Nigeria has discovered a huge discrepancy in the amount of the motor fuel it subsidises and what people actually consume, a legislative committee said, supporting the idea that a government scheme to make petrol cheaper is wasteful and corrupt.
President Goodluck Jonathan's government abruptly removed the subsidy on Jan. 1 but strikes and protests by trade unions and civil society forced him to reinstate some of it, although the pump price was increased by 50 percent.
"What we have here is that 59 million litres were discharged by vessels, but the daily consumption locally was 35 million litres," Farouk Lawan, chairman of a House of Representatives committee probing subsidies, told an Abuja sitting late on Wednesday, in comments broadcast on independent station Channels TV on Thursday.
The comments are likely to further stoke the debate over the fuel subsidy, which economists say benefits wealthy fuel importers and smugglers more than ordinary Nigerians.
"There is a gap of 24 million litres per day being funded by Nigerians as subsidy that was not utilised by them. This of course amounts to overpayment; or in other words, sharp practices," the legislator said.
Critics of the subsidy say fuel importers overcharge for fuel in corrupt accounting procedures and that much of the fuel bought for local consumption is anyway shipped over the border to Cameroon and Benin, where it can be sold for a huge profit by smugglers. Both views seem to be supported by Lawan's findings.
"Smuggling has been encouraged by the system ... if local consumption is 35 million litres per day and we are paying for 59 ... we're making available 24 million litres a day for importers to smuggle out," Lawan said.
Lawan's committee is one of several investigations now in place on Nigeria's energy sector that were spurred by the fuel subsidy row, including a Senate probe into subsidies, a probe by the corruption watchdog into the state oil company and price regulator, and an audit of the entire Oil Ministry.
BLAME GAME
Nigeria imports most of the fuel it consumes because its four refineries are decrepit, producing at only a quarter of their installed capacity. The government buys the fuel then sells it to the public at cheap, subsidised prices.
The committee heard the subsidy paid for 24 million litres per day imported by marketers but not consumed by Nigerians amounted to 669 billion naira ($4.14 billion).
Economists say the fuel subsidy encouraged corruption and the wasteful use of fuel. The government had estimated it would save 1 trillion naira ($6.2 billion) in 2012 by eliminating it.
But Nigerians have always fought against its removal because they consider cheap petrol their sole benefit from living in a major crude oil producer which loses billions of dollars to corruption.
Its removal had doubled petrol pump prices to around 150 naira ($0.93) per litre from 65 naira, but Jonathan on Monday partially reinstated the subsidy, pegging the price at 97 naira.
"Subsidy was paid based on what was discharged; that was the practice I met on the ground," Reginald Stanley, head of the Petroleum Products Pricing Regulatory Agency, which is in charge of fuel imports, told the committee.
Stanley, who took charge of the agency in 2011, said he had changed the system and from Jan. 1, subsidy would be paid only for fuel actually trucked out of the port for consumption.
Stung by accusations of fraud, Nigeria's fuel marketers took out newspaper advertisements on Thursday, saying changes brought into the Petroleum Support Fund scheme in 2007 were to blame for allowing firms without pump stations to claim the subsidy.
"This saw the emergence of 'briefcase' companies (with no asset base nor accountability) in the PSF scheme," the Major Oil Marketers Association of Nigeria said. ($1 = 161.4300 naira)
Nigeria’s parliament is probing whether fraudulent practices by government agencies fueled a fivefold rise in spending on gasoline subsidies in the past three years, said the head of the investigating committee.
The government is probably paying more than 2 trillion naira ($12.6 billion) to fuel importers to cover the difference between market costs and state-regulated prices for last year, said Farouk Lawan, chairman of a House of Representativescommittee investigating the discrepancies. That’s up from 384 billion naira in 2009 and represents almost half of last year’s 4.5 trillion budget.
Government agencies that import the fuel were involved in“instances where they either didn’t follow due process, or certain provisions of some laws were abused,” Lawan said in a Feb. 7 interview in Abuja, the capital. Levi Ajuonuma, a spokesman for the petroleum ministry, said the investigation should be completed before making any conclusions.
Nigeria, Africa’s top oil producer, relies on imports to meet about 70 percent of its domestic fuel needs due to a lack of refining capacity. President Goodluck Jonathan’s attempt last month to scrap the subsidies sparked a week-long general strike and prompted the parliamentary investigation.
The strike ended on Jan. 16 after Jonathan agreed to limit gasoline-price increases to 97 naira a liter (0.26 gallon). Prices initially more than doubled from 65 naira a liter.
‘Largest Fraud’
“This is the single largest fraud that has ever been disclosed in Nigeria’s political history,” Clement Nwankwo, executive director of the Abuja-based Policy and Legal Advocacy Centre, said by phone yesterday.
While the petroleum ministry estimates national fuel consumption of 35 million liters a day, the government paid subsidies on 59 million liters daily last year, said Lawan, a member of Jonathan’s ruling People’s Democratic Party.
Petroleum Minister Diezani Alison-Madueke on Feb. 7 named Nuhu Ribadu, a former chief of the Economic and Financial Crimes Commission, to head a 20-member task force to monitor revenues and oil production and exports.
Fuel imports are managed by the Nigerian National Petroleum Corp., or NNPC, the Petroleum Products Pricing and Regulatory Agency, Department of Petroleum Resources, and the Pipelines and Product Marketing Co., which are under the Ministry of Petroleum Resources.
Nwankwo questioned the ability of the ministry where the alleged corruption took place to investigate itself and said ultimately Jonathan is responsible.
Presidential spokesman Reuben Abati didn’t answer four calls to his cell phone and a text message seeking comment.
Alleged Violations
“No doubt about that, it happened under his watch,” Lawan said, referring to Jonathan. “But it doesn’t necessarily mean that he knew about what was happening.”
Lawan declined to give details of alleged violations, saying they would be announced when the eight-member committee is scheduled to release its report in two weeks after listening to testimony from officials from the government and fuel importing companies.
The central bank has already paid 1.75 trillion naira for last year, Lawan said, and the full cost of the subsidies hasn’t been fully counted because of outstanding payments.
“From the figures that we are compiling now, I can confidently say the figure for 2011 will be in excess of 2 trillion,” he said.
Naira Pressure
Fuel imports have been a leading source of demand pressure in Nigeria’s foreign-currency market, according to the Central Bank of Nigeria. Since the beginning of the committee’s investigation, demand for foreign-currency to fund fuel imports has eased, central bank Deputy Governor Tunde Lemo told Lawan’s committee at a public hearing on Feb. 7.
“Perhaps because of the ongoing probe, we have seen a moderation in the demand for foreign exchange especially from the petroleum sector,” Lemo said. Since the start of the investigation, “a lot of order is being brought into the management of the petroleum products.”
The naira, which has gained 2.2 percent this year, advanced 0.2 percent to 158.85 per dollar as of 2:35 p.m. in Lagos, the commercial capital, according to data compiled by Bloomberg.
While the exact figure for domestic fuel consumption isn’t known, the petroleum ministry estimates it rose by 3 million liters a day last year from 32 million liters in 2009.
Average crude prices rose 53 percent to $95.10 a barrel in 2011 from $62.03 a barrel in 2009, according to data compiled by Bloomberg.
Nigeria is the fifth-biggest source of U.S. imports. The country produced about 2.1 million barrels of oil a day in January, unchanged from the previous year, according to data compiled by Bloomberg. About 90 percent of Nigeria’s crude is pumped by Royal Dutch Shell Plc (RDSA), Exxon Mobil Corp. (XOM), Chevron Corp. (CVX), Total SA (FP) and Eni SpA (ENI) in joint ventures with NNPC.
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