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Rethinking Nigeria’s fuel subsidy regime

By Nnenna IBEH

Fuel subsidy was a child of circumstance in Nigeria, following the failure of the Nigerian National Petroleum Company, (NNPC) to maintain the four refineries in the country; to enable them operate at optimum capacity. Importation of fuel became inevitable, to make-up for the shortfall in consumption requirement. The purpose of the subsidy was to take away the burden of additional cost of fuel importation from the people, who were not responsible for the failure to maintain the nation’s refineries.

As at 2006, only three companies, namely, MRS, Total and OANDO were officially listed in the category of major oil marketers to import fuel. Their payment was protected by the Sovereign Debts Notes, (SDN) which guaranteed payments to eligible importers, if the Nigerian National Petroleum Company failed. This placed payment for fuel subsidy on a first line charge of the federal government.

These incentives became the force of attraction, which led to a flurry for registration as petroleum products importers among the rich, powerful and most influential elites and politicians. The result was that depot owners, construction companies, and those who styled themselves as Independent Marketers, were listed to import petroleum products in a big scramble. This scramble, led to the emergence of a petroleum cartel in the country, with a ruthless ambition to conquer the commanding height of the Nigerian down-stream petroleum sector.

From only three major oil marketers, listed as beneficiaries of petroleum subsidy in 2006, the number of beneficiaries increased rapidly to over 100; and among them, they shared N3.6 trillion between 2006 and August 2012. This was where, in 2012 alone, the federal government paid N1.2 trillion as subsidy.

The Nigerian Senate’s involvement

The 7th Senate of the Federal Republic of Nigeria, which attempted to scrutinise the fuel subsidy record found out that the fuel subsidy regime was characterised by secrecy, false claims, conflicting figures, rapid increase in the number of beneficiary companies, and participation of unqualified companies, among others.

 At a Public Hearing organised by Senate Committee on Petroleum Downstream, it was alleged that some of the importers engaged in various sharp practices, including, round tripping to either falsely claim subsidy for the fuel not supplied, or to falsely claim multiple subsidies on a ship load of supply.

 Senate figures shows that the sum of N240 billion was appropriated for fuel subsidy in the 2011 budget and out of the 240 billion Naira allocation, N11.2 billion was allocated to the Nigeria National Petroleum Company, (NNPC) for domestic fuel subsidy, while N8.8 billion was allocated to Independent Marketers for domestic fuel subsidy, as stated in the Appropriation Act 2011.

It further shows that although N20 billion was set aside for subsidy on a monthly basis in the Appropriation Act 2011, by August the same year, the total figure expended was N165 billion; of which NNPC expended N88 billion, and the independent marketers expended N77.7 billion.

It was observed that although N240 billion was budgeted for the entire year, the figures increased to between N150 billion and N186 billion, within three months; and that by the end of the year, the federal government fuel subsidy bill stood at over N1.2 trillion, a figure said to be above the entire capital budget in the 2011 Appropriation.

The Senate investigation also revealed that the process, audit, scrutiny and value for money in the entire subsidy management system, lacked transparency and control; as costs continued to maintain an upward swing, while the importers smiled to the banks. The importers also decided when to hoard fuel and create artificial scarcity, to introduce harsh pump price, despite the subsidy.

It gets worse by the day

As if the nation has not had enough, on September 1, 2022, the Comptroller-General of Customs, Hameed Ali, faulted the N6.34 trillion subsidy claim on Premium Motor Spirit (PMS) in the fiscal year by the NNPC Limited.

Ali while appearing before the Senate Committee on Finance to defend the 2023-2025 Medium Term Expenditure Framework (MTEF) and Fiscal Policy Paper (FSP) alleged that the 98 million litres of daily consumption of PMS could not be scientifically substantiated.

In his submission to the committee, the NCS boss categorically stated that over 38 million litres of PMS released daily in excess of the actual consumption into the Nigerian market finds its way out of the country. He strongly queried NNPC’s continued resolve to allow such release of a high amount of PMS in excess of Nigeria’s daily consumption.

“If we are consuming 60 million litres of PMS per day by their own computation, why would you allow the release of 98 million litres per day?

“If you know this is our consumption, why would you allow that release?” Ali had queried.

But in what appeared to be a weak effort in defending itself, the NNPC using its August 2022 PMS evacuation pattern claimed that an average consumption of the product on weekends – its slow days – was at 66.9 million litres per day, a figure not far away from that given by the NCS’s CG.

Also, quoting findings from an independent investigation by Chapel Hill Denham which claimed that over 15.4 million litres of petrol are smuggled out of Nigeria daily, NNPC threw accusing fingers at the Nigerian Customs. The company alleged that such smuggling activities cannot occur without the NCS knowledge. It even went as far as claiming that by its estimates, the numbers given by CHD as smuggled products are lower.

Having created more confusion, it can be said that this same conflict between subsidy payment, persistent scarcity and increase in petroleum pump price and smuggling of PMS out of the country has put to question the continued need for the subsidy regime in Nigeria. This brings us to the question, who benefits from this excess 38 million of PMS released by the NNPC daily?

To answer the question holistically, a former Minister of Finance, Dr Ngozi Okonjo-Iweala, during her tenure had repeatedly argued for the removal of fuel subsidy, saying “…it is the only way for the country; because it is only the rich and the middle class that have been benefitting and the ordinary masses are not benefitting…”

This argument for the removal of fuel subsidy is still valid, because fuel subsidy has become the “cash cow” of a handful of beneficiaries, and has the potential to doom the ordinary people into perpetual poverty.

Ibeh is a journalist and writes from Abuja.

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