after my motion on the 5th of March 2012, with the support of my colleagues in the 7th Senate and after a thorough review and investigation of the scheme we unearthed the monumental fraud bigger than our capital budget for a year going on in the name of fuel subsidy. Five years down the line we are back on the same matter. This is not acceptable and we are determined to get to the bottom of it.

    “The mere fact that we are here again today (Monday) to discuss this issue shows that those who benefit from this grand deception are not willing to let loose and government had not done what we need to do to nip this problem in the bud.

    “This Senate had cut short the end of year recess of this committee to immediately intervene and investigate the root causes of the recent resurfacing of queues at pump stations nationwide.

    “The findings of the committee have brought to light the fact that our downstream oil and gas industry needs critical reforms. It has exposed among other things that in spite of the stoppage of the fuel subsidy regime and the non-appropriation of funds for the scheme due to the fraud and maladministration going on in the scheme, that fuel subsidy payments continue to be paid from our commonwealth illegally and without appropriation by the National Assembly to a few quietly in order to dodge scrutiny and avoid exposure.

    “But this 8th Senate is here to expose every corruption in the system irrespective of how highly placed those involved are and therefore the reason for this public hearing today.

    “This unconstitutional and illegal practice must be addressed and we are not going to rest until it is fully addressed.”

     

     

  • Senate knocks committee over fuel subsidy probe

    Senate knocks committee over fuel subsidy probe

    The Senate on Wednesday came down hard on its Committee on Petroleum Resources (Downstream) for turning out a shoddy report on alleged illegal fuel subsidy payment.

    The Senate had directed the committee to resume from its end of the year break and conduct investigation into the persistent fuel scarcity and the alleged subsidy payment.

    However, at the investigative hearing held on January 4, the chairman of the committee, Senator Kabiru Marafa, curiously removed probe of the alleged subsidy payment from the agenda.

    Those that were invited to the hearing included the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Dr. Maikanti Baru and other top officials in the oil and gas sector.

    Also invited were the various oil marketing groups.

    After going through the report on the hearing, as submitted by the Marafa -led committee, the senators discovered that the report was silent on the alleged illegal subsidy payment.

    Both Kachikwu and Baru had stated before the committee that the landing cost for petrol is N171 per litre, while the product is being sold at an official price of N145 per litre.

    They admitted that the cost differential of N26 per litre is being paid by government as subsidy without stating who authorised the payment.

    Thus, it is obvious that the subsidy is being paid without appropriation by the National Assembly.

    Faulting the report, the lawmakers said the document failed the integrity and credibility test by not revealing those that authorised the subsidy payment.

    After a lengthy debate, the Senate subsequently directed the committee to go back and do a more thorough investigation on the actual volume of petrol being imported into the country as well as identify causes of the perennial fuel scarcity.

    The Senate also directed its committee on Public Accounts to complement the Marafa committee by conducting an open investigation into payments and receipts in new fuel subsidy regime.

    Coming through a motion by Senator Dino Melaye (APC, Kogi West), the lawmakers pointed out that it is sheer irresponsibility for the executive arm to spend money on subsidy without appropriation by the National Assembly.

    Melaye described the actions of the executive arm as brazen acts of corruption, stressing that the country would be entrenching corruption if the trend is allowed to continue.

    The senator suggested that the executive arm and the beneficiaries of the illegal subsidy payments must be made to refund all monies spent without appropriation.

  • Fuel subsidy: How to kill a columnist

    This article was first published in this column on January 6, 2012. With a new government in the saddle, we have continued to make the same poor choices, especially in our oil and gas sector. If over half of our foreign exchange earnings are spent importing petroleum products and we can’t earn such quantum of forex anymore, it is commonsensical to expedite action towards eliminating such economic carnage. How can a man haemorrhaging profusely and non-stop expect to stay alive?

    This government told us many months ago it would co-locate small, new refineries around the old tired ones. These are projects that require lightning-speed; what Nigerians want to hear most now is that these refineries would be ready in six to 10 months’ time. That petrol imports would be cut by half on so and so date.

    These are the kind of responses we want from this government. Not whether it feels our pain. In any case, we want government to ameliorate our pains not empathise with us. Doing the right things, pursuing the right visions will give us great comfort. We do not think that government is making the right moves not to talk of getting the required results…

    That is why today, we are writing the same things we wrote two governments ago; we are shedding the same tears we shed last year. Below is a sample:

    It is so very simple to kill a columnist without as much as lifting a finger: just bedevil him with dishonest and greedy leaders and watch him write himself to his merry end. Depending on your turn of mind, you can actually choose your manner and method of dispatching your miserable muse. If you want to put down the irritant quick and sure, blight him with a mob of tricksters, gamblers and knaves; let them parade the land dressed in the garb of leadership, let them occupy all the seats of authority in the land and watch the writer go down and out as if zapped with laser rays.

    On the other hand, if you are possessed of a sinister turn of mind you could choose to stalk him slowly, roil him; make him write the same things over and over again until he grows completely grey in the head (and anywhere else). In no time, he is sure to grow grey in the mind too and surely, turn the bend. The trick is to dissemble or play ‘craze’ if you like. Become anti-rational; repudiate and basics, head for Sokoto when your destination is Okrika; unleash whirlwinds when people are looking out for a breath of fresh air. To illustrate my point, I had used the exact title as above once before about eight years ago during the reign of king Olusegun Obasanjo. As an editor and columnist, I was caught in the bind of commenting upon the same things over and over. I was foolishly thwacking my head against the obdurate walls of an irreclaimable potentate. Looking back after his eight years of disastrous rule, I found that I had written more than 300 articles which I have recently collected into a manuscript titled, “A Drum for the Deaf.”

    Talking about fresh breath and whirlwind, which columnist can survive writing about the prospect of a gust of new breeze only last June only to be confronted with a maelstrom six months down the line? How could a columnist keep his head if he has been beating it against one huge wall of illogic for 27 years? Consider this trend: in 1985 when our refineries had started failing while our petroleum products consumption was rising, Gen. Ibrahim Babangida, the maximum ruler at the time, went for the easy way out, he started the fuel importation binge. When our income could not sustain our import any longer, he introduced something he termed “appropriate pricing” for petrol, “deregulation” and all that. He did not think of a plan to expand our refining capacity or develop our rich petrochemical potentials. He just increased pump prices outrageously. Nigerians protested and a slight adjustment was made and that ended it all.

    It was the same with Ernest Shonekan after Babangida, the same with Sani Abacha, Abdulsalami Abubakar and Obasanjo and now President Goodluck Jonathan. Over a period of three decades, our leaders mastered the wicked art of ripping off the country through massive importation of petroleum products. We have always known that the Nigerian National Petroleum Corporation (NNPC) is a horrific house of corruption that knows not how to do anything else, yet we just live with it. How could a class of people that has embarked on a fraudulent importing binge for three decades and that neglected to develop a sector that remains its milk cow turn around to insist that a dubious, self-imposed subsidy must be removed? And come to think of it, who asked for this so-called subsidy. This thing called subsidy is only the result of corruption, inefficiency and lack of vision coming home to roost. If we had local refineries running (no matter the ownership) would we not simply pay the price emanating from such refineries?

    How could a man who told us he had no shoes; who knows a thing or two about privation and penury now have the capacity of inflicting poverty on a populace without flinching. Now that he has shoes, the very best of shoes money can buy, has he learnt that shoes are not mere adornments of the feet but instrument of intimidation and oppression? How could a bedraggled citizenry, most of who live by the day, survive under a regime of wild and sudden increase in petrol price? The so-called subsidy (by default) happens to be the only benefit the citizenry could claim to enjoy. He doesn’t have roads, no water, no kerosene, no power, no food, lacks quality education or health care… nothing.

    This columnist has grown grey making this same point. This point has been made to President Jonathan by nearly all well-meaning Nigerians high and low. This point is very simple for even a kindergarten pupil to understand. But six successive heads of state of Nigeria failed to see this basic point. However, it is only Jonathan who has chosen to ride the tiger; to swim the swift currents of the people’s anger. What is the hurry, under which appropriation law is he acting when the one under which he proposed to cut fuel subsidy is still in the National Assembly to be effective in April? Why are already ‘subsidised’ products being sold at deregulated rates? Again, people ask, why this time that the country seems besieged and the citizenry are on tenterhooks, disappointed and forlorn.

    Meanwhile, yours truly is sick of making the same argument for 27 years. I sincerely hope that this is the last time.

  • Why subsidy had to be removed – Tinubu

    Why subsidy had to be removed – Tinubu

    The All Progressives Congress (APC) National Leader, Asiwaju Bola Tinubu, on Thursday said the Federal Government’s removal of subsidy on petrol took courage but was necessary and inevitable.

    He said a situation where bogus suppliers were paid huge sums for supplying nothing while long lines of queues remained was unsustainable.

    Tinubu believes the subsidy regime led to petroleum products being smuggled to neighbouring countries while scarcity persisted.

    The consequence, he said, was that as the price of petrol stayed fixed at a low level, investors were apprehensive about fixing existing or building new refineries.

    According to Tinubu, while the price of fuel was cheap on paper, there were hidden costs that made the subsidy regime an expensive and heavy yoke on the country.

    “With dwindling revenue from oil due to the slump in global oil prices and a dwindling forex reserve, the country could no longer live in denial.

    “President Muhammadu Buhari, after carefully weighing the options, decided to do what is right.

    “In an act of courage, he removed the oil subsidy, thereby freeing the downstream component of this strategic sector of the economy from the distortions of price fixing,” Tinubu said.

     

  • Fuel subsidy: The real enemies

    Buffeted from all sides by vicious vultures, the government last week finally caved in to the demand of advocates of deregulation by increasing   pump price of petroleum from N87 to N145. The increase, according to Lai Mohammed, Minister of Information was inevitable, citing as reasons the dwindling foreign reserve, the reduction in crude production from 2.2m bpd to 1.65 bpd because of vandalisation of oil pipelines by sponsored elements and the fact that the N16.4b needed monthly for subsidy was just not available. We can add the sabotage by independent oil marketers who openly declared that importation of over 70% of oil consumption requirement by a government that refused to give their members foreign exchange will not bring an end to long queues at filling stations because NNPC is dependent on their storage facilities.

    The government has other off-shore detractors starting with Forbes and Bloomberg magazines that described Buhari as ‘obstinate’ for refusing to devalue the naira and take IMF loan, their principals including the IMF itself and other western leaders like David Cameron who survives on proceeds of stolen funds warehoused in their countries and of course those who stand to lose from government’s ban on 21 items gulping $12b of our foreign exchange every four months. Unfortunately, Buhari and his cash-strapped government need cash from even his detractors to finance a deficit budget of N2 trillion. Hence instead of apology, he appealed to Cameron to return our cash. His efforts at making beneficiaries of funds illegally taken out of the CBN vault with boxes, vomit what they all admitted was shared, is not receiving the support of some judges and some unpatriotic senior members of the bench. The Arab world he turned to for cash to implement his N2b budget deficit, have said, as players in the global financial market,  access to their loans is also tied to IMF ‘conditionalities’.  China of course was not ready to give cash but projects.  And reparation of stolen funds creatively deployed by some western countries to solve problems of social dislocations in their societies is a slow process.

    Unfortunately, in what is nothing but an act of misplaced aggression, those of us,  whose battle Buhari is fighting at his old age, are being misguided by  Labour that looked the other way while salaries of civil servants including doctors were unpaid for six  months by 26 states of the federation while the current lawmakers engaged in profligacy. Meanwhile our real enemies, the political elite and their trader-capitalists who have since 1999 waged war against the impoverished poor earning between N10,000–N18,000 and the middle class have continued to behave as if they are doing us a favour by serving us.

    While the lowest paid workers may now have to spend their take home pay on transportation, going by the Revenue Mobilisation Allocation and Fiscal Commission (RMAFC), each of the of the 109 senators earns N19.26m. His House of Reps counterpart earns a little less. This is apart from quarterly office running cost put at N192million per senator per quarter while their House of Representatives counterparts received N140 million (2009 figures). They also get about N500,000 as wardrobe allowance, N202, 640 as newspapers/periodicals allowance, recess allowance of over N200, 000. They collect interest-free car loans. They have official cars fuelled by taxpayers. In the past they executed multi-million constituency projects. They take severance package which is in millions after four years while pensioners are unable to collect their pension years after retirement. About 21 of them are ex-governors who after mouth-watering severance packages of houses, cars and cash still collect pension as well as scandalously high salaries.

    It was these self-serving lawmakers that started our nightmare shortly after Obasanjo’s inauguration in 1999. The inauguration was followed by long queues in filling stations as a result of artificial scarcity created by cash-strapped politicians who claimed they sold houses to fight the 1999 election. Obasanjo’ s award of contract to refurbish the refineries was sabotaged by the politicians who failed to deliver after collecting contract payment. Then a self-serving bill for the establishment of PPPRA was promptly  passed into law and quickly assented to by Obasanjo within three months, February to May 2003. Its mandate was to ‘liberalise the downstream sector of the petroleum industry, privatise the refineries, deregulate and liberalise the imports of petroleum products and, generally, make the products available at reasonable prices.

    But PPPRA became tool for political patronage. The body then went on to increase the number of fuel importers from less than a dozen to over 148 made up of PDP stalwarts and their siblings. In 2011, it inflated consumption of imported petroleum products by N1trillion. A House probe was to show later that these PDP stalwarts and their siblings allegedly stole about N1.7 trillion through fraudulent practices including forging of government documents to receive subsidy without ‘importing a bottle of fuel’. Thirteen years down the line, PPPRA with staff strength of 249, and a 22-man strong board, earning salaries and allowances of N57.9 billion per annum, serves only the interest of those that set it up. It is not a surprise that one of their former board members has been linked with the Panama scandal.

    Sadly, by the time Buhari was throwing in the towel last week, some of their other baleful legacies include dysfunctional refineries, the collapse of the  over 4,000 kilometres of oil pipeline commissioned by Obasanjo in 1979, as well as  government-owned fuel tank farms with PPPRA now dependent on the storage facilities of members of Depot Petroleum Products Marketers Association (DAPPMA) with some boasting of the largest and most modern storage facilities in the world and the Independent Marketers Company (NIPCO) that has invested billions in storage facilities.

    While the nation frittered away about $30b on fuel subsidy between 2011 and 2012, an amount enough to build several refineries, at the time, Dangote’s $14b refinery which will come on stream in 2018, will not only meet the nations demand for fuel consumption but also put an end to 100% importation of fertilizer. “Today, Nigeria imports 100 percent of its fertilizer, but when we finish, Nigeria will be the largest exporter of Urea and Ammonia in Africa, and it will meet our total domestic requirement and save foreign exchange”, Dangote recently declared. His director has also confirmed “The refinery is the largest single line in Africa’, with refining capacity of 650,000 barrels per day (bpd), production of 750,000 metric tons of polypropylene per year and 2.8 million tones of fertilizer per annum,” Adding his own voice, Emefiele  the CBN Governor said “it will fetch Dangote about $6b foreign exchange earning which will bring relief to a nation that until Buhari’s courageous moves last week  was spending about 38% of its reserve on subsidy.”

    Labour has a duty to let those it represents know that Buhari is not the enemy but David Mark, Ekweremadu, Saraki, Gbajabiamila who awarded themselves generous pay for oversight function they performed in default, their colleagues who engaged in on what Obasanjo once called ‘theatrics on the floor of the National Assembly’ over subsidy removal when there was no subsidy appropriation. We can add subsidy cartels that stole N1.7t,  those who according to ex-Governor Peter Obi “were paid for vessels that were not anywhere near the Nigerian waters”, the  25 marketers who were  ordered to pay back N382 billion to the government following the findings of the presidential committee that looked into the disbursement of the fuel subsidy fund, vandals engaged in vandalisation of oil pipelines and their patrons  and finally some of those unskilled or dubious Nigeria- trader capitalists  who are richer than Nigeria and now threaten the system with the idle $20b kept in domiciliary account.

  • R.I.P. fuel subsidy

    R.I.P. fuel subsidy

    But can Buhari handle this?

    At long last, the Federal Government last Wednesday summed up courage to remove petrol subsidy which has remained contentious over the decades. Although Vice President Yemi Osinbajo tried to explain the new pump price of petrol away as the result of scarce foreign exchange, what is evident is that, with effect from that day, a new petrol price of between N135 and N145 per litre was announced, up from N86 for Nigerian National Petroleum Corporation (NNPC) mega stations, and N86.50 for independent marketers. Predictably, Nigerians will protest the development, which, really, is about the most audacious in the history of fuel price increase in the country. But, how far the protests would go we can’t tell yet.

    Minister of State for Petroleum Resources and Group Managing Director, NNPC, Dr Ibe Kachikwu, had earlier said this truth that government cannot afford the foreign exchange to sustain it. I had always known this was the issue a long time ago, even when the minister kept promising that fuel supply would stabilise in April, May, or whatever. That was why I said in one of my write-ups that the NNPC was being economical with the truth as usual whenever it said certain cargoes loaded with fuel were at the ports or would soon arrive the ports to take the fuel queues away. The same way I felt anytime they rationalised the scarcity by alluding to smuggling. With the kind of marketers that we have, smuggling could not have been ruled out; but that could not have sufficiently explained the scope of the scarcity. At any rate, how many petrol tankers were they able to catch, if the smuggling theory was that strong?

    I knew danger loomed when crude prices began to rise again about two weeks ago. And that is the tragedy of the Nigerian situation. While people in other crude oil-producing nations were jubilating, Nigerians would be sad because that means more burden for them since they rely on imported petrol. Indeed, last week when I advised that labour would do well by insisting on good governance always rather than keep asking for new minimum wage every five years simply because that is what the law says; I stopped short of saying that fuel prices would soon go up but that the government would still meet with the trade unions after that to fashion out a new minimum wage as proposed by the Nigeria Labour Congress (NLC) and the Trade Union Congress (TUC). This is despite the fact that many state governments cannot even pay the present N18,000 minimum wage.  As I said then, government would find wage review more convenient than workers demanding good governance. The stage appears set for that.

    But what we are paying for now is the failure, incompetence and corruption of past governments that did nothing about local refineries; they were hell-bent on liberalisation of the downstream sector of the petroleum industry on the wrong template of importation because of the fraud that the system engendered. If Labour and the civil society including the media had spoken with one voice, insisting that the previous governments be more responsible, perhaps we would not be where we are now. We would have had some functional refineries, for instance. The Jonathan government promised four Greenfield refineries, it did not even turn the sod of one three years after the promise was made. Yet, not many people raised their voice against the irresponsible manner the country was run then. Here we are, with Labour now threatening that government must revert to the old fuel price. Perhaps if we had reacted appropriately to bad governance in the past, we would have been able to jail one or two oil barons who unjustifiably collected subsidy, thereby sending the appropriate message to others with itchy palms.

    Now, the government says it does not have foreign exchange to keep importing fuel and has therefore asked anyone interested in the business to bring it in. All the government would do is ensure the importers do not sell beyond the allowed margin and, secondly, that they do not bring in sub-standard fuel. With marketers now having to source their foreign exchange themselves, this should free some forex for other uses and even help boost the strength of the Naira. That, however, is, other things being equal. In Nigeria, other things are hardly ever equal. This is why the government should not start celebrating that it would save more forex now if its decision to remove subsidy completely scales through. There must be a conscious attempt to scale down on irrelevancies so that we do not lose the forex saved on fuel import to luxury items for our lawmakers and other politicians, especially.

    It is also because we are in a country where things don’t come out as planned that I do not agree with Dr Kachikwu’s optimism that fuel prices would go down in about six months’ time just because anyone interested in bringing in fuel can now do so. The minister ought to know that things don’t work like that in Nigeria. Moreover, Dr Kachikwu is talking as if he or Nigeria is in control of the international crude market. Suppose crude prices suddenly jump to about $70 per barrel, would that optimism still stand?

    The Buhari government has its job cut out for it. Unless it fashions out ways to protect Nigerians, what we might have at the end of the day is a situation where the people will be the ones to be paying the ‘transferred subsidy’ henceforth. People who have been used to subsidy without delivering products will not want to see that honeymoon come to an end. They cannot be relied on to be fair to Nigerians.

    Therefore, whatever angry reactions that trail the subsidy withdrawal, the government will do well to understand because the average Nigerian does not know his contribution to the problem that he now has to pay for while those who caused the problem are decorated with national awards. Another good reason why Buhari should bear with Nigerians who might protest the development is because all governments will always claim to be doing everything in the interest of the people. The Babangida government, the Abacha government, and even the Jonathan government that we knew the kind of stealing that eyes have not seen took place under the president’s watch claimed it was working for Nigerians. This is why Buhari has to be careful in his reaction to the protests that might follow the decision. Even if the government is able to get away with it, he should realise that a lot of his goodwill would have been invested. And, since goodwill is like deposit in the bank, the more you withdraw without depositing, the less your balance. So, the subsidy withdrawal must bear fruit.

    Buhari’s problems would have been minimal if only his government had been able to chart a reassuring path towards solving any of the country’s multifarious problems. Here, one is not talking of quick fixes but at least enunciation of policies that can rekindle hope that there will be light at the end of the tunnel. This has been so since creation. It is what people see that they believe.“Except you see signs and wonders, ye will not believe”, so says the Bible. The fact is; Nigerians are not happy that it took him six months to appoint ministers; many are not happy too that the budget is just kicking off in the middle of the second quarter. Indeed, the anger of many is that the government is acting as if it is unaware that it has a four-year mandate, out of which one year is almost gone.

    What the government should do now is to treat setting up of more refineries at home as an emergency because that is the long-term solution to the perennial fuel scarcity. Already, the government appears to be doing something in this direction; it should not rest on its oars. As a matter of fact, President Buhari must insist on being updated on this weekly to be sure of the progress in that direction. The present government’s promise should not be like Dr Jonathan’s Green field refineries that never came until the former president himself was rendered jobless.

    As a corollary, the government must come up with a new and effective policy to address the question of militants vandalising pipelines. We have come a long way on this and it is no longer acceptable that government would tell us it has repaired pipelines with billions today only for militants to damage it again tomorrow. This is important because even if new refineries come on board and we have not successfully dealt with the pipeline vandals’ challenge, it would be like the power sector where we do not have gas for the same reason. Today, we would be able to pass crude oil through the pipelines; tomorrow we would not.

    Excuses would no longer do. It is the duty of government to secure its jugular. There must be modern ways of doing this because if we don’t check it now, we may discover that pipeline vandalism too, like Boko Haram, has become another cash cow. That is, if it has not, already.