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Petroleum Equalisation Fund: A temporary agency?

By Patrick dele Cole
WHAT people call magic is in fact, an illusion. When a magician puts a woman in a box and saws the middle of the box; one expects her to be cut in two except that this does not happen. The magician shouts some incantation and behold the lady is standing untouched by the mechanical sawing blade. In many respects, the operation of the Nigerian National Petroleum Company, NNPC, Petroleum Equalisation Fund, PEF, the Central Bank of Nigeria, CBN, and its Forex policies, the Pension wahala are all magic – abracadabras, total illusions. What is not illusion is the heavy cost to the economy and the people.

The problems facing the NNPC are numerous and complicated. The solutions devised to end these problems are confusing, obfuscating and almost deliberately framed to be incomprehensible to the rational mind.

The NNPC had three refineries – Port Harcourt, Warri, and Kaduna. It negotiated for itself an allocation of 450,000 barrels of crude for the refineries. All refineries are due periodically for servicing and maintenance. Ordinarily, a normal business concern will produce enough stock for the period during the Turn Around Maintenance, TAM, so that there is no shortage. Money would be available for such maintenance costs. I am not yet here dealing with the obvious problem of conflict of interest within NNPC itself – as between production and the refinery which does not show an arm’s length relationship. Even so, such problems can and have been overcome in other countries.

When British Petroleum, BP, ran the refinery in Port Harcourt, these problems existed; but they were all solved within the operational procedures of Nigerian Petroleum Refinery Company, NPRC, and the NNPC. Problems began to mount up when NNPC took its eyes as it were off the ball. If NNPC did not have the guaranteed supply quantity, NNPC, Warri Refinery Company, WRC, and Kaduna Refinery Company, KRC, would have each been ready to source for the crude they would need to operate. The prices might have been different but they would have been operating in the market place and responding to normal market pressures. The problem solved once and for all.

I am saying all this now because new refineries are being built, (over 21 licenses for refineries have been issued) and each one is seeking a guaranteed supply quantity. Were they to be given guaranteed crude oil supplies like NNPC then we would be in greater problems than we had ever dreamt off.

What NNPC did with its 450,000 was to sell, swap, etc. the 450,000 for refined products. In doing so, it opened itself up to more charges than it could cope with, but, by far more catastrophic, for the economy, it forced the subsidy regime on Nigeria and the most rapacious elements to enter the energy market. Careful manipulation of supply easily led to panic measures, increases in fuel prices, uncertainty in industry because of uncertainty in power supply and transport cost, etc. In addition to all these confusion, another body Petroleum Products Pricing Regulatory Committee, PPPRC, was set up.

Opening the way for the most rapacious elements to enter the energy market was to manage the subsidies and allocation. The world oil prices were volatile already: this volatility merely encouraged diiferent shades of persons who benefited from the purposely induced confusion. Just imagine what would have happened if the Government and NNPC had simply washed their hands off the whole allocation business and allowed marketers to import white spirit.

Nearly, every major problem of Nigeria’s crude oil marketing, petroleum production and sales stem from this NNPC allocation which is held by the corporation in a death embrace. It is ownership of the 450,000 barrels per day which has encouraged the corporation to go into retail PMS marketing. Thus, reaping from another self-imposed bonanza called the Petroleum Equalisation Fund. Moreover, the NNPC is not interested in cutting the cost of oil production in Nigeria, or pushing efficiency to bring more revenue to the economy. Every view of that corporation is dedicated to how to maximise the benefits of the 450,000 barrels daily allocation to nearly all other interests except the national one.

It may be doing no more than reflecting the national psyche. Our budget is predicted on the inane debate about what the oil benchmark should be. No doubt all budgets must calculate the revenue on which that budget is based, except that in Nigeria the oil price seems to be the only debatable source of revenue. If that revenue at the end of the budget exceeds the predicted budget, the Government and National Assembly are swept into a frenzy of something called “the Excess Crude Account” and demand that this surplus be divided and consumed, regardless of the performance of the budget, which sometimes only attains 30 per cent.

Let us look at the PEF in some detail. This is a fund established so that the pump price of petrol will be uniform throughout Nigeria. It is claimed that before 1974, Nigeria was experiencing shortfalls in petroleum supply, uneven distribution capacity and major price differentials in different parts of Nigeria. After a meeting of stakeholders – Nigerian Ports Authority, NPA, Railway, Ministries of Mines and Powers, Transport, Pipelines and Product Marketing Company, PPMC, and NNPC, a temporary solution was worked out then known as PEF. It was meant to provide funds for the equal cost of petroleum products at the pumps throughout Nigeria and this would enhance economic growth.

Unfortunately, matters got worse: the refineries were unable to meet their quotas, the pipelines had not come on stream and when they did, they were not maintained or were subject of militant attacks. The Railways which used to be major movers of petroleum had also deteriorated; the attempts to move petroleum products by barges after dredging the Niger River failed. By 1977, Nigeria had been fully supplied with pipelines throughout the country, with strategic tank farms and depots throughout the country. This was all abandoned and unutilised. The explosion of the Tanker business was about to occur following the establishment of the PEF; by Decree No. 9 of 1975, No. 32 of 1989 (now Chapter 352 of Laws of Nigeria).

Basically, the PEF (Management) Board reimburses petroleum marketers for “any losses offered by them solely and exclusively” as a result of the sale of petroleum products at the same price throughout the Federation. There is obviously a complex procedure set out to achieve this including the endorsed Bridging Acknowledgement Forms, marketers’ payment claim, loading and receiving stamps appropriately signed and stamped by PEF depot representative, Department of Petroleum Resources, DPR, and  NNPC’s loading and receiving stamps, other relevant documents showing receipt and discharge of products at outlets etc.

PEF is proud of its computerised systems for all these processes which it has named the Aquila Platform. Billions of litres are moved yearly, so PEF officers are present at over 100 locations throughout Nigeria.

The PEF (M) B is funded by the Bridging Allowance and the National Transportation Average – which is jargon for saying that all petroleum marketers pay N6.80 per litre to the Fund for every litre imported into the country.

The National Transport Average (NTA) is what is paid or collected depending on whether the tanker is moving products between 50 to 100 kilometres of the depot or further than 100 kms where the country is divided into further seven zones i.e. zones 3-9. The main catch here is that with the near certainty that the landed cost of petroleum product will be higher than the Government stipulated selling prize, the marketers have to produce all the PEF documents, before they qualify for the subsidies to be paid by Petroleum Products Pricing Regulatory Agency (PPPRA).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             So if one is to get a subsidy for landing products in Nigeria, where the only reliable logistic for transportation is by road, is it any wonder that we have so many tankers, un-serviced and unserviceable pipelines and tank farms, unused barge transportation, and the near permanence of transportation cost, including the escalation of road transport usage up to 50% and rising?

With its pivotal role in the subsidy regime, there is no more talk about the PEF being temporary. It has become a permanent, in physical and financial feature in Abuja: its office building is better than any other structure in the whole of the oil producing South- South (Niger Delta). Its permanence is assured. It boasts of having a first class super-efficient staff and a state of the art information technology. Its Aquila Platform is in three phases – 1 and 2 are completed i.e. the bridging aspect of the programme and secondly the efficient monitoring of products. It is now poised for phase 3 which is the monitoring of product importation.

If all the Excess Crude Account had been used more judiciously except in sharing the money, Nigeria would have made more progress: that money could have been used to repair and maintain the pipelines throughout Nigeria which would have reduced our dependency on the now uncontrollable nuisance of road transportation of products – port congestion, road congestion, heavy destruction of the road system through these tankers, opening Nigeria occasionally to blackmail by tanker drivers and owners, the continued neglect of Rail transportation and a host of other problems following dependence on road transportation.

I believe the time has come to end this odious subsidy system. It will be painful but we can replace this seemingly rogues character by another system. Nigeria is not the only producing country: others have refineries, pipelines; differential reasonable price indexes etc. a market system that could better be regulated without the accompanying possibility of unrestrained and ever inventive ways of promoting corruption. Why should petroleum be the only product that has to be equally sold everywhere?

I worked in the oil marketing industry for a brief while in 1965-6. Transportation of crude was entirely the business of the outlet managers but mainly by well-established transporters – SLE, Khalid and Dibbo and so on. There was no shortage of products before the coup of Nzeogwu. The Port Harcourt refinery was fully working, managed by BP, it ran like a clockwork; TAMs came and went, no disruption. The civil war ended careers of many Ibos in the refinery in Port Harcourt but their expertise were harnessed for the production of products to run the Biafran coming and even civil life.

Gowon’s scheme of reconstruction took off in 1970: there was plenty of money and also plenty of talk of diarchy or that he should jettison the military promise of handing over to civilians in 1976. This was why he made his now notorious speech of 1974 that he would not leave in 1976 because the civilians had not learnt their lesson.

There was an avalanche of reconstruction products but the planning had been poor: those projects encouraged the “cement armada” – ordering of cement when the ports and country had no ability to cope with the volume of imports. All these led to the coup of 1975 that ousted Gowon. The far North was never comfortable with Gowon and Danjuma. The PEF was one of the projects designed to appease the North – the sales of pump price of petrol at the same price in all Nigeria. The other was the Kaduna Refinery which was part of the plan of his ousters.

For a very long time, PEF had no plans for payment of compensation for those who carried petroleum products to the Niger Delta by water. Few towns in the Niger Delta had roads, let alone petrol stations. But they used kerosene as the fuel of choice. Till to-day kerosene is dearer in those areas than anywhere else in Nigeria.


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