LAGOS — Nigerians have been forced to pay as much as N150/litre of
kerosene instead of the government subsidised rate of N50 because the
Nigerian National Petroleum Corporation, NNPC, chose to sell kerosene to
depot owners rather than retail outlet owners as required of it.
A Report by the Technical Committee on Payment of Fuel Subsidies, submitted to Mr President and exclusively obtained by Vanguard,
revealed that the NNPC flouted the policy on its monopoly to import
kerosene, which comes in as Dual Purpose Kerosene, DPK, at subsidized
rate to serve the masses.
Rather than deliver the product to retail outlet owners so that it
could benefit the masses for which it was being subsidized, the NNPC,
instead, chose to sell it for patronage, or what the committee described
as “rent” to depot owners.
The
struggle to buy Kerosene, an household commodity for cooking, becomes
more challenging even at a NNPC petrol Station in Lagos. Photo by Lamidi
Bamidele
The depot owners who got
the product at N40.90/L ex-depot price, in turn sold it to marketers and retail owners at between N115 and N125/L depending on the operator, a development that led to the masses buying the product at 300 per cent increase at N150/L instead of the recommended price of N50/L.
the product at N40.90/L ex-depot price, in turn sold it to marketers and retail owners at between N115 and N125/L depending on the operator, a development that led to the masses buying the product at 300 per cent increase at N150/L instead of the recommended price of N50/L.
“The distribution of DPK which was being imported solely by NNPC was
skewed in favour of depot owners who have no retail outlets. Two-thirds
of the kerosene sold by NNPC between 2009 and 2011 was sold to depot
owners and “middle men” who in turn sold the product to owners of retail
outlets at inflated prices of between N115.00 and N125.00 per litre
(compared to the ex depot price of N40.90), leaving consumers to pay
higher prices than the N50.00 per litre directed by Government,” the
report said.
It added: “For several years now, the country has been incurring huge
subsidy bills for kerosene and its citizens are not receiving the
benefit – instead the country has been financing “rent” for the
middlemen.”
NNPC has many mega stations and retail outlets
MOMAN – is the Major Marketers Association of
Nigeria, which members include Mobil Oil Nigeria Plc; Total Plc; MRS Oil
Plc (formerly Chenron Oil Nigeria); Forte Oil Plc (Formerly AP); Oando
Oil Plc; and Conoil Plc. The association controls nine per cent of
retail outlets with 2,453 owned by members
IPMAN – Independent Petroleum Marketers Association
of Nigeria, own in joint venture with Purebond of UK, the Nigerian
Independent Petroleum Company, NIPCP Plc, and has about 23,026 member
retail outlets to control 85 per cent of the retail market.
DAPPMA – Depot and Petroleum Products Marketers
Association are the owners of the tank farms and petroleum storage
facilities and only 403 member outlets and controls only four per cent
of the market. Yet, they got between 60 and 70 per cent of the kerosene.
Further investigations revealed that because kerosene comes in as
DPK, the depot owners preferred to divert the product for aviation
turbine kerosene, ATK, or Jet A1, to reap higher profits from the
product as opposed to selling it as House Hold Kerosene, HHK, which the
masses rely on for domestic energy to cook their foods and light their
lanterns.
Yet, the NNPC collected the sum of N331.55billion as kerosene subsidy
for 2011 alone, when hardly any Nigerian could buy the product at
N50/L.
This has remained since 2009, a situation that led to the acute
scarcity of kerosene for the greater part of the last three years.
The report, which revealed how oil marketers and petroleum dealers
allegedly perfected series of fraud through products imports that led to
the payment of over N2 trillion as subsidy claims in 2011 alone, also
showed that in all the established cases of malfeasance, the regulatory
agencies colluded with the concerned parties to boycott due process for
the importation of the particular product.
NNPC flouted presidential directive
In the case of kerosene, the situation was so bad that late President
Umaru Musa Yar’Adua, on June 15, 2009, ordered the NNPC to stop making
further deductions as claims for subsidy on kerosene.
“In spite of a directive issued by President Yar’Adua on June 15,
2009 that NNPC should cease subsidy claims on kerosene, PPPRA resumed
the processing of kerosene subsidy claims in June 2011 and NNPC resumed
the deduction of kerosene subsidy claims to the tune of N331
,547,318,068.06 in 2011,” the report revealed.
The report noted that: “The current lack of regulation (of subsidy
claims) has led to NNPC’s introduction of practices that are not
permitted or recognised by the current PSF guidelines that if unchecked
by NNPC’s internal control mechanisms may allow for significant
leakages.”
Checking fraud through forensic audit
To discontinue the criminalities, the committee called for a forensic
audit of the NNPC’s subsidy payment process. This it said, is because
“while the committee conducted detailed reviews of several aspects of
the subsidy payment process, it noted that the process for NNPC is
significantly more complicated than the process for the private sector
and would require a thorough forensic audit.”
It therefore urged the Federal Government to “appoint consultants to
carry out the forensic audit of the NNPC subsidy claim process. This is
without prejudice to the committee’s recommendations on the process from
its high level review.”
It further recommended that such audit should cover, among others:
*Funding for subsidy paid to NNPC
*Process for determination of products imported by NNPC
*Documentation for NNPC’s transactions for imported petroleum products
*Verification of documentation with NNPC’s suppliers and other
agencies involved in the discharge of petroleum products – e.g. DPR,
PPPRA, Government auditors, independent inspectors, e.t.c.
*Review of documentation submitted to PPPRA by NNPC
*Review of PPPRA’s certification process for NNPC subsidy claims
*Reconciliation of the deducted subsidy claims from the proceeds of
crude oil sales by NNPC to the subsidy claims certified by PPPRA.
Committee’s recommendations.
Since the poor Nigerians were obviously not getting the benefit of
the huge cost to the nation in kerosene subsidy, the committee further
urged the federal government to also: Allow both private importers who
meet the eligibility requirements of the PSF guidelines and NNPC to
import kerosene and pay kerosene subsidy under the PSF. The role of
private importers in the distribution of the product should be monitored
properly by PPPRA and DPR. Eliminate the current financing of rent for a
few by restricting NNPC’s local distribution to only groups that own
significant retail outlets – i.e. MOMAN, IPMAN and NNPC Retail at the
approved ex-depot price.
The Committee recommends that NNPC’s roles in the downstream
petroleum industry be regulated appropriately by the existing regulatory
agencies in the industry i.e. PPPRA and DPR.
The Committee recommends that:
*PPPRA must always regulate and determine the quantity of products to
be imported by NNPC in line with its mandate and the current allocation
process for NNPC. All importation of products by NNPC (within or
outside PPPRA approved quotas) must be approved by PPPRA. A rigorous
process of volume control that will facilitate identification of red
flags will reduce malpractices in subsidy claims.
*That accounting best practices should be adopted by NNPC to enable
separate audit trails of sales proceeds of imported and locally refined
petroleum products and to determine the cost of domestic refining of
petroleum products.
*That Government should always give documented and clear directives
to avoid ambiguity, indiscretion and to encourage compliance. Given the
significant financial impact of the NNPC subsidy process on the finances
of the nation, appropriate steps should be taken by Government to
document and legalise the process for NNPC’s subsidy claims in a
transparent and unambiguous manner.
*That the relevant Government agencies such as PPPRA and DPR in line
with their mandates as regulators and others such as the Ministry of
National Planning, Federal Bureau of Statistics e.t.c. using the
information at their disposal on locally refined, imported and stored
volumes of petroleum products should be mandated by Government to
continually determine the nations’ daily consumption levels of petroleum
products independent of the industry operators.
*The allocation of kerosene directly to marketers with retail
outlets, specifically IPMAN, MOMAN and NNPC Retail based on the strength
of their retail outlets. This will ensure that the impact of the
subsidy will be felt by the masses. In addition, the permit to import
DPK should be liberalized to include the marketers who meet the
eligibility criteria under the PSF guidelines and the subsidy regulated
under the PSF scheme as currently obtains for PMS.
In the long run, the option of using cooking gas should be explored.
It is expected that the cost of subsidising kerosene would be saved if
more Nigerians embrace the use of LPG. In addition, the Committee is
unable to recommend payment of subsidy claims on DPK in view of the
extant presidential directive of June 15, 2009.
The Committee
It would be recalled that the idea of the Technical Committee on
Subsidy was hatched on February 28, 2012, and was meant to “review
outstanding claims for fuel subsidies,” as fallout of the stakeholders’
meeting of the downstream petroleum sector.
The meeting was chired by the Coordinating Minister of the
Economy/Minister of Finance, Dr. Ngozi Okojo-Iweala, who constituted the
10-man committee on April 17, 2012, headed by the Group Managing
Director/Chief Executive Officer, Access Bank Plc, Mr. Aigboje
Aig-Imoukhuede.
The terms of reference included to authenticate the backlog of
outstandingpayments of subsidy payments to marketers in 2011; verify the
legitimacy of backlog of claims already submitted by marketers for
2011; and review any other pertinent issues that may rise from the
exercise.
Other members included the Director General, Budget Office of the
Federation, Dr. Bright Okogu; Director General, Debt Management Office,
Dr. Abraham Nwankwo; Accountant General of the Federation, Mr. Jonah
Otunla; Executive Secretary, Petroleum Products Pricing Regulatory
Agency, PPRA, Mr. Reginald Stanley.
Others were the Group Executive Director, Finance and Accounts, NNPC;
and representatives of the CBN, Bankers Committee as well as major and
independent marketers.
