A Review of the Nigerian Energy Industry

Subsidy payment trap: A messy arrangement gets messier

Jide Ajani

26 August 2012 LAGOS – EMBLEMATISING the essence of the President Goodluck Jonathan administration’s struggle to keep pace with the speed of service delivery to Nigerians, the scatter-head arrangement in managing the subsidy funds, an arrangement that has suffered so much abuse in recent times, the aborted strike action of the National Union of Petroleum and Natural Gas Workers, NUPENG, is no more than a stockpiling of wood for tomorrow’s bonfire.

This is because the reality on ground does not support a continued sustenance of subsidy payments in an economy that is already crumbling. Yet, there are debts to be paid to importers of Premium Motor Spirit, PMS; not withstanding the alleged sharp practices allegedly committed by them. All these with a president that is not ready to bite the bullet by doing what is just and right regarding how best to handle the mounting economic woes of Nigerians.
Between penultimate Wednesday and Thursday, the simmering power tussle between Madams Ngozi Okonjo-Iweala, Finance Minister and Co-ordinating Minister for the Economy, and Diezani Allison-Madueke of the Petroleum Resources Ministry, blew into the open.

It was urgent and the latter had to have a session with Goodluck Ebele Jonathan, the Ijaw son who occupies Aso Rock Presidential Villa as Nigeria’s President and Commander-in-Chief. The meeting was about the impending industrial action by members of the National Union of Petroleum and Natural Gas Workers, NUPENG.

A Presidency source disclosed that the “situation is so critical that the Petroleum Resources Minister met with President Jonathan mid-last week to give him a clearer picture of the situation, as against the assurances being given by the Finance Minister.

“The President was told that whereas he should not be seen to be negotiating with those that have been indicted and would be facing prosecution, the fact remains that people are being owed huge sums of money and they would need to be paid.

“The pressure on government was brought to laid bare last week when the seat of power, Abuja, witnessed serious scarcity”, the source said.

This development is already creating a frosty relationship between the Finance Minister and her Petroleum Resources counterpart.

Indeed, the Petroleum Resources Minister who was said to be involved, in high level consultations at the weekend, “was practically begging operators in the industry to save the nation from the crisis created by the Finance Ministry’s handling of the matter”.

It was gathered that the leadership of the tanker drivers group mounted surveillance in major entry points of the federal capital last week and ensured that no products were delivered into Abuja.

On the conflicting claims about the payments and debts owed, as well as the claims and counter claims of blackmail and intimidation, information suggests that the quartet of the Jetty and Petroleum Tank Farm Owners, JEPTFON, Depot and Petroleum Marketers Association of Nigeria, DAPPMAN, Independent Petroleum Marketers Association of Nigeria, IPMAN, and the Major Oil Marketers Association of Nigeria, MOMAN, have decided to cease further importation and distribution once the stock they have is depleted.

Curiously, whereas the Finance Ministry claims to be settling subsidy payments, the figures being thrown around by marketers and importers as well as depot owners are not the same.

Whereas the Finance Ministry claims to have facilitated the issuance of N42.666 Sovereign Debt Notes between April and August this year, “this is just a paltry amount when placed side by side the hundreds of billions being owed MOMAN”, a source said.

In addition, a DAPPMAN source claimed that members of the group are being owed claims in excess of one hundred billion naira.

Part of the issues raised by the threatening NUPENG workers is the non-payment of the money owed importers who have in turn threatened to lay off staff.

The shambling approach of government in the matter remains that an agreement was entered into that importers should bring in fuel; some alleged corrupt practices have been uncovered; government is attempting to prosecute; no competent court of law has pronounced importers guilty; yet, government says it will not pay.

In other more civilized climes, some ministers would have been forced to resign or resign in honour.

At the crux of the matter, Sweetcrude has been made to understand, is “that the nation’s purse can not sustain the payment of subsidy in any form”.
But lack of service delivery can not make government come out to add to the burden of Nigerians via fuel price hike.

The power play, the ruse, the cover-ups, the complicity;
every where in the world, cash-based subsidy is fraught with corruption.
In Nigeria, it should be clear by now that the outcome of the endless probes in the industry has shown that the whole essence of the probes is either for interest protection or an attempt to benefit from the decadence that subsidy implementation in Nigeria has represented. At the moment, the Federal Ministry of Finance, FMF, appears to have won the battle for control of the implementation of the fuel subsidy regime over the Ministry of Petroleum Resources, MPR.

In effect, this signifies a substitution of old beneficiaries for new ones. This fact is brought closer home by the shambling work of the Aigboje
Aig-imoukhuede Presidential Committee which had to re-conduct its investigation a second time on the orders of President Goodluck Jonathan. In any case, in a country not short of industry experts,the technical competence required not to muddle figures or carry out a clear-headed audit of the subsidy regime, how did President Jonathan arrive at his choice? That Mr. President could order another audit with a seven-day ultimatum exposes the underbelly of the first committee to untidiness. One of the marketers who has been handed the armour of sainthood had earlier been frowned at by the Senator Magnus Abe Committee over subsidy funds collected. Yet, some interests are meant to be protected and are being protected.

In truth, government is at cross roads with fuel subsidy implementation because it is one scheme that can easily cripple the national economy given the huge funds being disbursed from the Excess Crude Account, ECA, and the lack of capacity to enthrone transparency under the scheme. While nothing has changed drastically with all the hype about plugging the abuses in the industry except the ministerial rivalries and power show created by the Federal Ministry of Finance’s hijacking the scheme from Ministry of Petroleum Resources, the beneficiaries have merely improved on the act of cheating under the scheme.

The role of the industry unions is also noteworthy. The unions have for long been beneficiaries; been used to work against removal of subsidy by some vested interests; and also being used to resist due verification of the subsidies, they are now crying wolf.

In the final analysis, the masses are the losers. Those referred to as constituting the cabal have been so empowered that they control more than 50% of the effective logistics for supply and distribution of petroleum products in Nigeria today. At the moment, the NNPC with the unparalleled corruption pervading the corporation, with its SWAP arrangement on crude, can not boast of handling up to 55% of the cargos consumed in Nigeria at an average of one cargo per day. Hence, the cabal, working effectively together, can bring the economy down on its knees if it chooses to.

Perhaps it is in realisation of this development that, oddly enough, it was the government of Olusegun Obasanjo, working with more sober individuals like Chief Rasheed Gbadamosi, began early in 2003 to pursue a policy of phased industry liberalisation with the ultimate vision to deregulate the industry.

Unfortunately, Obasanjo left without achieving the dream. His successor, Umaru Musa Yar’Adua, died while perfecting strategies for deregulation. Unfortunately; presently, the looting in the name of subsidy has continued.

At the moment, it would appear the government has no choice than to deregulate. The braggadocio to sanitize the industry of corruption is a sing-song that portrays naivety of the enormity of the issues and challenges in the downstream sub-sector.

When fuel subsidy was introduced, it was meant to be an interventionist mechanism and not an institutionalised programme of government. At the inception of subsidy regime, there were very few depots. Government literarily cajoled marketers to participate in the scheme. They entered the scheme and took advantage of it with government demonstrating lack of capacity to curb their criminal antics on the sea and at the jetties. They seized the subsidy opportunity to empower themselves and expand the scope of their business.

To demonstrate the veracity of this, a call for the balance sheet and business strength of most of the big players, pre and post 2006 would reveal the quantum, mega lift in volume and profit.

Similarly, the benefiting banks used the opportunity to post huge, stupendous profits into corporate and personal accounts. The balance sheet of most of the sponsoring banks and the massive capital inflow attest to the juicy nature of PMS importation per subsidy.

The fact remains that government needs to handle the issue tactically to ameliorate the suffering of the people. The implications of the cabal being at loggerheads with government could have serious multiplier effects such as reversing the gains of industry liberalisation, job and capacity collapse in the oil and banking industry.

The ultimate solution is deregulation because the rot in subsidy implementation is as sad as the fake and fraudulent claims that had been a tradition in the Petroleum Equalisation Fund, PEF, a scheme that had remained without a legally constituted board – might it be added, deliberately, for years.

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