A Petrol Scarcity Foretold
The latest fuel crisis should not have come as a surprise to the federal government as the ominous signs manifested a few months back, Ejiofor Alike reports
When the federal government in April 2010 resolved to issue oil marketers with Sovereign Debt Notes (SDNs) as a security against any delay in payment of subsidy for imported cargoes, the measure, which effectively renewed the interest of marketers in importation of petroleum products, was intended to end the persistent fuel crisis that arose from the delay in the payment of subsidy claims.
Sovereign Debt Note, which is another name for government borrowing, is like Treasury Bills (TBs), a form of government securities, which can be discounted for cash.
However, while the Sovereign Debt Note is a short-term borrowing, Treasury Bills are for long term.
Following an assurance to marketers by the then Abiodun Ibikunle-led Petroleum Products Pricing Regulatory Agency (PPPRA) that they (marketers) would be issued with SDNs as collateral or guarantee against any undue delay in payment of subsidy, there was sudden interest shown by the marketers, with a few of them trying initially to monopolise the fuel importation regime.
With these SDNs, marketers that do not get their payment within 45 days stipulated in the Petroleum Support Fund (PSF) guidelines, will take the instruments to their creditor banks as cash to pay for their loans, while the banks will get the cash-equivalent from the Central Bank of Nigeria (CBN).
Prior to introduction of the SDNs, previous delay in payment of subsidy made some marketers to shun the importation regime and rely on the Nigerian National Petroleum Corporation (NNPC) for imported fuel.
This development created the acute fuel crisis that hit the country between the last quarter of 2009 and the first quarter of 2010.
Most of the private marketers had imported little products in 2009 and this created the acute scarcity situation as only the NNPC could not meet the shortfall in supply.
Due to the delay in the payment of subsidy claims, these marketers had also requested for import permit from PPPRA for very little allocation in the first and second quarters of 2010.
But it as soon as information filtered in that the government would issue SDNs, these marketers were said to have influenced the withdrawal and review of the initial allocation issued for the second quarter 2010 to enable them get huge allocation.
The PPPRA succumbed to the pressure of the marketers and withdrew the already approved second quarter 2010 import allocation.
Under a fresh allocation issued to marketers, the number of marketers was reduced from 53 to 25 and the allocation of the marketers that did not make the new list was reallocated to less than five marketers, who wanted to dominate the subsidy scheme.
Under the Petroleum Support Fund (PSF) scheme, the PPPRA issues Sovereign Debt Instruments (SDIs) to marketers, whose imported products have been verified by the relevant agencies of government.
The marketers will in turn present their SDIs to the Federal Ministry of Finance, where they will be issued with Sovereign Debt Notes (SDNs), which are regarded as being equivalent to cash.
It is the SDNs that the marketers will present to the CBN to collect the cash- equivalent.
With the SDNs, Nigerians experienced relief as persistent queues disappeared from filling stations. Resurgence of queues Following the various subsidy probes, which revealed sharp practices in the administration of subsidy scheme, subsidy claims are being subjected to prolonged verification, which delays payment beyond the 45 days stipulated in the PSF guidelines.
After the verification of imported cargoes, the Federal Ministry of Petroleum Resources, through the PPPRA, will always claim that it has forwarded the verified claims to the Federal Ministry of Finance for payment.
The Federal Ministry of Finance will further subject the claims to further scrutiny before issuing the SDNs to the marketers, after which the subsidy claims are deemed to have been paid.
But the marketers argue that even though the SDNs are supposed to be as good as cash, they still find it very difficult to get the real cash payment, each time they present the instruments to the CBN for payment, causing further delays of over three or four months.
The long delays prompted the marketers to demand that the federal government should pay all the interest on subsidy claims that remained outstanding beyond the 45 days stipulated in the subsidy guidelines.
With the marketers’ failure to repay bank loans due to the government’s inability to pay the subsidy claims on verified cargoes within the 45 days, the banks also refused to finance imports, thus aggravating the fuel supply situation. Special ministerial intervention Indications that the unpaid claims were becoming unbearable to the marketers had emerged in September 2014 when the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke wrote an unusual letter to the Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala requesting her to pay the outstanding subsidy claims to the marketers.
Worried that queues would portray her ministry in a negative image, Alison-Madueke wrote to Okonjo-Iweala requesting that the outstanding claims be settled.
Before she wrote the letter, about 46 oil marketers were groaning under the yoke of heavy debts following the failure of the Ministry of Finance to pay them the outstanding verified subsidy claims and importation cost amounting to about N180 billion as at October 10, 2014.
As at that period, about N19 billion was outstanding for 2013, while about N161 billion was outstanding claims for 2014.
The marketers were also aggrieved over Okonjo-Iweala’s suspension of the payment of interest charges for delayed payment and foreign exchange differentials.
Consequently, most of the oil marketers slowed down on their third quarter 2014 importation while most of them also refused to import for the fourth quarter 2014.
The frustrated oil marketers had met with Okonjo-Iweala in September 2014, to demand for the immediate payment of the verified claims but the minister’s response was said to be unsatisfactory.
The marketers subsequently met with the Petroleum Resources Minister and pleaded with her to speak to the Finance Minister, on their behalf.
After the meeting, a letter was written to the Finance Minister by Alison-Madueke, pleading with her to take urgent action regarding the unpaid verified claims to avert an end of 2014 fuel crisis.
The petroleum minister’s letter dated September 4 and addressed to Okonjo-Iweala was titled: “Re: Subsidy-related Payments – Release of 2013 Marketers’ Claims and Payment of Importation Cost.”
In it, Alison-Madueke stated: “CME (Coordinating Minister for the Economy) will recall that in 2014, Sovereign Debt Note (SDN) of N149,636,133,457.76 was issued to marketers as claims processed for 2013 discharges. Out of this amount, N19,043,957,655.42 for Batches U/13 and W/13 still remain as unsettled claims.
‘Total volume of 3,694,769,663.50 litres of PMS with an equivalent amount of N179,621,634,671.15 was verified by the Petroleum Product Pricing Regulatory Agency (PPPRA) for which SDN was issued to marketers for 2014 discharges. Out of this amount, SDNs for the sum of N19,307,882,666.50 were released to marketers while the corresponding SNDs for the sum of N160,313,752,004.65 are yet to be released by the Debt Management Office as at 29th August, 2014. A summary of 2013/2014 verified claims for other marketers for which SDNs are yet to be released stands at N179,357,709,660.07.”
The petroleum minister further pleaded with Okonjo-Iweala to reverse the order suspending reimbursement associated with the payment of interest charges and foreign exchange differential to the marketers.
Alison-Madueke said: “The PPPRA has brought to my attention, a letter issued by the DMO conveying the approval of the CME for the suspension of payment to marketers in respect of interest charges and foreign exchange differentials on claims outside the 45-day payment cycle.
In the said letter, the CME directed the DG-DMO to notify the PPPRA that no more payments of interest and foreign exchange differentials shall be entertained by the Ministry of Finance.”
“In view of the foregoing, I wish to draw your attention to the approval granted by the Federal Government in 2010 guaranteeing the payment of all additional cost of importation outside the 45-day payment cycle. This, by implication includes both interest and foreign exchange differential cost.
“Furthermore, CME may kindly note that over time, government has not been meeting its financial obligation for processed claims within the 45-day cycle as provided for in the PSP scheme. For example, processed BatchesU-13, V-13 & W-13 for year 2013 imports and Batches B-14 to h-14 (for year 2014 imports) amounting to N179,357,709,660,.07 are yet to be paid. The CME/HMF may which to note that Batch U-13 is 150 days old.”
The petroleum minister subsequently pleaded with Okonjo-Iweala to ensure the immediate release of marketers’ claims in order to avert hiccups in the Premium motor Spirit supply chain, “especially as we approach the high demand period and upcoming political