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Cartel subvert fuel subsidy removal

By Hector Igbikiowubo
INVESTIGATIONS have revealed that a petroleum imports and marketing cartel may have subverted government’s announced plans to remove the growing economically debilitating fuel subsidy regime.

Oil Pipeline
Oil Pipeline

Checks also revealed that the activities and influence peddling of this cartel has left government in a quandary of sorts and the economy at risk of losing about N500billion Naira this year.

Sweet Crude gathered that the cartel, made up of fuel importers/marketers, some elements within the Nigerian National Petroleum Corporation (NNPC) and the presidency moved against government announced plans to stop payment of subsidy owing to the risk of losing a well established mode of getting government patronage.

By the admission of the Petroleum Products Pricing and Regulatory Agency (PPPRA) N1.185 trillion was spent on subsidy payment between 2006 and 2008 alone.

During a Senate inquisition into the country’s expenditure on subsidy in the last three years, Senator Ahmed Lawan, the Chairman of the Senate Committee on Public Accounts gave a breakdown.

He disclosed that in 2007, the government paid a total subsidy of N 278.86 billion; NNPC took N 227.47 billion while the oil majors and independent marketers received N 51.388 billion.

“Last year a total subsidy of N 633.192 billion was paid, out of which NNPC received N 370.490 billion and oil majors and marketers received N 260.08 billion. NNPC, in the three years that you (PPPRA) administered the subsidy, received N 841.536 billion while oil majors and independent marketers received N 330.016 billion, and a total of N 1.185 trillion was paid as subsidy in the last three years,” he said.

Although oil prices rose to unprecedented levels last year, partly fueling rise in subsidy payments, Sweet Crude learnt that the quantum leap in these payments has been largely swelled by fictitious claims emanating from the NNPC and marketers with the connivance of elements within the presidency.

Owing to the huge strain placed on government finances by the expenditure on subsidy in the 2008 fiscal year, the Yar’Adua administration announced the removal of subsidy and complete deregulation of the downstream oil sector in the first quarter of 2009.

But as soon as the announcement was made, the cartel set to work immediately, employing the entire arsenal at their disposal to dissuade government from this course of action.

It was gathered that while some elements within the NNPC, the PPPRA and ministry of finance had made a strong case for the removal of subsidy and won the initial support of President Umaru Yar’Adua, the cartel succeeded in getting the policy stalled owing to a number of factors.

Elements within the presidency, working in concert with fuel importers who live government patronage through subsidy payments seized the opportunity created by the seeming confusion over subsidy removal or otherwise, to convince the President as to the inappropriateness of the action.

Organised Labour also inadvertently helped the argument of the cartel when they started threatening industrial action over planned fuel subsidy removal.

Although government functionaries who made a strident case for subsidy removal were persistent in their demand, Sweet crude gathered that getting Mr. President to soft-pedal on fuel subsidy removal wasn’t such an uphill task after he was told that most financial contributors to the ruling Peoples Democratic Party are beneficiaries of government patronage through petroleum products allocation and subsidy payments.

Government functionaries who argued against fuel subsidy removal also told Mr. President that there was the risk of a group of fuel importers from the south-west and south eastern parts of the country hijacking the supply and distribution chain immediately government withdraws  and making the northern Nigeria in particular and the rest of the country susceptible to price manipulations.

It was gathered that following these arguments and three weeks of indecision and seeming confusion, Mr. President issued a directive urging the NNPC to continue importation of petroleum products, especially Premium Motor Spirit (PMS) until measures are put in place to guard against any one or group of persons from hijacking the supply and distribution chain.

N500 billion at risk:
Checks revealed that in the first quarter of 2009, owing to the drop in oil prices, government may have incurred about N52 billion in subsidy payments.

Figures still being tabulated could see subsidy payments in the 2nd quarter surpass N80 billion as prices rise in the international market and government fails to check the compromised state of petroleum products allocation and subsidy payment regime.

When contacted, an official of the PPPRA who did not want his name in print said that he could not put a figure on what subsidy payments this year may amount to, adding however that it may not be as high as that of last year.

“You know oil prices have been down for the better half of this year and only just began to rise again. I really do not see it climbing as high as that of last year,” he volunteered.

However, Russia, the world’s biggest energy producer, warned recently oil could soar to $150 a barrel if the global economic crisis continued to curb investment in capacity by top producers. Moscow’s top energy policy official also warned output from Russia could be hit unless borrowing costs fell for its energy giants and called for a move away from trading oil only in US dollars.

The latest projection comes against an earlier one by US investment Bank, Goldman Sachs (a Fortune 500 company) which also said economic rebound, alongside production cuts by OPEC could propel crude oil price to $85 per barrel by the end of the year and $95 per barrel by the end of 2010.

Well aware of the compromised state of product allocation and subsidy management in the country, businessmen and party loyalists continue to lobby for patronage at the expense of government’s capacity to meet its budget.

With oil prices rising and the spectre of it rising even further, and given the compromised state of petroleum products allocation and subsidy payments, chances are that the economy may lose N500 billion by the end of the year.


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