Nigerians have been forced to pay as much as N150/litre of kerosene instead of the government subsidised rate of N50 because the Nigerian National Petroleum Corporation, NNPC, chose to sell kerosene to depot owners rather than retail outlet owners as required of it.
A Report by the Technical Committee on Payment of Fuel Subsidies, submitted to Mr President and exclusively obtained by Vanguard, revealed that the NNPC flouted the policy on its monopoly to import kerosene, which comes in as Dual Purpose Kerosene, DPK, at subsidized rate to serve the masses.
Rather than deliver the product to retail outlet owners so that it could benefit the masses for which it was being subsidized, the NNPC, instead, chose to sell it for patronage, or what the committee described as "rent" to depot owners.
The struggle to buy Kerosene, an household commodity for cooking, becomes more challenging even at a NNPC petrol Station in Lagos. Photo by Lamidi Bamidele
The depot owners who got the product at N40.90/L ex-depot price, in turn sold it to marketers and retail owners at between N115 and N125/L depending on the operator, a development that led to the masses buying the product at 300 per cent increase at N150/L instead of the recommended price of N50/L.
"The distribution of DPK which was being imported solely by NNPC was skewed in favour of depot owners who have no retail outlets. Two-thirds of the kerosene sold by NNPC between 2009 and 2011 was sold to depot owners and "middle men" who in turn sold the product to owners of retail outlets at inflated prices of between N115.00 and N125.00 per litre (compared to the ex depot price of N40.90), leaving consumers to pay higher prices than the N50.00 per litre directed by Government," the report said.
It added: "For several years now, the country has been incurring huge subsidy bills for kerosene and its citizens are not receiving the benefit - instead the country has been financing "rent" for the middlemen."
NNPC has many mega stations and retail outlets
MOMAN - is the Major Marketers Association of Nigeria, which members include Mobil Oil Nigeria Plc; Total Plc; MRS Oil Plc (formerly Chenron Oil Nigeria); Forte Oil Plc (Formerly AP); Oando Oil Plc; and Conoil Plc. The association controls nine per cent of retail outlets with 2,453 owned by members
IPMAN - Independent Petroleum Marketers Association of Nigeria, own in joint venture with Purebond of UK, the Nigerian Independent Petroleum Company, NIPCP Plc, and has about 23,026 member retail outlets to control 85 per cent of the retail market.
DAPPMA - Depot and Petroleum Products Marketers Association are the owners of the tank farms and petroleum storage facilities and only 403 member outlets and controls only four per cent of the market. Yet, they got between 60 and 70 per cent of the kerosene.
Further investigations revealed that because kerosene comes in as DPK, the depot owners preferred to divert the product for aviation turbine kerosene, ATK, or Jet A1, to reap higher profits from the product as opposed to selling it as House Hold Kerosene, HHK, which the masses rely on for domestic energy to cook their foods and light their lanterns.
Yet, the NNPC collected the sum of N331.55billion as kerosene subsidy for 2011 alone, when hardly any Nigerian could buy the product at N50/L.
This has remained since 2009, a situation that led to the acute scarcity of kerosene for the greater part of the last three years.
The report, which revealed how oil marketers and petroleum dealers allegedly perfected series of fraud through products imports that led to the payment of over N2 trillion as subsidy claims in 2011 alone, also showed that in all the established cases of malfeasance, the regulatory agencies colluded with the concerned parties to boycott due process for the importation of the particular product.
NNPC flouted presidential directive
In the case of kerosene, the situation was so bad that late President Umaru Musa Yar'Adua, on June 15, 2009, ordered the NNPC to stop making further deductions as claims for subsidy on kerosene.
"In spite of a directive issued by President Yar'Adua on June 15, 2009 that NNPC should cease subsidy claims on kerosene, PPPRA resumed the processing of kerosene subsidy claims in June 2011 and NNPC resumed the deduction of kerosene subsidy claims to the tune of N331 ,547,318,068.06 in 2011," the report revealed.
The report noted that: "The current lack of regulation (of subsidy claims) has led to NNPC's introduction of practices that are not permitted or recognised by the current PSF guidelines that if unchecked by NNPC's internal control mechanisms may allow for significant leakages."
Checking fraud through forensic audit
To discontinue the criminalities, the committee called for a forensic audit of the NNPC's subsidy payment process. This it said, is because "while the committee conducted detailed reviews of several aspects of the subsidy payment process, it noted that the process for NNPC is significantly more complicated than the process for the private sector and would require a thorough forensic audit."
It therefore urged the Federal Government to "appoint consultants to carry out the forensic audit of the NNPC subsidy claim process. This is without prejudice to the committee's recommendations on the process from its high level review."
It further recommended that such audit should cover, among others:
- Funding for subsidy paid to NNPC
- Process for determination of products imported by NNPC
- Documentation for NNPC's transactions for imported petroleum products
- Verification of documentation with NNPC's suppliers and other agencies involved in the discharge of petroleum products - e.g. DPR, PPPRA, Government auditors, independent inspectors, e.t.c.
- Review of documentation submitted to PPPRA by NNPC
- Review of PPPRA's certification process for NNPC subsidy claims
- Reconciliation of the deducted subsidy claims from the proceeds of crude oil sales by NNPC to the subsidy claims certified by PPPRA.
Since the poor Nigerians were obviously not getting the benefit of the huge cost to the nation in kerosene subsidy, the committee further urged the federal government to also: Allow both private importers who meet the eligibility requirements of the PSF guidelines and NNPC to import kerosene and pay kerosene subsidy under the PSF. The role of private importers in the distribution of the product should be monitored properly by PPPRA and DPR. Eliminate the current financing of rent for a few by restricting NNPC's local distribution to only groups that own significant retail outlets - i.e. MOMAN, IPMAN and NNPC Retail at the approved ex-depot price.
The Committee recommends that NNPC's roles in the downstream petroleum industry be regulated appropriately by the existing regulatory agencies in the industry i.e. PPPRA and DPR.
The Committee recommends that:
- PPPRA must always regulate and determine the quantity of products to be imported by NNPC in line with its mandate and the current allocation process for NNPC. All importation of products by NNPC (within or outside PPPRA approved quotas) must be approved by PPPRA. A rigorous process of volume control that will facilitate identification of red flags will reduce malpractices in subsidy claims.
- That accounting best practices should be adopted by NNPC to enable separate audit trails of sales proceeds of imported and locally refined petroleum products and to determine the cost of domestic refining of petroleum products.
- That Government should always give documented and clear directives to avoid ambiguity, indiscretion and to encourage compliance. Given the significant financial impact of the NNPC subsidy process on the finances of the nation, appropriate steps should be taken by Government to document and legalise the process for NNPC's subsidy claims in a transparent and unambiguous manner.
- That the relevant Government agencies such as PPPRA and DPR in line with their mandates as regulators and others such as the Ministry of National Planning, Federal Bureau of Statistics e.t.c. using the information at their disposal on locally refined, imported and stored volumes of petroleum products should be mandated by Government to continually determine the nations' daily consumption levels of petroleum products independent of the industry operators.
- The allocation of kerosene directly to marketers with retail outlets, specifically IPMAN, MOMAN and NNPC Retail based on the strength of their retail outlets. This will ensure that the impact of the subsidy will be felt by the masses. In addition, the permit to import DPK should be liberalized to include the marketers who meet the eligibility criteria under the PSF guidelines and the subsidy regulated under the PSF scheme as currently obtains for PMS.
In the long run, the option of using cooking gas should be explored. It is expected that the cost of subsidising kerosene would be saved if more Nigerians embrace the use of LPG. In addition, the Committee is unable to recommend payment of subsidy claims on DPK in view of the extant presidential directive of June 15, 2009.
It would be recalled that the idea of the Technical Committee on Subsidy was hatched on February 28, 2012, and was meant to "review outstanding claims for fuel subsidies," as fallout of the stakeholders' meeting of the downstream petroleum sector.
The meeting was chired by the Coordinating Minister of the Economy/Minister of Finance, Dr. Ngozi Okojo-Iweala, who constituted the 10-man committee on April 17, 2012, headed by the Group Managing Director/Chief Executive Officer, Access Bank Plc, Mr. Aigboje Aig-Imoukhuede.
The terms of reference included to authenticate the backlog of outstandingpayments of subsidy payments to marketers in 2011; verify the legitimacy of backlog of claims already submitted by marketers for 2011; and review any other pertinent issues that may rise from the exercise.
Other members included the Director General, Budget Office of the Federation, Dr. Bright Okogu; Director General, Debt Management Office, Dr. Abraham Nwankwo; Accountant General of the Federation, Mr. Jonah Otunla; Executive Secretary, Petroleum Products Pricing Regulatory Agency, PPRA, Mr. Reginald Stanley.
Others were the Group Executive Director, Finance and Accounts, NNPC; and representatives of the CBN, Bankers Committee as well as major and independent marketers.
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