A Review of the Nigerian Energy Industry

Confusion over retention of kerosene subsidy

Kerosene-queue09 February 2014,  Lagos – The failure by the Nigerian National Petroleum Corporation (NNPC) to implement a presidential directive removing the subsidy on kerosene has created confusion among the various stakeholders in the downstream sector, fueling suspicion over the continued retention of kerosene in the Petroleum Support Fund (PSF), THISDAY has gathered.

During his presentation last Tuesday at the Senate hearing on the non-remittance of oil revenue to the Federation Account, the CBN Governor, Sanusi Lamido Sanusi, had alleged that NNPC had failed to provide evidence of the presidential authorisation to buy kerosene at N150 per litre and to sell same at N40.90 per litre, whereas the product sells at between N170 to N220 per litre in the open market.

He said through the retention of subsidy on kerosene, the Federation Account was made to lose $100 million every month.

To support his claim, Sanusi said he had submitted to the Senate Committee on Finance, that was undertaking the probe, documentary evidence of a presidential directive eliminating the subsidy on kerosene since 2009, which was obtained by THISDAY.

But NNPC is insisting that it did not receive any presidential directive to stop subsidy payment on Kerosene. Media reports at the weekend quoted it’s acting Group General Manager, Public Affairs Division, Dr. Omar Farouk Ibrahim, as saying that NNPC did not receive any presidential directive to stop the payment of subsidy during Yar’Adua’s administration, and that if there was such directive, it was not communicated to it.

The directive came vide a letter from the late President Umaru Musa Yar’Adua, in which he actually directed the former Minister of Petroleum Resources, Dr. Rilwanu Lukman, via circular SH/PSP/24/A/219 dated June 17, 2009 to eliminate the subsidy on kerosene.

Titled “Endorsement of Action Plan on the Deregulation of the Downstream Petroleum Sub-Sector”, the directive was signed by the Principal Secretary to the late president, Mr. David Edevbie.

In the letter, the late president hinged the decision to remove the subsidy on kerosene on the fact that “subsidy payments by government on kerosene do not reach the intended beneficiaries”.

To avert a possible public protest against the decision, Yar’Adua in the letter further directed the Minister of Petroleum Resources that “public announcement of this measure should be avoided”.

But for inexplicable reasons, the then Minister of Finance, Dr. Mansur Mukhtar and Lukman, as well as NNPC and the Petroleum Products Pricing Regulatory Agency (PPPRA), took advantage of the illness of the late president to flout the directive and continued the importation of kerosene under the guise of protecting the interest of the masses.

An industry source further explained to THISDAY that Yar’Adua’s directive was not dissimilar to one given by former President Olusegun Obasanjo when he deregulated the price of diesel.

Obasanjo had issued the directive but ensured it was not made public to prevent a backlash from the public. The difference, however, was that Obasanjo’s directive was carried out to the letter, while that of kerosene was subverted.

The source said: “Those in government at the time flouted Yar’Adua’s directive on kerosene, as it is not sold anywhere at the subsidised price of N50 per litre but sells for anywhere between N125 and N150 per litre.”

Ever since, he said NNPC had continued to import kerosene and allocate it to individuals and groups at the ex-depot price of N40.90 to the detriment of the masses, who pay at deregulated prices for a supposedly regulated product.

As such, he explained that NNPC incurred huge claims on petrol and kerosene subsidies and by the time total claims by both private mawrketers and the NNPC for subsidies in 2011 shot up to over N1.7 trillion against the budgeted N286 billion, this triggered the alarm raised by Senator Bukola Saraki, who called for an investigation.

Even when the federal government announced in October 2011 that it would deregulate the prices of petroleum products by 2012, the current Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, shortly after the government’s announcement, told the Senate Committee on Gas Resources that the government would not remove the subsidy on kerosene in its planned deregulation of the petroleum industry.

She said the proposal to exclude kerosene from the list was because the product remained the domestic fuel in most homes in Nigeria, adding that there was no ready alternative to kerosene.

“In looking at deregulation there were two aspects, of course, petrol and kerosene, and without going into the robust discussion about it, I just wanted to say for the record, because at the discussions with Mr. President, we agreed that we could not in good conscience deregulate kerosene or DPK at this time,” she said at the time.

Despite her position, the federal government still went ahead to fully deregulate on January 1, 2012 and also failed to make a provision for the payment of subsidies in the 2012 budget, an indication that the kerosene subsidy was also eliminated.

A nationwide public protest, however, forced the government to reverse itself on deregulation and the price of petrol was pegged at N97 per litre, while that of kerosene was retained at N50 per litre

In line with its decision to subsidise petrol and kerosene, the Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, had to submit a supplementary budget of N881 billion to subsidise kerosene and petrol in 2012.
Similarly, a provision of N971 billion was made for subsidising petrol and kerosene in the 2013 budget, while the same amount was retained in the 2014 budget.

However, owing to the confusion over whether kerosene was deregulated or not, importation of the product, according to a private marketer, remained a “no-go area” with the NNPC remaining the sole importer, while other marketers have avoided it.
With NNPC being the sole importer, this has created artificial scarcity of the commodity, enabling those who get kerosene allocations to sell to end-users at well above the official price of N50 per litre.

Meanwhile, former Lagos State Governor and national leader of the All Progressives Congress of Nigeria (APC) has described the Jonathan led-government as one that routinely abuses power and manipulates the people.

Speaking as the special guest of honour at the NG Annual Dinner in Lagos at the Muson Center Thursday night, Tinubu went to great lengths to draw a distinction between the PDP and the APC.

He was unsparing when he blamed the Jonathan-led PDP government as one spinning recklessly out of control in terms of spending, corruption in the oil sector and other slush funds channelled through government programmes to fill the pockets of party loyalists.
Tinubu noted that Nigerians were yet to get a satisfactory explanation on the 400,000 barrels per day that is stolen, adding that the NNPC has been converted into an ATM.

“Like I have maintained previously, the SURE-P (Subsidy Re-investment Programme) is a drain pipe, a slush fund for political patronage. For instance, the N253.5 billion alleged to have been spent on projects by the federal government as at December 2013 is not reflective in the lives of ordinary Nigerians. “In 2012, about N180 billion accrued to the Federal Government in SURE-P alone,” he said.

Continuing, he observed that “under the heavy weight of corruption, heavy dose of insecurity, the ticking time bomb of youth unemployment and a near total absence of institutional rationalisation, Nigeria under President Jonathan clutches on like a battered engine in need of a complete overhaul. In fact, a change of engine”.


– Ejiofor Alike, This Day

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