Adewale Sanyaolu

Unless concrete steps are taken by the Federal Government to address the galloping rate of fuel subsidy payment, Nigerians may wake up one day to discover that more than half of the nation’s budget will go into the payment of fuel subsidy.

First to test the waters in giving Nigerians an inkling of the return of subsidy through the backdoor was the Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mr. Maikanti Baru, when he announced that the landing cost of petrol has rising to N171.

Baru revelation came to many Nigerians as a rude shock because stakeholders had taught that the last fuel price increase, which brought its current price to N145 from N86.50k, ended payment of fuel subsidy.

Since Baru’s declaration, the question on the lips of Nigerians is – who has been paying for the shortfall of N26 per litre?

The development did not, however, go down well with members of the National Assembly who felt that the Federal Government, represented by NNPC, was taking Nigerians for a ride hence their decision to set up an investigative committee to look at issues surrounding fuel subsidy.

Already some of the revelations have been mind-boggling as it was later discovered by the Senate Committee on Downstream led by Kabiru Marafa, that the Federal Government had so far paid about N450 billion as fuel subsidy without the approval of the National Assembly.

Subsidy as cesspit

According to Baru, when he appeared recently before the Senate Downstream Petroleum Committee, the sum of N5.122 trillion was approved as subsidy payments to the NNPC between January 2006 and December 2015, out of which N4.950 trillion has been received by the corporation leaving a balance of N170.6 billion outstanding and due. From this statement, this excludes subsidies approved for private marketers who imported refined products during this period. 

On the other hand, NNPC spent N112.079 billion on fuel subsidy in the first 10 months of 2017, between January and October 2017, financial documents obtained from the Corporation have revealed.

Contrary to claims by oil marketers that subsidy re-emerged in October, making it unprofitable for them to continue fuel import, the documents from NNPC revealed that fuel subsidy officially returned in January 2017, a period when the NNPC started making provision for it in its financials.

Confirming development, the NNPC Monthly Financial and Operations Report for October 2017, released recently, showed that in January 2017, NNPC made a provision of N37.264 billion for under-recovery, another term for subsidy payment.

Under-recovery, in downstream petroleum marketing parlance, is when the expected open market price of petrol is below the approved official retail price at the pump. The expected open price is a combination of the cost of importation and distribution of the commodity, such as marketers’ margins, landing cost and freight cost.

The difference with this current system of subsidy payment is the fact that NNPC is making the payments to itself and not to other oil marketers as was the case in past subsidy regimes, since it had been the major importer and supplier of petrol over the last couple of months.

The NNPC report revealed that provision for fuel subsidy in January was the highest in the 10-month period, while in February, March, April and May 2017, the NNPC deducted N6.3 billion, N8.206 billion, N8.206 billion and N7.74 billion respectively, for subsidy payments.

 In addition, the report pointed out that NNPC recorded ‘under-recovery’ of N11.8 billion, N10.25 billion, N7.94 billion, N7.52 billion and N6.85 billion for June, July, August, September and October 2017 respectively.

The money utilised for funding the subsidy payments, according to the report, was from the proceeds of NNPC sale of its domestic crude oil allocation, thereby cutting down the amount of money remitted to the Federation Account.

PDP condemns ‘massive fuel subsidy corruption’

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But the Peoples Democratic Party (PDP) has regretted that despite its denial, the All Progressives Congress (APC)-led Federal Government is ‘corruptly’ paying subsidy on petroleum.

Recall that the Minister of Finance, Kemi Adeosun, had recently insisted that the Nigerian government was not paying subsidy but that NNPC, being the only importer of the product, was simply “doing so at a loss. Technically today, there is no subsidy but there is under-recovery. Why that is so, is because NNPC is currently doing all the importing. It is importing at a higher price than it is selling, which means it is losing money, which means effectively that loss is being borne by everybody and effectively it reflected in the Federation Account.

“So, there is no subsidy payment in the way the old subsidy scheme used to work where it was paying the oil marketers but there is an under-recovery, a loss on the importation of PMS being borne by NNPC and therefore indirectly being borne by everyone of us,” Adeosun had said.

However, rising from a meeting of members of the National Working Committee (NEC) and the PDP Governors Forum in Asaba, Delta State, the PDP said it was not satisfied with the explanation.

 “We condemn in strong terms the massive corruption going on in the management of fuel subsidy regime, which the Federal Government had declared non-existent while billions of naira are deducted monthly at Federation Accounts Allocation Committee (FAAC) meetings,” the party alarmed.

Stakeholders kick, demand transparency

The Managing Director of Financial Derivatives Limited, Mr. Bismarck Rewane, recently told the government to come out clean in the ongoing debate on fuel subsidy in the country.

Rewane said this in an interview on a Channels TV programme, adding that government has to be transparent and tell Nigerians how much is being paid for subsidy.

 “What the government has to do is come out clean and say this is the amount of subsidy we are paying – this is how we have to do it because the people have to be carried along,” he said.

“It is not possible at this point in time to have a subsidy-less petrol price because it is so critical – we have to come out.”

Rewane wondered why after two years of adequate supply of fuel, the country started to experience shortage of the commodity, saying government needs to be creative to be able to tackle the fuel scarcity being experienced in parts of the country.

“Some say the shortage is contrived, some say it is sabotaged, some say it’s ineptitude of logistics and planning but what is clear is that the parameters that were used on May 15, 2016, when the price of N145 was arrived at, were that the exchange rate was N285.

The price of oil at that time was about $42 a barrel and the landing cost was at about the same range about N145, now circumstances have changed,’’ he said.

According to him, the exchange rate has been devalued significantly. He explained that the price of oil is over $65 a barrel today and therefore, the landing cost cannot be the same.

For his part, a public affairs commentator, Mr. Eze Onyekpere, said Nigeria has spent so much on subsidies and petroleum importation, more than needed to build refineries that would satisfy our local needs and position us as net exporters of refined products.

‘‘Pray, what does it cost to build a medium-sized or even a large refinery? We are spending a very huge part of our foreign exchange on petroleum imports, which puts undue pressure on our foreign currency reserves and the value of our naira.

“Again, we are exporting jobs to those countries that sell refined petroleum to us, as well as missing the companies’ income tax that would have been due from local refining as well as the personal income tax from individuals the refineries would have employed.

“Furthermore, the nation makes itself vulnerable to being shut down through the activities of marketers or any disruption of the oil import system,” he lamented.