…Experts cite high oil prices, logistics costs, corruption
…System breeds corruption, smuggling to other countries —EnergyHub
…Calls for deregulation, implementation of PIA
…Reps to sanction agencies for stalling investigations into fuel consumption rate
By Udeme Akpan, Energy Editor, Levinus Nwabughiogu & Obas Esiedesa, LAGOS
As Nigerians continue to groan nder the severe impact of the lingering fuel scarcity, amid raging controversy over huge subsidy costs, investigations revealed a combination of higher oil prices, skyrocketing logistics costs and corruption led to a gargantuan 989 per cent increase in the average monthly fuel subsidy cost in seven years.
This is even as the House of Representatives yesterday threatened to sanction critical agencies of government in the oil and gas sector for failing to appear before its committee investigating the rate of daily consumption of fuel in the country.
Fuel subsidy jumps skywards
Vanguard checks have shown that the amount of money spent by the Federal Government on petrol subsidy in the past seven years hit N4.838 trillion in May 2022.
Further analysis showed that the average monthly fuel subsidy cost rose by 989 per cent to N254.8 billion at the end of May 2022 from N23.4 billion at the end of 2015.
According to data obtained from the Nigerian National Petroleum Corporation, NNPC Limited and the Nigerian Extractive Industries Transparency Initiative, NEITI, the Federal Government spent N316.70 billion on fuel subsidy in 2015, translating to a monthly average of N23.4 billion.
But following the N1.274 billion spent in the five months of 2022, the average monthly subsidy cost rose by 989 per cent to N254.8 billion.
Furthermore, NNPC data showed that N99.00 billion, N141.63 billion, N722.30 billion, N578.07 billion, N133.73 billion were spent in 2016, 2017, 2018, 2019 and 2020 respectively, while N1.573 trillion was spent in 2021.
The astronomical rise in average monthly fuel subsidy cost, according to industry experts, is due to a combination of factors — high price of crude oil, Russia-Ukraine war, foreign exchange, freight, alleged corruption and smuggling of the product to neighbouring countries.
The experts, who spoke to Vanguard in different interviews, insisted that these factors constitute the major drivers of the rising fuel subsidy in the nation, especially as a result of over-dependence on imported petrol because domestic refineries remain moribund.
Refineries’ accidents hinder petrol supplies — OPEC
Secretary-General of the Organisation of Petroleum Exporting Countries, OPEC, Mohammed Barkindo, who noted that Nigeria and other nations are affected by developments in the global market at the ongoing 21st Nigeria Oil and Gas Conference and Exhibition in Abuja, yesterday, said: “The upstream has become a favourite scapegoat for the current market conditions.
“However, this discounts the current capacity challenges that also plague the downstream, especially with regard to transportation of fuel. Refinery closures in recent years — coupled with a number of untimely accidents at important regional refineries — have curtailed supplies and helped create the energy market volatility of recent months.
“Worldwide refinery capacity fell by more than 330,000 barrels per calendar day year-on-year in 2020 and remained below pre-pandemic levels last year, despite the robust global economic rebound. The Middle East, China, as well as Africa and India, recorded refining capacity additions.
“However, refinery capacity in the Organization for Economic Cooperation and Development, OECD, declined for the third consecutive year in 2021. Comparing the pre-pandemic year of 2019 to 2021, OECD refining capacity fell by a significant 1.5 million barrels per calendar day, or 3.3%. Given the global refining squeeze at the moment, the construction of the Dangote Refinery in Lagos, with its capacity of around 650,000 barrels per day, is a huge step in the direction of addressing not only Nigeria’s longer-term demand – but significantly improving the capacity outlook of the global down-stream sector.”
Smuggling, corruption fuel subsidy — Energyhub Nigeria
Similarly, in a telephone interview with Vanguard, the Lead promoter, EnergyHub Nigeria, Dr Felix Amieyeofori, said that as oil prices continue to stabilize over $100 per barrel because of the interventions of OPEC and other parties, the nation should expect to generate additional foreign exchange from the export of crude oil.
He said the government, apparently the sole importer of petrol, would also incur additional cost through the massive importation of the product, adding that the bulk of what was imported was smuggled to other countries, thus constituting a huge loss to the nation.
Specifically, he said: “High oil prices will continue to increase the government funding of petrol importation. It also means huge subsidy burden. But the sad reality is that a bulk of what is imported into Nigeria finds its way to other nations in West Africa. This means that the government subsidy is partly meant for other nations than Nigerians.
“Sadly, not much had been done to police our borders. We have not also done enough to arrest and prosecute the smugglers over the years. In fact, fuel smuggling seems to have become a big business, while the government looks helpless.
“The entire process where the government plays a domineering influence can be abused. Besides, it also discourages the private sector from investing their funds in the downstream sector, thus denying us domestic growth.
‘’The situation might not change for good in the short and medium term as the present administration seems committed to executing the 2023 elections. There is a great need for deregulation and implementation of the Petroleum Industry Act, PIA.”
Ukraine war, freight constitute other factors
Another industry leader, who pleaded anonymity, said: “The Ukraine war and ban on Russian oil have already distorted the production and distribution of petrol and other products around the world.
“But the recent increase in freight paid by transporters to N20 per litre, from N10 per litre, also constitutes another major factor that has increased the financial commitment of government.”
Impact and solution
Speaking on the challenge posed by the policy, Oil and Gas Governance expert, Mr. Henry Adigun, pointed out that while the price of petrol continues to rise across the globe, especially in neighbouring countries, it has remained static in Nigeria.
“We will pay for it by spending endless hours on queues because the supply shortage would continue until we pay the market price and also the governments which cannot afford it will continue to use up scarce revenue to subsidize the product. The choice is ours to make because the policy is unsustainable,” he added.
Also speaking on the growing subsidy payment for petrol, the Director, Centre for Petroleum, Energy Economics and Law, Professor Adeola Adenikinju, explained that the payment for subsidy is responsible for NNPC zero remittance to Federation Account.
Adenikinju noted that for a country that is spending over 90 per cent of its revenue on debt servicing, Nigeria could ill-afford the wastage going on in subsidy payment, especially with low crude oil production.
He said: “It is why we are not benefiting now because on the one hand, the price of crude is going up but we have to spend that money to import petroleum products which we now sell at reduced price.
“It is rich countries that can afford subsidies, we are poor and that is the reality. We don’t have money that can give us this way of life, the luxury that subsidy is. We are not subsidizing diesel that is crucial to electricity. Many firms are running their generators with diesel, commercial goods are moved by roads using diesel.
“Diesel is very expensive but we are not subsidizing it. Also kerosene is expensive to low-income households and yet we are not subsidizing it but petrol which is consumed by the middle class is what we are subsidizing”, he added.
Reps to sanction agencies for stalling fuel consumption probe
Meanwhile, the House of Representatives may sanction critical agencies of government in the oil and gas sector for failing to appear before its committee investigating the rate of daily consumption of fuel in the country.
Essentially, the investigation was to ascertain why the government paid a high subsidy rate with tax payers money annually.
The threat followed the absence of the stakeholders at a public hearing by the House ad hoc committee on the consumption rate yesterday.
Those invited to the hearing included the Minister of State for Petroleum Resources, Timipre Sylva; the Minister of Finance, Budget and National Planning, Zainab Ahmed; Group Managing Director, GMD, of the Nigerian National Petroleum Company Limited, NNPC, the Accountant General of the Federation; Chairman of the Federal Inland Revenue Services; and Managing Director, Nigerian Ports Authority, NPA, among others.
But while the NNPC and NPA bosses gave excuses due to other engagements within the time and pleaded for more time to present historical documents needed for the investigation, others stayed away without notices.
Speaking at the hearing, Deputy Leader of the House, Peter Akpatason, who represented the speaker, Femi Gbajabiamila, lambasted the agencies for attempting to frustrate the investigations.
He said: “The essence of public hearing is to give opportunity to various stakeholders to participate in the exercise.
It is meant for you to rub minds with members of the committee, with a view to ascertaining exactly what the issues are and to provide your own perspective to the story so that at the end of the day, whatever the parliament arrives at has the benefit of your input and as such, the outcome is likely to be objective.
“In a situation where stakeholders are given opportunities to come and participate in a parliamentary investigative hearing and organisations are not serious about it is unacceptable to parliament.
“In fact, it was expected that the critical stakeholders that have been invited here should be represented by their chief executive officers. I hardly can see any chief executives officer here; how much more not sending any representatives.
“It is a shame and it is not acceptable to the House of Representatives. I want to make it very clear that if you conceal information, there are so many ways to get such information. You will only run yourself into trouble by concealing information.
“The topic for this investigation is a very controversial issue and I am sure you are all aware of that. It is the volume of consumption that determines the subsidy that you have to pay with government funds.
“Huge sum of money is spent on subsidy payment. Nigerians don’t know how much fuel we are consuming that warrant the payment of such humongous amount, and now you have been given the opportunity to come here and show us what you know, bring out fact that will either confirm or contradict the story that is out there, so that at the end of the day, we are able to act on fact. But here we are.
“I know NNPC hardly absents itself from this kind of investigative hearing. They wrote a letter which is quite commendable, but it is appalling that such letter will come in at this point and there is no single representative from the company that came to explain why before submitting the letter. That is not fair.
“I want to make it very clear. It is not acceptable to the parliament that people, organisations that are saddled with the responsibility of managing a critical assignment like the distribution and sale of PMS in this county will be reluctant to come here to do their duties.
“Your job is not only to go to your office, but you also have to come out and respond to the call of government to show accountability for whatever you are doing as agencies of government. Even if you are a private organization that is participating in the process of distribution, you must be accountable.
“So, we want to see this attempt by critical stakeholders absenting themselves from this investigative hearing as an attempt to frustrate the effort of the committee and the parliament will not take it lightly.
“Who on earth will believe that the Ministry of Petroleum Resources will not be present here and will not send any message. Ministry of Finance is not here also, Office of the Accountant General is not represented here. Federal Inland Revenue Service, FIRS, is not here. This is not fair.
“Even PPMC is not here and yet, they are the ones distributing. This is not acceptable. Chairman I just want to make this point,. if there is any need to sanction any organisation that is not here, you make it known to the House.”
Similarly, a member of the committee, Aniekan Umanah, said the committee’s mission was to curb wastages in the system, stressing that it was necessary the agencies appear to help Nigerians know the daily fuel consumption rate.
“The oil corporation of Nigeria, the PPMC and all others are not here. What data and facts can we get from those who are onlookers and contributors? It must all first come from them.
“In a nation where we have an annual appropriation of about N17 trillion and we are spending over N6tn on subsidy alone, which almost half of the nation’s revenue, yet nobody is taking it seriously. I’m not too sure whether we want the nation to sink or we want it to go completely under.
“Every day, we are talking of determining consumption because it is the true determination of consumption that tells us what ought to be paid or not to be paid. And if we are not taking this seriously, I think the parliament has enough constitutional backing to do certain things or cause certain actions to be taken.
‘’We must invoke what is invokeable to cause certain actions to be taken so that Nigerians can take us seriously,’’ he said. The investigation hearing is to continue at a later date.