Feature

Petrol subsidy: A consumption volume shrouded in mystery

•Nigeria imports petrol, sell illegally to neighbouring countries –Wabba

 

Petrol subsidy payments gulped N1.27 trillion in the first five months of 2022, about 31 per cent of the N4 trillion provision for the year. It eroded oil gains as Nigerian National Petroleum Company (NNPC), Limited failed to remit revenue to the federation account, reports PAUL OGBUOKIRI

Phantom consumption figures, growing subsidy payment

 

NNPC has four refineries, two in Port Harcourt (PHRC) and one each in Kaduna (KPRC) and Warri (WRPC). The four refineries have a collective installed 445,000 bpd refining capacity.

That volume of crude is allocated to the NNPC daily and it in turn exchanges it with foreign refiners for about 71 million litres of Premium Motor Spirit (PMS) daily under its Direct Sale Direct Purchase arrangement.

 

However, the exact numbers out of that figure which Nigeria consumes on daily basis has remained a mystery over the years as different figures have been bandied at different times by government agencies and stakeholders, with the highest figure of 74 million litres mentioned at the weekend of April 3, 2022 December 2021 by the NNPC.

It stated that the said figure rose from 72 million litres per day in December 2021. Prior to the administration of President Muhammadu Buhari, Nigeria’s fuel consumption figure had been put at between 30 million and 35 million litres. It later rose to 60 million litres per day, 55 million litres, while until today; no one actually knows the country’s daily fuel consumption.

As a result of this, the Federal Government set up a committee to determine Nigeria’s actual fuel consumption using advanced information and communication technology, as well as improved surveillance. In its National Stock Reports, the Department of Petroleum Resources (DPR) stated that Nigeria was consuming about 38 million litres of petrol per day.

 

It stated that as February 25, 2020, the cumulative stock of PMS at depots across the country was 915.772 million litres, dropping by 3.15 per cent from 945.6 million litres recorded February 24, 2020.

The DPR disclosed that the PMS stock was owned by the Petroleum Products Marketing Company, the downstream subsidiary of the NNPC; as well as major and independent oil marketers. The DPR attributed the decline in national PMS stock levels to vessel discharges and truck out activities across the depots. It said:

 

“As at 25th February 2020, the cumulative depot stock of PMS at the depots was 915,771,566 litres (combined PMS stock owned by PPMC, major and independent marketers) vis-à-vis 945,604,305 litres on 24th February 2020 indicating a decrease of depot PMS stock due to vessel discharges and truck out activities at the depots.

 

“Applying the estimated daily national demand of 38,200,000 (thirty-eight million two hundred thousand) litres, available depot PMS stock of 915,771,566 litres is sufficient for 24 days.”

But the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) disclosed that the average daily petrol consumption in the country is 60 million litres per day. The details were contained in the document presented to the House of Representatives’ Ad-hoc Committee investigating the actual daily consumption of Premium Motor Spirit (PMS) in Nigeria, chaired by Hon Abdulkadir Abdullahi.

According to PENGASSAN’s Deputy President, Comrade Owan Abua, total of 14 million litre of AGO (diesel), 0.74 million litre of DPK/ HHK (Kerosene) and 3 million litres of ATK (aviation fuel) are consumed He explained that the average daily consumption was arrived at using Truck-Out from Depots as a yardstick for the estimation, while consumption was estimated from the average of actual Truck-Out volumes from coastal De-  pots in 2021 and adjusted for population and GDP growth rates.

On its part, Nigeria Customs Service (NCS) put the total volume of PMS imported into the country between 2015 and June 2022 at about 2,380,814,974.418 metric tonnes in 3,703 vessels, while 876,801,931.515 metric tonnes of PMS in 1,296 vessels were exported within the period.

Also at the investigative hearing, NGF’s Head, Legislative Liaison, Peace & Security, Hajiya Fatima Katsina, presented the governors’ findings on the volume and pricing of PMS are detailed in a November 2021 report by the National Council (NEC) Ad-hoc Committee – interfacing with the Nigeria National Petroleum Corporation (NNPC) on the appropriate pricing of petrol in Nigeria.

 

According to her, the Committee was chaired by Governor Nasir el-Rufai of Kaduna State, with membership comprising the Governors of Edo, Jigawa, Ebonyi, Akwa Ibom, Ekiti, the CBN Governor, the Minister of Finance, Budget and National Planning (MBNP), the Accountant General of the Federation, Group Managing Director of the NNPC and the Permanent Secretary, MBNP.

“Although, the operating environment has significantly worsened since the report was released, with NNPC now consistently reporting zero remittance to the federation account as profit from joint venture (JV), production sharing contract (PSC) and miscellaneous operations, the position of the Forum remains generally the same.

President of Nigeria Labour Congress (NLC), Comrade Ayuba Wabba, who has been kicking against the removal of fuel subsidy argued that the “volume of PMS claimed to be imported into the country is much higher than what is actually imported and by extension, much bigger than the national consumption -capacity.

“This is done through over-invoicing or other processes of criminality at a huge cost to Nigeria and its people. This criminal enterprise is perpetrated by a tiny privileged clique accustomed to circumventing the rules.”

The NLC President, who was represented by NLC’s Head Information, Comrade Benson Ukpa, maintained that the “frequent increase in the pump price of petroleum products is the presumption that Nigeria imports xyz volume of refined PMS for its internal consumption and the subsidy on this volume is so humongous that it is killing the economy.

He said the volume of imported PMS is in excess of the national need and the excess is illegally sold across the border. While frowning at the level of impunity being perpetrated in the industry, Comrade Wabba said; “In our view, it is the activities of this criminal gang, clearly above the law, that are responsible for the costs associated with PMS, the costs passed off as subsidy. “We do believe that even if there is subsidy, it cannot be at the level quoted by authorities in the sector.

 

“In our document on the oil sector, we have outlined conditions precedent for removing subsidies, if any, including fixing the refineries, creating conditions for private sector participation in the building of refineries, even if they are modular.”

Fuel subsidy jumps skywards

Investigation revealed that the amount of money spent by the Federal Government on petrol subsidy in the past seven years rose to N4.838 trillion in May 2022. Further analysis showed that the average monthly fuel subsidy cost rose by 989 per cent to N254.8 billion at the end of May 2022 from N23.4 billion at the end of 2015.

 

According to data obtained from the NNPC Limited and the Nigerian Extractive Industries Transparency Initiative (NEITI), the Federal Government spent N316.70 billion on fuel subsidy in 2015, translating to a monthly average of N23.4 billion.

 

But following the N1.274 billion spent in the five months of 2022, the average monthly subsidy cost rose by 989 per cent to N254.8 billion. Furthermore, NNPC data showed that N99.00 billion, N141.63 billion, N722.30 billion, N578.07 billion, N133.73 billion were spent in 2016, 2017, 2018, 2019 and 2020 respectively, while N1.573 trillion was spent in 2021.

The astronomical rise in average monthly fuel subsidy cost, according to industry experts, is due to a combination of factors — high price of crude oil, Russia-Ukraine war, foreign exchange, freight, alleged corruption and smuggling of the product to neighbouring countries.

The Executive Secretary of Major Oil Marketers Association of Nigeria (MOMAN), Mr. Clement Isong, agreed with NNPC on this and added, “Finally, and this is the most important reason because you have capped the price, at one third or one quarter, of the price that it is across the borders, the propensity for the product to move across the borders is at the highest.”

“What I mean by that is that so many people, ordinary Nigerians, ordinary human beings on both sides of the border engage in moving the product from the Nigerian side to the other side. Whether we are talking about Cameroun, Chad, Republic of Benin, Niger or Equatorial Guinea, this product goes to the whole Central and West African regions.

“This is because it is a simple law of economics that the product will follow where the price is highest. The product will go there by itself. Now, because there is so much product going out, and the government doesn’t want queues in Nigeria, the government has increased the amount of product that it is importing for the Nigerian people,” he added. He explained that the combination of these factors has brought Nigeria to where it is at the moment.

Subsidy widens FG’s deficit

The Federal Government said that the fuel subsidy was widening its deficit gap so much that it was considering tapping the 2 billion  Euros it raised in the Eurobond sale last year to support its fiscal position. Reuters reported the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, as disclosing this at the Arab-African Conference in Cairo, Egypt.

She said that the administration will target more local borrowing this year to help fund the budget deficit which has been exacerbated by rising oil prices, due to Russia’s war in Ukraine. The Federal Government had, in September last year, raised 4 billion Euros from the international capital market.

Although, the President Muhammadu Buhari administration had announced plans to end fuel subsidies in June, it later reversed itself following a public outcry against the decision. It then extended the subsidy by 18 months to avert any protests in the run-up to presidential elections next year, as part of its external borrowing plan.

The NNPC has given the excuse of high under-recovery as the reason why it has not been remitting oil revenue to the Federation Account, from where the three tiers of government share federation revenue on a monthly basis.

Even the Monetary Policy Committee, MPC, recently aired its concern over NNPC’s nonremittance of oil proceeds at a time when oil prices have risen very high to the advantage of other oil-producing nations of the world.

Way out

Speaking recently on Arise Television, deposed Emir of Kano, Sanusi Lamido Sanusi, said that successive administrations continue with fuel subsidy payments despite damage to the nation’s revenue and economy because some people in power are making billions of naira from the scheme.

This came as the Presidential candidate of the Labour Party, Mr. Peter Obi, vowed that he would remove the subsidy if he is elected into office in 2023 but would give Nigerians alternatives that are better than the subsidy. “We have this scheme called the subsidy, which is really a scam, and practically everything that comes in, goes right back out — to import petroleum products and pay subsidies on those products. I’m not saying subsidies, themselves, are bad but look at the numbers.”

He said: “We have spent over $40 billion on subsidies. Our total education expenditure in the past 10 years is about N8 trillion (about $20 billion on $400/$1).

This is 50 per cent of it,” Obi said, adding that he would build 20,000 megawatts of power and distribute it to Nigerians with $20 billion. Also, the former Central Bank of Nigeria (CBN), Sanusi Lamido Sanusi, said that the economic reality of Nigeria is a product of some “negative decisions” taken by successive administrations.

He alleged that most of the numbers from the country’s importation of petrol are “phantom”, stressing that “a lot of the petroleum subsidy that will be paid is from phantom fuel that never came into this country”.

“The only reason it makes sense is that there are a number of people who control the levers of power, who are making billions and billions of dollars out of this scam that is called fuel subsidy.

“Otherwise, there is no reason why government after government will continue, when the argument is clear that the damage to the economy is clear.”

Sanusi said that the first problem of the country in terms of management of its petroleum resources is the assumption that Nigeria is an oilrich country and therefore needs cheap petrol.

“These people (referring to Nigerians) need education; they need healthcare, they need infrastructure; they need electricity; they need telecommunications, they need agriculture and you decide that what they need more than anything else is cheap fuel. That does not make sense,” Sanusi said.

 

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