Time for hard questions on kerosene subsidy payments

On Monday, the House of Representatives Committee on Petroleum (Downstream) will begin a public hearing on kerosene subsidy. It is coming at a time the dust is yet to settle on Central Bank of Nigeria (CBN) Governor Sanusi Lamido Sanusi’s claim that the kerosene subsidy regime is a racket, writes OLUKOREDE YISHAU

Central Bank of Nigeria (CBN) Governor Sanusi Lamido Sanusi is expected to return to the National Assembly on Monday or Tuesday. He will be appearing before the House of Representatives Committee on Petroleum (Downstream). Last Tuesday, Sanusi appeared before the Senate Committee on Finance and deplored the management of the country’s oil revenue. One of the issues Sanusi raised bordered on kerosene subsidy payments, which, he described as illegal, given a presidential directive stopping any form of subsidy on the product. His expected appearance before the Dakuku Peterside-led House Committee on Petroleum (Downstream) will focus on the issue of kerosene subsidy, which the committee is probing.

The public hearing is sequel to resolution HR84/2013, directing the committee to establish the actual amount spent on kerosene subsidy from 2010 to December last year; establish the source of the money used in financing kerosene subsidy and the relevant budgetary approval; determine the companies benefiting from kerosene subsidy; establish the extent (if at all) to which the subsidised kerosene gets to the consumers at the regulated price; and investigate all incidental issues relating to kerosene supply and distribution.

Sanusi queried the Nigerian National Petroleum Corporation’s (NNPC) kerosene subsidy payments. He described kerosene subsidy as a racket.

He said: “NNPC, in paying what it calls kerosene subsidy, is confessing to a number of serious infractions. First, I have shown, based on Nigerian Bureau of Statistics (NBS) data, that kerosene is not a subsidised product, and therefore the so-called subsidy is rent generated for the benefit of those in the kerosene business. Second, I have produced evidence that the late President Yar’Adua had issued a presidential directive eliminating this subsidy payment as from July, 2009. Third, these huge losses inflicted on the Federation Account have not been appropriated.

“The burden of proof on NNPC is to show where they obtained authorisation to purchase kerosene at N150/litre from Federation Funds and sell at about N40/litre, knowing full well that this product sells in the market at N170-N220/litre. At what point was the presidential directive reversed? The Nigerian Ports Authority (NPA) records would suggest that NNPC imports about four to six vessels of kerosene a month. Industry sources place the value of each vessel at $30m and the amount of “subsidy” per vessel at $20m. This means, at an average of five vessels a month, the Federation Account loses $100m every month to this racket.”

Reacting to Sanusi’s claims, the NNPC said: “Regarding the subsidy claim on kerosene, it is important to note that NNPC as the supplier of last resort is the only company supplying this product in Nigeria for the benefit of the citizenry. If kerosene has been deregulated, why are the independent marketers not supplying this product in line with what is applicable to diesel (AGO)? NNPC owes a duty to Nigerians to ensure that there are adequate products in the country. This mandate has without question been accomplished in the past four years. NNPC deserves to be commended rather than battered, for ensuring adequate supply of kerosene at regulated price of N50. NNPC cannot be held responsible for any differential pricing from non-NNPC retailers. This is the basis for NNPC’s claim on kerosene subsidy.”

Aside Sanusi, Minister of Petroleum Mrs Diezani Alison-Madueke, the Accountant-General of the Federation, Jonah Otunla, the Petroleum Products Pricing Regulatory Agency (PPPRA), the NNPC and kerosene marketers are expected to also shed light on the matter, which has become an open sore.

As Sanusi noted, the late President Umaru Yar’Adua abolished kerosene subsidy and the decision was not publicly reversed. The late Yar’adua in a memo dated June 17, 2009 to the Minister of Petroleum Resources, directed that subsidy on kerosene be removed, as the continued payments by government did not get to the intended beneficiaries.

Despite this directive, subsidy payment was reinstated. Yet, the targeted consumers benefited less from the scheme known as Kero-Direct initiated by the NNPC in July 2011 to help distribute household kerosene (HHK) to consumers nationwide.

The House Adhoc Committee on Fuel Subsidy Probe said the scheme may have been a scam to defraud Nigerians and extort money from the Petroleum Support Fund (PSF). Under the scheme, the Pipelines and Products Marketing Company (PPMC), a subsidiary of the NNPC, provided the product sold to end users at N50 per litre, using the facilities of an independent marketer, Capital Oil and Gas Industries Limited. But the committee said the scheme was designed in a way the product would not get to the target beneficiaries at the approved price.

The committee found that the product sold only at the 36 NNPC mega stations out of the over 24,000 retail outlets across the country. The committee said there was massive diversion of the product, which made consumers to get the product at between N130 and N150 per litre in the market.

The committee’s report asked the NNPC to refund the over N310.42 billion deductions it took as subsidy arrears for kerosene supplied in 2009 and 2010, adding that this was made in spite of a presidential directive to the minister, who is also chairman of the NNPC Board of Directors.

“The Committee could not find any reason why the minister, if convinced on the need to reinstate subsidy on kerosene, did not take any action on that, instead of condoning the illegal payments.

“When the Ministry of Petroleum Resources discovered that the removal of subsidy on kerosene was not expedient, it should have gone back to the President for the vacation of the directive.

“Having failed to do that and with the evidence that the product was never sold at N50 (apart from the 36 mega stations) since 2009, there was no basis for seeking any vacation of the order in 2011.”

The committee also criticised the agreement entered into with Capital Oil & Gas Limited for the use of its tank farm to store about 94,330,030 litres of products, which was later confiscated and sold off by the company to recover a nine-month storage fees debt by NNPC.

Peterside, while speaking at a function organised by the Lagos Chamber of Commerce and Industry (LCCI), said the Federal Government spent N634 billion as subsidy on kerosene between 2010 and 2012, describing this as a network of corruption and fraud.

He said Nigeria, the world’s sixth biggest crude exporter, could not move forward with the present arrangement where the NNPC holds the monopoly of kerosene importation.

Peterside said: “No country that spends most of its funds on consumption will grow. And so that explains why Nigeria is not moving forward. How can we move forward when most of our funds are spent servicing corruption?

“Kerosene subsidy is a network of corruption; it is a network of fraud. So why are some people blaming the fraud on the monopoly of NNPC? Even when you ask major marketers they will tell you that the monopoly of NNPC is responsible for what we are going through today to access kerosene.

“The first challenge is that the supply of kerosene is regulated. Everywhere in the world where there is monopoly, people are likely to suffer while the monopolist tries to maximise the situation; this is because NNPC has the monopoly of importing kerosene.

“In the year 2010, we spent N110,068,533,988 to subsidise kerosene; this is not the cost of kerosene but the cost of subsidising the product alone…In 2012, although we are yet to reconcile this, we spent N200 billion subsidising kerosene.”

Certainly, a lot of dust will be raised at the investigative hearing on the kerosene subsidy regime. Claims and counter claims will emerge. But it is hoped that the committee will sieve the chaff from the wheat so as to get to the bottom of this matter, which Sanusi believes is nothing other than a racket through which funds are siphoned.