• Why kerosene subsidy persists
17 February 2014, Lagos – The Nigerian National Petroleum Corporation, NNPC, has saved the country over $565 million through the crude swap and offshore processing arrangement since the business model commenced in 2010.
A document obtained by The Nation from a top official of NNPC, showed that the average premium paid per metric tonne, MT, on premium motor spirit, PMS, under the swap/crude exchange arrangement has remained stable at $81.28 through 2010 to 2013 while under the open account regime; PMS average premium paid per metric tonne has continued to increase. Under the open account regime, PMS average premium paid per metric tonne in 2007 was $70.02, which rose to $85.14 in 2008 and in 2009 to $87.50 and further to $116.50 in 2010.
The data showed that in 2010, $141,266,580.77 was saved from products import through swap/crude exchange arrangement. Under the open account regime, the premium was systematically growing every year due mainly to the variable market conditions that NNPC was exposed to. As a result of the development, the corporation has saved over $565,066,320 since the inception of the swap arrangement four years ago.
The document reads: “Under SWAP/Crude Exchange arrangement, NNPC allocates crude oil to reputable oil trading companies in exchange for the delivery of PMS, dual purpose kerosene (DPK) or any other petroleum product as may be required by Products and Pipeline Marketing Company, PPMC.
“The contract is based on the international market value of the petroleum products against the prevailing International market value of the Crude Oil. This is value for value arrangement; crude oil lifted versus products supplied. The value for value philosophy enshrined in the SWAP contracts is validated and tested on a regular basis, when reconciliation meetings are held between NNPC and the trading companies.
“Offshore Processing Arrangement (OPA/SWAP) arrangements enjoy presidential approval and their operations are governed by contractual agreement. Furthermore, the entire activities under OPA/SWAP were recently subjected to scrutiny by the House of Representatives Committee on Downstream with a verdict of clean bill of health returned.”
The most common means of pricing petroleum products internationally is by Platts European Marketscan Oil Publication. NNPC procures petroleum products cargoes mainly on free on board (FOB) basis; as a result, the supplier provides all necessary logistics for loading and delivery of the product on behalf of NNPC. Therefore, the basic components that are taken into consideration in deciding the premium are as follows: freight, insurance, financing (letter of credit L/C administration charges), port dues, interest, demurrage, trader’s margin.
The document also explained why the NNPC is continuing with kerosene subsidy despite claims by the Governor of Central Bank of Nigeria (CBN), Mallam Sanusi Lamido Sanusi of having evidence of presidential directive to its stoppage. The directive Sanusi refers to, according to the document, was not gazetted.
It said: “Household kerosene (HHK) inclusive and the statutory provision remains un-amended. Such approval must be through the means of a Gazette, the Honourable Minister of Petroleum Resources cannot change prices of petroleum products without a Gazette. Meanwhile, the directive was that “public announcement of this measure should be avoided” in direct contravention of the provision of Section 6 of the Petroleum Act.
“The directive on kerosene subsidy was never received in NNPC as posited by Mr. Sanusi. Rather the directive was communicated to the former Honourable Minister of Petroleum Resources – Dr Rilwan Lukman who could not communicate the directive to NNPC.
“There was also an intervening factor, the House of Representative Resolution in July 2011 barred the Honourable Minister of Petroleum Resources from deregulating the price of HHK even with the best of intentions and directed an increase in volume of HHK for the market and the sale of HHK at N50 per litre.”
*Emeka Ogwuanyi – Nation