THE revision of the eligibility criteria for oil marketing and trading companies in the PSF guidelines by PPPRA amended the requirement for the proof of ownership of storage facilities with a minimum storage capacity of 5,000MT for the particular product to include a valid throughput agreement of storage facility with a minimum storage capacity of 5,000MT for the particular product.
This opened up opportunities for participation by companies with no investment in infrastructure relevant to the role on oil marketing and trading companies in the PSF scheme.
The inability of PPPRA to use a transparent basis of determining the conversion factor created opportunities for manipulation of the volume of imported products for which subsidy was paid.
*The Committee recommends that only oil marketing and trading companies that meet the eligibility criteria set in the guidelines for the administration of the Petroleum Support Fund should be given allocation to import products by PPPRA.
Proof of ownership
*The Committee recommends that the requirement for proof of ownership of retail outlets be reinstated in the eligibility criteria for oil marketing and trading companies in the PSF guidelines by PPPRA. •The Committee recommends that the PSF guidelines must be strengthened to make key participants personally responsible for any violations of the guidelines, including criminal acts.
*The Committee recommends that the PSF guidelines be amended to include the presentation of guarantees or performance bonds (issued by Nigerian banks) by oil marketing and trading companies participating in the scheme on a transactional basis. This shall be a deterrent against the presentation of false subsidy claims by oil marketing and trading companies and provide recourse to the banks if subsidy was on the basis of false claims.
*The Committee recommends that the requirement for capacity to finance a minimum cargo size of 5,000MT of petroleum products be reinstated in the eligibility requirements for oil marketing and trading companies in the PSF guidelines.
*The Committee recommends that the eligibility requirements for oil marketing and trading companies in the PSF guidelines be amended to restrict the use of a val’ throughput agreement for a storage facility with a minimum capacity of 5,000MT of the particular product to only oil marketing and trading companies that provide proof of ownership of retail outlets as stated in recommendation 2 above.
The Committee recommends that the determination of the conversion factor of PPPRA be made transparent to eliminate manipulation of the volume of import products for which subsidy should be paid.
There was no evidence that PPPRA excluded any oil marketing and trading company from the PSF Scheme for two successive quarters or more as stated in the terms of the import permits from PPPRA in spite of the fact that there were various instances where oil marketing and trading companies did not import the allocated volume of petroleum products.
PPPRA approved subsidy payments to oil marketing and trading companies in instances of their non-compliance with requirements of the PSF guidelines that all deliveries to depots must be witnessed by representatives of PPPRA, DPR, Government auditors, marine inspectors, Nigerian Customs Service and the Nigerian Navy who must also sign the shore tank reports.
•The Committee recommends that PPPRA suspends oil marketing and trading companies that are unable to deliver their allocated quantity of products within the validity of the allocation from the PSF scheme to ensure that only companies with the proven capacity to deliver are given allocations.
*The Committee recommends that PPPRA stop the payments of subsidy where violations of the PSF guidelines are detected. In addition, oil marketing and trading companies must comply with the guidelines going forward.
NNPC’S VALUE CHAIN (IMPORT, SUPPLY AND DISTRIBUTION OF PETROLEUM PRODUCTS)
The Nigeria National Petroleum Corporation was set up to manage both the downstream and upstream sectors of the oil industry. The Corporation’s role in the downstream sector involves ensuring that the country has optimal supply of petroleum products for consumers. Subsidy on petroleum products has been an issue since the 1970s when demand for petroleum products was met solely from local production.
At that time, the subsidy was paid based on the difference between the price at which NNPC sold to the marketing companies and the cost of crude oil refining. Prior to November 2003, domestic crude was sold to NNPC at a discount in terms of price as well as exchange rate. Strategic petroleum products were then sold at highly subsidised prices.
From October 2003 on the directive of Government, NNPC was allotted 445,000 barrels of crude daily for domestic consumption at the prevailing international market price. NNPC refined the crude oil and sold the derived petroleum products at controlled and highly subsidised prices approved by the Government. The imbalance created by the arrangement led to the introduction of the subsidy scheme in existence today.
Challenges in the subsdy scheme
The creation of the Petroleum Support Fund (PSF) in 2006 was therefore an effort at addressing the challenges in the subsidy scheme.
Imports: Refined petroleum products derived from the portion of the 445,000 barrels/pd meant for domestic consumption. The PSF scheme was under-funded and therefore the NNPC used a combination of proceeds from its subsidised collections from products sales at the depots and the subsidy claims approved by PPPRA to settle the gross amount for the cost of crude oil it purchased. NNPC despite being the largest player in the industry claims it is unable to generate enough revenue/cash flow from the subsidised ex-depot prices to settle the cost of crude it purchased from Government.
The role of NNPC as a supplier and distributor of petroleum products could be summarised as follows:
*The NNPC collects its daily allocation of 445,000 barrels/pd and processes the crude into refined products.
*The refined petroleum products are evacuated from the plants. The evacuations are witnessed by PPPRA and DPR staff.
*Volumes produced and evacuated are verified and cleared in the presence of NNPC by representatives of PPPRA, DPR, the Nigerian Navy and independent inspectors.
*The verified documents are forwarded to PPPRA for computation of applicable subsidy.
*PPPRA if satisfied issues a certificate to NNPC which is submitted to the Federal Ministry of Finance appointed auditors for clearance.
*The NNPC imports refined petroleum products.
The petroleum products are discharged at the jetties, SPM and depots, in the presence of representatives of PPPRA after obtaining clearance from the Nigerian Navy and the Nigeria Customs Service.
*Imported volumes are verified in the presence of representatives of PPPRA, DPR, NPA, the Nigerian Navy and independent inspectors appointed by PPPRA; •Authenticated documents are forwarded to PPPRA for computation of applicable subsidy;
*The combined value on the certificates is applied against the crude cost due in a given month.
*NNPC advises the Federal Ministry of Finance to remit the certified equivalent sum to the Federation Account for full settlement of crude cost by NNPC.