Misconceptions On Fuel Subsidy – By Femi Falana

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Sahara Reporter



Misconceptions On Fuel Subsidy By Femi Falana

Posted: November 4, 2011 – 02:33


By Femi Falana


It is common knowledge that Nigeria is the sixth largest producer of crude oil in the Organization of Petroleum Exporting Countries (OPEC).


But ours is the only country in the OPEC that depends on imported petroleum products to meet her domestic requirements. As the four refineries owned by the Federal Government have not been properly maintained, they are unable to operate at their total refining capacity of 445,000 barrels per day.


Since the fourth refinery, the Port Harcourt refinery was built in 1981, successive governments in Nigeria have, for some inexplicable reasons, failed to construct new refineries. Those who were given refinery licences under the Olusegun Obasanjo Administration have refused to invest in

refineries as it is more lucrative to engage in the importation of petroleum products.


In the last two years a barrel of crude oil which is extracted for less than $10 has been sold in the

international market for prices ranging from $100 to $180. Since the cost of producion is by far less that the price of the commodity the issue of subsidy does not arise. It is however conceded that the Federal Government has been subsiding corruption and inefficiency arising from official negligence to maintain the existing refineries and build new ones to meet domestic needs and generate substantial revenue from exporting petroleum products.


No doubt government can no longer justify the huge expenditure on fuel import. But instead of confronting the fuel cartel and some unpatriotic public officials duping the country through fraudulent claims, round tripping and smuggling of subsidised petroleum products to neighbouring countries government has decided to inflict more excruciating economic pains on hapless Nigerians by withdrawing subsidy from PMS.


It is pertinent to note that government has since withdrawn subsidy from diesel. The claim that kerosene is still subsidised ought to be investigated as the product is sold in the market between N95 and N200 per litre instead of the official rate of N50. Since the local refineries produce the bulk of kerosene supplied to consumers to what extent is the product subsidised? Why has the NNPC refused to colour kerosene to prevent the product from being sold to commercial airlines and the masses at the same rate in the market?


Budgeting for Imported Fuel Imports


In 2006, 2007, 2008, 2009 and 2010 the Federal Government spent N261 billion, N278 billion, N630 billion, N421 billion and N673 billion respectively for the importation of petroleum products.In 2011, N240 billion was appropriated for fuel susidy by the National Assembly.But in contravention of the Appropriation Act 2011 the NNPC caused with the Federal Ministry Finance  to release the sum of N1.3 trillion for the importation of fuel products by August 31, 2011.Thus, from 2006-2011 Nigeria spent a total sum of

N3.6 trillion on fuel import!


A cursory glace at the above figures shows monumental fraud which cannot be justified. For instance, N673 billion was spent in 2010 but the figure has risen to N1.3 trillion in 2011. From the information at my disposal, the PPPRA has colluded with NNPC to settle vouchers for arrears of petroleum products purportedly supplied in 2009!


It is such fraudulent claims that have balloned the 2011 fuel

subsidy.The NNPC and PPPRA, Central Bank and the Federal Ministry of Finance should justify these figures. This has become necessary as the auditors engaged by the Government have failed to detect fraud with respect to the over N3.6 trillion wasted on fuel imports in the last five years. Yet the auditors have been collecting billions of Naira annually for failing to verify and detect the monumental fraud perpetrated by the “oil cartel”.


By virtue of Section 7 of the Petoleum Products Pricing Regulatory Agency (PPPRA) the PPPRA is empowered to “prevent collusion and restrictive trade practices harmful to the sector and regulate the supply and distribution of petroleum products” but the NNPC has usurped the powers of the PPPRA. Specifically, with the  illegal directive of the NNPC, the PPPRA is made to honour unverified vouchers from importers of petroleum products. Right now, a huge sum of money is being paid in 2011 for petroleum products purportedly imported to the country over two years ago! As if that is not enough a large quantity of the fuel subsidized by the Federal Government is smuggled to neighbouring countries by the so-called “oil cartel” with the connivance of  security personnel.


The Limit of NNPC’s powers


The controversy surrounding the planned removal of fuel subsidy has drawn attention to the illegal management of the Federation Account and the usurpation of the powers of the PPPRA by the NNPC to the detriment of the Nigerian people. As an agency of the Federal Government the NNPC cannot interfere with the management of the funds belonging to federal, states and local governments without appropriation by the National Assembly.


Whereas all revenues collected by the Federal Government shall be paid to the Federation Account pursuant to section 162 (1) of the 1999 Constitution as amended the NNPC has been operating the Federation Account illegally. For instance, the NNPC has admitted that state and local governments have been shortchanged to the tune of N420 billion. It has announced its plan to pay the ‘debt’ without any reference to the National Assembly or the Federal

Executive Council! With respect to fuel subsidy the NNPC operates the Petroleum Support Fund which is funded through imposition of monthly levy of 50% on the Federal Government, 25% on state governments and 25% on local governments. Such deductions are made from source by the NNPC without appropriation or approval of any tier of Government.





Last year, the NNPC shocked the nation when it demanded reinbursement from the Fedeal Ministry of Finance for the sum of N1.5 trillion  withdrawn from the Federation Account and distributed to various unnamed persons in the last one decade on the illegal directives of two former Heads of State. Although the disclosure was made to the National Assembly it was, as usual, swept under the carpet. Such economic crime should be investigated no matter whose ox is gored.


No doubt, Section 7 of the Petroleum  Act  empowers the NNPC to defray all expenses incurred from “such monies as may be received by the Corporation in the course of its operations” this cannot be a justification for the illegal operation of the Federation Account.The National Assembly should pluck up the courage, this time around, to subject the operations of the NNPC to scrutiny. More so, that its accounts have not been submitted for  verification for the past 12 years!


The Way Out


The reasons adduced for the decision of the government to stop fuel subsidy with effect from January 2012 are jejune and dishonest. How can the Federal Government admit its inability to deal with the so called ‘oil cartel’ responsible for the fraud that has characterised the importation of petroleum products? Will the National Assembly allow the Government to inflict more economic punishment on Nigerians for the criminal activities of the “oil cartel” and a few public officers?


For several years, I have suggested effective maintenance of the four refineries and the construction of new ones. I have also requested the NNPC to build mega stations in neighbouring countries like Benin, Togo and Niger to discourage smuggling and generate revenue for the Government. Venezuela has over 2,000 gas stations in the United States.


Instead of importing petroleum products from Europe at a colossal cost the government should refine crude oil in neighbouring countries whose refineries are functioning and producing below capacity. Senegal has a well maintained 47-year old refinery. Chad and Niger have just built new refineries.


Like citizens of other oil producing countries Nigerians are entitled to derive maximum benefit from crude oil. Contrary to official claim the prices of petroleum products in Nigeria are the highest among the majority of OPEC members. The investigation recently conducted by a Nigerian newspaper revealed that ‘petrol sells for the equivalent of N58.40k in Iran, N30.55k in Kuwait, N32.12k in Qatar; N17.52k in Saudi Arabia, N54.00k in the United Arab Emirates, N15.95k in Libya, N39.42k in Bahrain…


Each of the afore-mentioned countries has functional refineries. For instance, Venezuela has 18 refineries most of which are dedicated to the exportation of refined petroleum products. In Nigeria, our four refineries currently produce below 10% of their capacity. Why has the government failed to invite the companies which built them to maintain instead of giving turn around maintenance contracts to incompetent party loyalists?


Given the political will the country’s four refineries can be fixed in six months while four new ones can be built by the Federal Government in the next one year. To fund the project the Government should draw from the foreign reserves which are currently withdrawn regularly to pay for the importation of non essential goods to the country.The government may also offer some incentives to the oil majors operating in the country to invest in refineries.


In the interim, the PPPRA should be reconstituted with patriotic Nigerians while the NNPC should be restrained from further preventing the PPPRA from carrying out its statutory duties with respect to the importation, marketing and distribution of petroleum products. The NNPC has no power under the law to import and sell petroleum products.


Finally, should the National Assembly endorse the withdrawal of fuel subsidy? The implication is that the pump price of petrol will jump to N144.70k. Based on the nature of the neo-colonial economy of the country the plan will immediately aggravate the economic crisis as the cost of goods and services will hit the roof. If the unpopular policy is imposed the government should be prepared to face the anger of Nigerians. Those who believe that

Nigerians have been cowed to submission can go ahead and provoke them.


They will live to regret their action!

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