Is $20BN Oil money really missing?

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NNPC responds to remittances and subsidy questions

By Wale Akinola

The exchange between the Governor of Central Bank of Nigeria (CBN), Mr Sanusi Lamido Sanusi, and the Nigerian National Petroleum Corporation (NNPC) over oil funds has generated interest in the polity. This is hardly surprising since the bulk of the money that sustains the nation comes  from oil.

GENESIS

CBN Gov, Sanusi and Minister of Petroleum Resources, Alison-Madueke

CBN Gov, Sanusi and Minister of Petroleum Resources, Alison-Madueke

Sanusi triggered the exchange when he wrote President Goodluck Jonathan to allege that the NNPC failed to remit some $49.8 billion into the Federation Account. The NNPC took him up, saying he got his facts wrong. A subsequent reconciliation meeting involving the Federal Ministry of Finance scaled down the money to $12billion and then $10.8 billion part of which was said to have been spent to service kerosene and petrol subsidy.

The impression thus created was that the issue would be ultimately resolved. But the CBN Governor raised fresh dust at a public hearing conducted by the Senate Committee on Finance when he insisted that out of $67 billion crude lifted, only $47 billion has been remitted, leaving a balance of $20 billion. Sanusi did not stop there. He alleged that the money illegally and unconstitutionally withheld, diverted or spent by the NNPC is in excess of $10.8 billion.

The CBN Governor went further to say that whereas the NNPC stated that a  major component of the $10.8 billion was spent on kerosene and petrol subsidy, he had evidence of a presidential directive stopping kerosene subsidy and therefore declared that the subsidy (on kerosene) was illegal and that whatever had been spent should be refunded to the Federation Account.

He raised concerns on the Offshore Processing and Crude Oil/Products Exchange (OPA), otherwise known as swap transactions, initiated by the NNPC to make refined products available in the country in the wake of the epileptic performance of the refineries. On the divested assets of the Nigerian Petroleum Development Company (NPDC), Sanusi claimed $6billion was diverted to two private companies. The allegations, coming from a top official of government as the apex bank governor, are bound to  ruffle feathers in a country where the people don’t trust the leaders with public funds.

KEROSENE SUBSIDY
Meanwhile, Sunday Vanguard findings showed that Sanusi did not appear to get his facts right especially on the issue of kerosene subsidy which he claimed the NNPC continued to service where as  the late President Umaru Yar’Adua removed it as far back as 2009. Actually, Yar’Adua did issue a directive that sought to remove kerosene subsidy “taking into account that subsidy payments by government on kerosene do not reach the intended beneficiaries.”

It was understood that whereas the directive was not communicated directly to the NNPC but to the Minister of Petroleum Resources, Dr Rilwan Lukman, the implementation immediately ran into a hitch. The then president added in the directive that public announcement of the kerosene subsidy removal “should be avoided.”

The clause in the directive that public announcement should be avoided, it was learnt, meant it  could not be gazetted. In the meantime, the only authority empowered by Section 6 of the Petroleum Act  to approve petroleum products prices is the Minister of Petroleum Resources doing so through a gazette.
Sources said Lukman could communicate the kerosene subsidy removal directive to the NNPC following this challenge while the national oil company continued to import the product at N150 per litre and selling at N50 to the end user, implying N110 subsidy.

Consequently, it was learnt that President Yar’Adua set up an inter-ministerial committee (Presidential Implementation Committee on Downstream Deregulation), comprising of the Minister of Finance  (Chairman), Minister of Petroleum Resources, Minister of State, Petroleum  Resources, Chief Economic Adviser to the President and GMD, NNPC, to develop strategies on implementing the deregulation of the downstream sector.

The outcome and subsequent directive to the NNPC, it was learnt, was that it should delay kerosene deregulation and ensure the supply of the product to the market due to the withdrawal by other marketers and also a strategic action to win the public over in implementing the ultimate objective of deregulating the downstream sector as a whole. There were also  two intervening factors, according to Sunday Vanguard sources.

The first was the House of Representatives resolution of July 2011 which backed the continuation of subsiding kerosene while the second came via a court judgment of March 19, 2013 in the suit filed by Mr Bamidele Aturu against the Minister of Petroleum Resources.

Delivering the judgment, Justice Bello of the Federal High Court, Abuja granted an order restraining the authorities from deregulating the downstream sector including removing kerosene subsidy. The judgement, it was gathered, remains in force. On the volume of kerosene supply to the system by the NNPC, sources put it at an average of five vessels per month as against four-six given by the CBN Governor to fault the national oil company’s subsidy claims.

One of the sources  said, “The fact of the matter is that there was a presidential directive stopping kerosene subsidy, but the language of the directive did not make it implementable. Therefore the fiction peddled by the CBN Governor is that the directive was implemented.

Arising from this and the others interventions from the House and the Abuja High Court against the kerosene subsidy is the fallacy, also peddled by Lamido Sanusi, that a component of the $10.8 billion was not spent on kerosene subsidy.”

Okonjo-Iweala, Diezani and Jonathan

Okonjo-Iweala, Diezani and Jonathan

OPA/SWAP ARRANGEMENT
The CBN Governor raised concerns over the Offshore Processing Arrangement (OPA) initiative of the NNPC. Sunday Vanguard was made to understand that the arrangement stemmed from the inadequacy of the Open Account Import system previously adopted by the  national oil company to bring petroleum products into the country. A  source narrated the events that led to OPA.

He said: “Our  operations of the domestic refineries have been very epileptic due to un-planned equipment failures as well as consistent acts of vandalism on the crude oil supply pipeline to the refineries.
“Even when the refineries are fully operational, they cannot meet up with the petroleum products requirements of the domestic market, especially PMS, whose domestic daily requirement is now put at 40 million litres. The domestic refineries at full capacity can only produce about 19 million litres of PMS while the balance 21 million litres is sourced through import.

“Therefore, in order to guard against products shortages and guarantee steady availability of petroleum products for domestic consumption all year round, NNPC engages in the importation of petroleum products to augment local Refineries production.

“The  importation of petroleum products by NNPC, which started in the 90s, was carried out under the Open Account System, through open tender process from reputable oil trading companies with proven track record of  performance and strong capital base.

“However, along the line, NNPC started witnessing default in deliveries where most of the supply companies failed to perform, especially around the winter period. The trading companies’ perennially gave the reasons of high cost of products and high cost of vessels freight, for their non-performance hence the demand for increased premium. Rather than deliver cargoes based on their allocations from NNPC, they would insist on spot cargo offers.

This resulted in severe scarcity of petroleum products witnessed especially around 2009 and 2010 with the attendant negative consequences to Nigerians  and the economy.
“The open account import exposed NNPC to certain variable market conditions, especially the demand for high premium by the suppliers.

This demand in most cases was predicated on NNPC’s inability to fulfill its payment obligations as at when due. The delay in making payments for the cargoes delivered deteriorated to over 1,000 days in default. The debt owed by NNPC at the same point in time was about $3.2b.

“In view of the long delay in making payments, and the huge outstanding debt, most International financial institutions became reluctant to cover NNPC imports. Even where the banks were willing to finance NNPC imports, the finance risk cover became very expensive there by making deliveries by trading companies almost impossible.

“Therefore, the cost of finance risk cover on NNPC imports in addition to the high interest on delayed payment for cargoes delivered by the suppliers increased the exposure of NNPC as additional costs that are not covered under the subsidy template.

“The Open  Account Import provided for NNPC to pay interest to suppliers in default of payment after 45 days of cargo arrival as a contractual provision, regardless of any operational exigency that may arise or prevent payment. Sustainability of products supplies almost became impossible occasioned with periodic interruption in supplies with the attendant scarcity around the country due to the vagaries of the open account regime.

“In order to mitigate the open account import challenges of price vulnerability, supply disruptions and also guarantee steady supply of petroleum products to the market, NNPC explored the option of offshore processing of the refineries’ unutilized crude oil, as well as the exchange of same crude oil for petroleum products.

“It  was on this grounds that NNPC sought and obtained the approval of the  late President Yar’Adua to enter into this arrangement pending when the refineries would be turned around for optimal performance.”
According to the source, the offshore processing and crude oil/products exchange  provided NNPC the opportunity and flexibility to control the supply and availability of petroleum products into the market.

Rilwan Lukman“This  arrangement also liberated NNPC from the necessity of making monetary payments to the suppliers as required in the Open  Account  Import regime and interest on delayed payments. The economics also provided more volume of products delivered in comparison with the Open  Account regime”, he added.

“Under OPA, NNPC delivers crude oil to a refinery for processing at a contractually agreed yield pattern and processing fee. In return, NNPC evacuates the refined products that are needed most. The OPA provides NNPC the opportunity and flexibility to exchange products grades based on domestic need and immediate requirements. As a result, NNPC can request the refinery to make available for evacuation more of PMS and kerosene that are required most in exchange for Automotive Gas Oil (AGO) out of the products yield.

“Furthermore, all other products such as propane, butane,  vacuum gas oil  and  fuel oil that are not necessarily needed for consumption in Nigeria are sold by the refinery on behalf of NNPC at the prevailing market price and proceeds remitted to NNPC.

“The process allows NNPC to request for pre-delivery of petroleum products in the event of tight supply situation in the market or due to the inability to lift crude oil as result of operational constraints at the crude oil terminals or in the event of Force Majeure declaration. Such pre-deliveries helps NNPC bridge the gap in supply situation and forestall products scarcity in the country. In return, an equivalent value of crude oil will be allocated at a later date for the products per-delivered.”

Sunday Vanguard learnt that OPA  enjoys presidential approval and,  while the operation is governed by contractual agreement, it was  recently subjected to scrutiny by the House of Representatives Committee on Downstream with a verdict of clean bill of health returned.

Indeed, sources said the swap transactions regime saved the county huge sums of money, when compared to the Open Account regime, as OPA stabilised the average premium paid on petrol at $81.28 per metric ton,  from 2011 when it was initiated up till last year. Under the old regime (Open Account), while $70.02 was the average premium paid for the petrol imported into the county in 2007, the figure went up to $85.14 in 2008, $87.50 in 2009 and $116.50 in 2010.

And whereas the total cost of premium in 2010 under the Open Account regime, at $116.50 (almost five billion metric tons was imported) was over $582 billion, the total cost of premium between 2011 and 2013 (under OPA), at $81.28 (about 5.5 billion metric tons was imported annually), was about $441billion annually. The difference is about $141 billion saved for the county annually.

The source said: “Contrary to the concerns raised by the CBN Governor, OPA/swap has availed the NNPC the opportunity to sustain the market, guarantee the security of supplies and keep the entire country wet with petroleum products even when other marketers were reluctant to perform due to non-payment and/or delayed payment of subsidy by government.

“The process also reduces the cost of NNPC’s importation by way of reduction and stabilising the premium paid under the Open Account regime. Also the situation whereby traders will gang up and decide on the premium to be paid by the NNPC for the deliveries has been eliminated.”

 

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