Who gains from fuel subsidy?
AN octogenarian uncle, who is not likely to be too excited if his name were mentioned here, called to draw attention to a cover page story, titled, “Nigeria to spend N750 billion on fuel subsidy in 2020,” in The PUNCH of Wednesday, December 11, 2019.
After 34 minutes on the telephone, the octogenarian left no doubt of his outrage at what essentially amounts to someone simply dashing away Nigeria’s money to whomsoever he likes. If you were privy to the conversation, you would pick the angst and frustration of an old man who is extremely impatient for Nigeria to get it right.
Minister of Finance, Budget and National Planning, Zainab Ahmed, announced, sometime in October 2019, that “a provision has been made in the (2020) Budget for underrecovery, (another word for subsidy), for the (importation of petrol) in the sum of N450 billion, ( a cost to be borne by the NNPC as part of its cost of operations).”
However, a team of The PUNCH correspondents found out, from extrapolation of data obtained from the Petroleum Products Pricing Regulatory Agency, that the actual cost of the subsidy should be a staggering N750.81, an increase of N300.81 billion.
But if you go by the 61 million daily consumption of petrol announced by the PPPRA when trying to justify the closure of the borders by the Federal Government, the figure will be even more staggering than reported by The PUNCH.
If you multiply the average daily consumption of 55 million litres, admitted by the NNPC, by the average subsidy spending of N37.40, derived by this team of correspondents, you will arrive at the N750.81 billion they projected.
But you then wonder if this disparity is due to incompetence, insincerity, or deliberate policy of the denizens of the oil sector. The take of this octogenarian is that there is something in the African that makes him wrong headed, nearly all the time.
The only way government can disprove this assumed figure is by showing that the consumption of petrol is lower than the 55 million litres per day. Already the PPPRA has claimed a drop to 52.22 million litres of daily truck-out of petrol from depots after the closure of Nigeria’s borders.
Many people are however, waiting on the usually truthful National Bureau of Statistics to confirm before they can decide which of the figures to believe. As you probably know, the truth, even data, in Nigeria is massaged to serve certain interests, and so they are usually unreliable.
Interestingly, Clement Isong, Executive Secretary of Major Oil Marketers Association, a cartel of International Oil Companies operating in Nigeria’s downstream oil sector, admits: “We have no idea as to what subsidy spending is as of today. We are therefore unable to make any comment on whether (subsidy figure) is going up or down.”
He declares, however: “We are consistent in our view that the subsidy payment... in the petroleum downstream sector, degrades operational efficiency and economics of the downstream sector.”
After suggesting that “This (downstream oil industry) is fraught with malpractices throughout the supply chain, and needs improvement and transparency,” Isong submits, “(MOMAN) thinks it is only deregulation that can help us clean up the industry and bring back efficiency.”
Somebody suggests that MOMAN, and its counterpart the Independent Petroleum Marketers Association of Nigeria, are upset with the NNPC for excluding them from participating in the importation of petroleum products that attract usually inflated subsidy payments that are usually unmeasurable, going by the words of former Central Bank of Nigeria Governor, who has since been elevated as Muhammadu Sanusi II, Emir of Kano.
Fortune Obi, spokesperson for the Petroleum and Natural Gas Senior Staff Association of Nigeria, concurs with Isong: “You can’t be subsidising forever. The main solution is to remove subsidy and make the refineries functional.”
You could ask, “Who is not allowing the refineries to function?” A former Minister of State for Petroleum Resources once said, in what has now become famous first words, “By 2019, we should be able to exit completely the importation of petroleum products in the country.”
If you ask, as the Igbo would, Gini ji nwa nkita onwu, what’s holding the dog from dying? you’ll find the answer embedded somewhere in the following words of current Group Managing Director of the NNPC, Mele Kyari: “We have a clear mandate of Mr. President to stop (importation of petroleum products), and we believe this can be done between now and 2023.”
Kyari is however boasting that the way he and his team will deliver on this promise is as follows: “First, we will deliver on our refineries, to make them work. (But, of course, you’d say)... Secondly, we will support our partners to deliver on the projects that will make (petrol) and other products available, which are essentially the many other refinery project interventions that are going on.”
If you believe this, you’ll believe anything. A friend who worked in the oil industry for more than 40 years says it is not in the interest of the IOC cartel and their local collaborators to allow the local refineries to work. He says that the problem is not in the equipment or processes, the problem is in the personnel, whose values do not support operational efficiency for the local refineries.
Another form of subsidy that needs to be interrogated is the petroleum products equalisation scheme, which reimburses marketers of petrol and kerosene with the cost of transport from the supply point to the retail outlet.
This facilitates the sale of the products at a uniform price nationwide, as approved by the Federal Government. The rationale is to relieve the marketer who may have to add the cost of transport to his sale price in a location far from his point of loading.
This additional road transport cost is incurred because of the unconscionable disuse of petroleum products pipelines that are mostly rusted or vandalised, and the alternative railway, which has become almost moribund, though the governments of President Goodluck Jonathan and Major General Muhammadu Buhari (retd.), respectively made, and are making, efforts to revive it.
The initial intention of the equalisation scheme was to bridge only 10 per cent of the products transported. But it has increased to more than 40 per cent over time. The additional cost is described as bridging cost for transport above 450 km, but called inter-distance scheme for distances below 450km.
An uncofirmed report indicates that for the 19,785,236,180.71 litres of petrol assumed to have been sold by the NNPC in 2018, at a bridging cost of N18.37 per litre (that the PPPRA is unwilling to confirm), Nigerians paid N363,454,788,639.64 to ensure that everyone resident in Nigeria bought petrol at the same price. Of course, those who profit from the extra baggage cannot be identified.
But you know that despite this lying do-gooder scheme, usually contrived fuel scarcity makes nonsense of the price equalisation scheme. Heartless dealers ironically sell petroleum products at higher prices in states like Rivers and Delta, that have both crude oil fields and oil refineries.
The sad sob story is that Nigeria may not quickly get out of the bind of subsidy fuelled by importation of petroleum products as long as the President of Nigeria fails to initiate and drive the petroleum industry policies.
So, Uncle, that’s the deal for now.