Interrogating NNPC’s petrol subsidy claims
With landing cost of petrol put at N171 per litre, NNPC incurred N37 on each litre of fuel at a depot price of N133.80, leading to a daily subsidy of N2.046billion on 55million litres, it claims it is importing. The NNPC says it is raising importation to 80million litres per day. Using data, ISAAC ANYAOGU, in this piece interrogates these claims and explains how the current subsidy is a useful manual to self-destruct an economy.
In more ways than one, it is looking like 2011 again. As a result of a fraudulent fuel subsidy regime, Nigeria lost over N2trillion to false claims by oil marketers in active collusion with Nigeria’s state-owned oil firm, the Nigerian National Petroleum Corporation (NNPC).
At the time, fraudulent oil marketers submitted invoices for petrol-laden vessels that purportedly came into Nigerian shores but were never discharged. They were diverted and sold outside Nigeria in active collusion with corrupt government officials who approved payment of subsidy on the products. A senior oil marketing company executive told BusinessDay that the practice called ‘Pump Back,’ led to huge revenue loss. Fuel consumption jumped to 35million litres per day from about 20 – 28 million litres.
Since December 2017, the NNPC has said it is importing 55million litres of petrol per day. This month, it said it would ramp importation by 100 million litres per day, this is why Nigerians should be worried – it will soon be the new normal.
Futile probes
While NNPC, is perhaps the most scrutinised public corporation in the country, it is not the most amenable to change. Probes by lawmakers ring hollow like having a junkie run a juvenile home.
Import claim doesn’t add up
When Ibe Kachikwu, minister of state for petroleum resources announced an increase in the pump price of petrol from N86.50 to N145 per litre in May 2016, he told Nigerians that the goal was to make the refineries work, allow marketers to import and stabilise fuel supply across the country.
Oil prices then were finding a floor at $40 per barrel, a few marketers resumed importation but when oil prices shot up above $50 per barrel due to a supply cap deal the Organisation of Petroleum Exporting Countries (OPEC) reached with other oil producing nations led by Russia, in November 2016, over 1.8million bpd was shaved from global oil output, prices recovered but marketers fled. By 2017, NNPC had become the sole fuel importer in the country.
But does the NNPC have the capacity to store or distribute up to 100m litres around Nigeria?
NNPC has a storage capacity of only 54% of its regular 35m imports, this is why it relies on private depots. This means it has a capacity to store only 18.9million litres. The national oil company pays up to N4 per litre for storage of its products in private depots, so to store about 81.1million litres it plans to import, it will pay N324.4 million daily, which comes to N9.7 billion every month.
To distribute petrol around Nigeria, the NNPC employs 1,733 trucks conveying about 30,000 litres of petrol. Assuming all the trucks are functional, they can only move 51.9 million litres of petrol around the country every day. But this would be nearly impossible considering the state of Nigerian roads and difficulty in accessing depots especially at Apapa, where they spend weeks before loading.
NNPC has not explained how Nigeria’s fuel consumption jumped to over 50million litres in December 2017 from 35million litres at a time when renewables sector is experiencing a boom and the increase of retail price of petrol has reduced demand for the commodity.
Subsidy claims as smokescreen
Africa’s biggest economy is paying a steep price for a lie. With landing cost of petrol put at N171 per litre, the NNPC incurred N37 on each litre of fuel at a depot price of N133.80, leading to a daily subsidy of N2.046billion for 55million litres.
The landing cost of petrol has been higher than N145, after crude oil prices rose to $45 per barrel in January 2017. This puts total subsidy spend since February 2017 to February 2018 at N746.79billion.
This figure is higher than budgetary allocation for the ministry of Power, Works and Housing (N555.88bn), transportation (N263.1bn), Agriculture and Rural development (N118.98), Universal Basic education (N109.6bn) and combined capital expenditures for defence (N145bn), health (N71.11bn) and education (N61.7bn).
Adeola Adenikiju, director, Centre for Petroleum and Energy, University of Ibadan said, “The issues of subsidy is a major problem since NNPC is the only importer, so when they sell their crude they also buy products which they sell at a loss in the open market, this is why the inefficiency of NNPC is very high.”
Nigeria is burning badly needed funds because it has become politically toxic to deregulate.
Petrol subsidy – gainers and losers
Meanwhile, Nigerians are the biggest losers in this sham, with over 15 million litres of subsidised fuel smuggled out of the country daily, according to the NNPC. Nigeria’s subsidised petrol is a favourite commodity on West Africa’s black markets, hurting investments in the downstream sector and encouraging smuggling across the country’s borders, as porous as a spaghetti strainer.
On roadsides in Cameroun and other West African countries, vendors fill customers’ cars, using the cut-off top of a plastic bottle as a funnel. The fuel is less expensive with 30 litres of petrol costing FCFA 17,000 in the country rather than FCFA 19,000 at the pump according to a report by African Arguments, a pan-African news platform on issues plaguing the continent. This translates to N382 per litre on the streets and N426 per litre at the pump.
Petrol smuggled from Nigeria is called “Funge” or “Zoa Zoa”, in Cameroon’s North West region. In Benin, it is called “kpayo – or “ersatz” in the local Gungbe language. There are less than 400 filling stations in the whole of Benin where 80% of the fuel consumed is smuggled out of Nigeria according to a report by the African Development Bank.
Cameroon is one of Africa’s biggest oil-producers and sold 17 million barrels of crude in 2017, yet the sale of illicit Nigerian petrol is a common sight across the country. Meanwhile, in Nigeria where, over 1.9 million barrels of crude oil is produced daily, citizens sleep in fuel stations to get subsidised petrol in Lagos and Abuja.
At 11th edition of Oil Trading & Logistics Expo that held in Lagos from October 23 – 25, Mohammed Amin Adam, Ghana’s deputy minister of Energy said Nigeria’s fuel subsidy policy is distorting markets in West Africa.
“I wish to call on the Nigerian government to make efforts at reaching full price deregulation given that it is the largest market for products on our continent and any failure at reaching full price deregulation will lead to distortion on the sub regional market on the continent,” Adam said.
So while Nigerian subsidised petrol is clearly smuggled out of the country, what’s there to say the volumes cannot be exaggerated?
“NNPC is concerned that continued cross-border smuggling of petrol will deny Nigerians the benefit of the Federal Government’s benevolence of keeping a fix retail price of N145 per litre despite the increase in PMS open market price above N171 per litre,’’ Maikanti Baru, NNPC GMD told Hameed Ali, the Comptroller General of the Nigerian Customs Service when he visited him on March 2.
NNPC said that the proliferation of fuel stations in communities with international land and coastal borders across the country, is leading to the cross-border smuggling of petrol to neighboring countries of up 15m litres, but a careful analysis shows this claim flies in the face of reason.
In 2010, Muhammed Barkindo, then NNPC GMD approved the purchase and deployment of ultra-modern vessel tracking devises to enable the NNPC War Room maintain an unimpeded tracking of ships and ocean liners conveying petroleum products to Nigeria. Also the Petroleum Equalisation Fund say it has computerised systems for monitoring product supply across the country on its Aquila Platform and places trackers on tankers distributing fuel. So why are huge volumes of fuel disappearing?
An opaque, unprofitable enterprise
NNPC has insulated itself from public scrutiny claiming Freedom of information requests does not apply to it. Media inquiries are often ignored, the NNPC board lacks the power to check the group managing director and the president, as petroleum minister is mostly unaware, most of the times.
“We regret to inform you that the NNPC is not in a position to provide any information or document as your request is incongruous with, unsupported by or outside the scope and purview of the Freedom of Information Act.
“Be informed that the FOI Act is not applicable to the NNPC because it is not a public institution within the meaning of Section 31 of FOIA,” Sarah Ndukwu general manager, Litigation, Arbitration and Property Law Development, of NNPC wrote in response to an FOI request by Femi Falana, human rights lawyer.
The corporation routinely declares losses and has no obligation to excel, or run a profitable operation.
NNPC consistently makes losses, while even NGOs declare surplus
However, the NNPC manages Nigeria’s oil asset on behalf of the three tiers of government hence its inefficiency in part accounts for the inability of state governments to pay teachers. On March 28, the Federal Account Allocation Committee (FAAC) meeting ended in a stalemate because state commissioners were embarrassed by the amount NNPC reported as revenue. It begs the question, if the corporation holds the collective till, why aren’t state governments angry enough to demand accountability from it?
“It is also worthy to note that the NNPC does not subject its budgets to the National Assembly for appropriation as stipulated by the Constitution and the Fiscal Responsibility Act,” Femi Falana said last year.