GIVEN the huge sums involved, it is expedient that PPPRA should make payments only on the basis of original or authenticated documents to minimise losses due to operational and fraud risks.

The Committee recommends that PPPRA should issue certificates of discharge to oil marketing and trading companies as controlled forms with serial reference numbers generated by PPPRA. This will be a mitigant to forgery.

A Protester at Agidingbi Road Ikeja, Lagos. Photo: Joe Akintola, Photo Editor.

The Committee recommends that going forward, PPPRA should compare the volume of products discharged as stated on the shore tank certificates with the stated volume on the DPR product certificates and payment of subsidy should be restricted to only instances where there is correlation between the discharged volumes of products on both certificates.

The Federal Government should establish a regulation process for the industry that must include the documentation requirements at each stage of the various processes.

OIL MARKETING & TRADING COMPANIES’ VALUE CHAIN (IMPORT, SUPPLY AND DISTRIBUTION OF PETROLEUM PRODUCTS)

The oil marketing and trading companies are principally involved in importation, storage and retailing of petroleum products (e.g. PMS, DPK, AGO and others). A few years ago NNPC Retail joined in the retailing of petroleum products but neither NNPC nor the oil marketing and trading companies could meet the nation’s demand.

IPMAN members import and retail petroleum products. They have 23,026 retail outlets or about 85 per cent of the total retail outlets nationwide, located mostly in the rural areas and less in the cities. Their share of storage infrastructure is insignificant and they import minimally.

MOMAN members also import and retail petroleum products. They own 2,453 retail outlets or about nine per cent of the retail outlets nationwide, located mostly in the cities. They have a reasonable market share of importation and own about nine per cent of the country’s storage capacity for petroleum products.

Storage of petroleum products

DAPPMA/JEFTON members own depots and jetties mostly in the coastal areas of the country and their sole role is supposed to be the storage of petroleum products from which they earn throughput fees.

They own 1,200 retail outlets or about four per cent of the retail outlets in the country and about 74 per cent of the country’s storage capacity for petroleum products (NNPC owns 403 retail outlets or about two per cent of the retail outlets and about 17 per cent of the country’s storage capacity for petroleum products).

The process flow for subsidy verification and claims for oil marketing and trading companies (as presented by a representative of MOMAN) is as follows:

PPPRA provides quarterly import allocations to oil marketing and trading companies

The oil marketing and trading company applies for and obtains import permit from DPR

The oil marketing and trading company approaches a bank to approve form M and issue an LC

The cargo is booked with the supplier

Notice of arrival of the vessel is declared to DPR, PPPRA, Federal Ministry of Finance, Nigerian Navy, Nigerian Customs Service, e.t.c.

REPORT OF THE TECHNICAL COMMITTEE ON PAYMENT OF FUEL SUBSIDIES

Ship-to-ship transfer (STS) takes place if the vessel is bigger than the draft of the jetty (only two private sector jetties in Nigeria have the capacity to discharge a vessel of 30,000MT). The cargo is inspected by PPPRA, DPR, independent marine inspector, Federal Ministry of Finance (through Budget Office of the Federation) appointed auditors, Nigerian Navy, Nigerian Customs Service, e.t.c.

Storage tanks are fiscalised before discharge

Vessel discharges cargo into storage tanks

Storage tanks are fiscalised after discharge to determine the quantity of the cargo

Certificates of quantity and quality are issued and signed by all the parties involved in the inspection

Documentation is forwarded to PPPRA for subsidy claim

PPPRA computes applicable subsidy in line with their template and deducts the applicable PEF and PPPRA administrative charges

PPPRA issues a Sovereign Debt Statement to the oil marketing and trading company (attaching PPPRA and PEF charges payable)

The oil marketing and trading company provides evidence of payment of PPPRA and PEF charges to DMO

PPPRA transmits verified documents to Federal Ministry of Finance and advices the Federal Ministry of Finance to deduct applicable PEF and PPPRA administrative charges

‘Federal Ministry of Finance (through Budget Office of the Federation) appointed auditors verify the documentation

DMO issues SON

SON discounted or liquidated at maturity

The inclusion by PPPRA of oil marketing and trading companies that did not meet the eligibility criteria set in the guidelines for the administration of the Petroleum Support Fund in import allocations created opportunities for abuse of the process. This was also in conflict with the mandate of the PPPRA to prevent collusion and restrictive trade practices.

While the Committee notes that PPPRA was empowered to review the PSF guidelines from time to time, the revision of the eligibility criteria dropped the requirement for proof of ownership of retail outlets.

Critical determinant of capacity

This was a critical determinant of the capacity of the oil marketing and trading company to distribute the products locally within Nigeria and the removal of this requirement opened up participation in the scheme to entities who were clearly incapable of fulfilling the requirements of importation, supply and distribution and whose practices were clearly not consistent with the spirit and intent of the PSF scheme.

The current PSF guidelines do not make adequate provisions for dealing with criminal activities. In addition, key participants in the scheme have no personal responsibility for criminal actions – this is true for both importers and regulators despite the fact that abuse of the scheme clearly amounts to crimes against the Federal Republic of Nigeria (please see the Olaniwun Ajayi & Co.’s legal opinion in appendix 10).

There was no provision in the current PSF guidelines for oil marketing and trading companies to guarantee the validity of their subsidy claims to the Federal Government of Nigeria. This meant that there was no deterrent to prevent oil marketing and trading companies from making false subsidy claims.

The revision of the eligibility criteria for oil marketing and trading companies in the PSF guidelines by PPPRA removed the requirement for the capacity to finance a minimum cargo size of 5,OOOMT. This was an indication of the capacity of the oil marketing and trading company to deliver the allocated quantity of products and the removal of this requirement indirectly created the potential opportunity for companies without capital adequacy to be granted allocations to import products.