International probe brings subsidy scam to light, again

EFCC Nigeria*Fraudulent payments cost Nigeria $7bn annually – National Assembly

Oscarline Onwuemenyi

06 November 2014, Sweetcrude, Lagos –
Fresh facts are emerging over the subsidy scam that erupted in the country a few years ago and the missing billions from subsidy payments on importation of petroleum products. This is as investigations by the Economic and Financial Crimes Commission (EFCC) and Swiss prosecutors is shedding more light on the nature of some shady oil deals involving some government agencies and international oil commodity traders.

The investigation, according to officials of the anti-graft agency who spoke to Sweetcrude Reports in Abuja, concerns allegations of a multibillion-dollar subsidy racket inside the Nigerian National Petroleum Corporation, NNPC, which may partly explain the huge shortfalls in what the nation is earning from its crude. Despite consistently high international prices, Nigeria’s income from oil has been declining sharply, putting pressure on state finances, foreign reserves and the naira, the local currency. The scale of resulting shortfalls is only partially explained by fluctuations in oil production and direct theft from pipelines.

It should be recalled that the former Governor of the Central Bank of Nigeria (CBN), Mallam Lamido Sanusi was dismissed unceremoniously by President Goodluck Jonathan in February after insisting that as much as $20 billion of state oil receipts may be missing.

Huge shortfalls in oil revenues, which typically account for more than 70 per cent of government revenue, have periodically come to light in Nigeria. However, the sums involved in the governor’s allegations dwarf previous controversies and come as the broader economy is drawing unprecedented attention from global investors.

The system of fuel-import subsidies, which are supposed to be passed on to consumers of petroleum products in the country, is opaque and rife with “endemic corruption,” according to the April 2012 report from the National Assembly. Two months later, President Goodluck Jonathan dismissed the Group Managing Director of the Nigerian National Petroleum Corporation after the report said the state oil company, the country’s biggest fuel importer, received illegal fuel-subsidy payments.

Swiss prosecutors working with the EFCC have reportedly contacted commodity traders including Gunvor Group Ltd. and Vitol Group as they assist a Nigerian investigation of an alleged multi-billion dollar scam over subsidy for oil-product imports.

This is the latest action since a report by Natural Resource Governance Institute (NRGI) and other agencies a few months ago revealed that National Oil Companies (NOCs) in sub-Saharan Africa are selling oil in shadowy deals.

The NRGI report in July observed that, “A handful of companies are buying public oil that’s worth 10, 15 or 20 percent of government revenue and only a very small circle of insiders know about the transactions,” said Alexandra Gillies, head of governance programs at NRGI and one of the authors of Big Spenders: Swiss Traders, African Oil and the Risks of Opacity.

“We knew Swiss traders did big business in Africa, but the scale of these deals still came as a surprise,” said Gillies.

The report added that health expenditures of the government across the ten countries from 2011 – 2013 were less than half the amount the Swiss traders paid.

The authors of the research further stressed that local producers lack of many of the checks and balances needed to safeguard the public interest, citing the 2013 Resource Governance Index, which ranks Nigeria, Cameroon, Angola, Equatorial Guinea and South Sudan in the bottom third of the 58 resource-rich countries assessed.

While the report recommends that oil-producing governments and NOCs should shun favoritism in the selection of buyers and determination of the selling price, and also disclose how the state’s share of production is allocated and sold, it maintains that the transactions between African governments and Swiss companies deserve attention “because they are vulnerable to governance risks.”

Furthermore, the report noted that the Swiss traders are also involved in broader poor governance and corruption. Gunvor is currently being investigated for money laundering in relation to its purchase of crude worth $2 billion from the Republic of Congo’s NOC at a discounted price of $4 per barrel.

In Nigeria, Africa’s largest economy, government and independent reports suggest that the country’s state-owned operator, Nigeria National Petroleum Corporation (NNPC) has sold crude below market value to its subsidiary based in Bermuda, Calson, where Swiss firm Vitol holds 49 percent stake.

According to the report, NNPC also sells to some entities referred to as “briefcase traders,” some of which are controlled by politically exposed individuals. Other Swiss traders listed in the research have also been indicted in one ‘shady’ deal or the other.

A source at the EFCC confirmed to our correspondent in Abuja that the commission was investigating the shady oil deals and was working with international agencies and officials of the Swiss government to uncover the extent of the scam.

The Swiss arm of the investigation is being handled by the Geneva prosecutor’s office, said spokesman Henri Della Casa. “The Geneva prosecutor has acknowledged Nigeria’s request for assistance and is moving forward with an investigation,” Della Casa said.

Governments of about ten countries in sub-Saharan Africa, including Nigeria, Ghana, Cameroon, and Angola were considered in the research by NRGI, the Berne Declaration and SWISSAID.

Swiss traders including Glencore, Arcadia, Mercuria, Gunvor, Trafigura, Vitol and Socar Trading bought oil worth approximately $55 billion from NOCs in the top ten sub-Saharan oil-producing countries from 2011 to 2013.

The sum, according to the report, is equal to over 10 percent of the combined government revenues of the countries considered, and double what they received in foreign aid. Oil worth $37 billion was bought from Nigeria by Swiss companies over the three years considered in the report. The amount is equal to over 18 percent of the country’s revenues.

Vitol Group, the world’s largest oil trader, has been contacted by Swiss authorities regarding product imports to Nigeria, according to a person with knowledge of the matter.

“Conversations with government authorities are confidential,” Fabian Gmuender, a spokesman for Amsterdam-registered Vitol, which has major trading operations in London and Geneva, said in an e-mailed statement. “Vitol cooperates with all relevant authorities in all jurisdictions in which we operate.”

Gunvor, the fifth-largest independent oil trader also said the firm was notified by Switzerland’s Attorney General that it was assisting a probe by Nigeria’s Economic and Financial Crimes Commission (EFCC) of fraud involving local fuel involving local fuel importers.

“The Swiss authorities have requested from Gunvor assistance in gaining understanding about product trading in Nigeria, Seth Pietras, a Geneva-based spokesman for the commodity trader, said in an emailed response to questions.

He added that Gunvor has provided documentation to the Swiss prosecutor since first being contacted on the matter five months ago.

Cyprus-based Gunvor is “happy to comply,” said Pietras, adding that, so far, no raids have taken place at the trading house’s Geneva offices.

A development that however cast a shadow of doubt on a stop to the opaque deals anytime soon is that the Swiss government a few months ago indicated that trading activities that dominate the Swiss commodities sector would be exempted in its forthcoming legislation on transparency.

“The Swiss government has acknowledged the risks that the sector poses for Switzerland’s reputation and the importance of transparency,” said co-author of the report, Marc Guéniat, Berne Declaration senior researcher.

Guéniat laments that instead of working to stop the opaque dealings, Switzerland is proposing a bill that does little to guard against its trading companies’ contribution to the ‘resource curse’.

The researcher stressed that Africans need to know about how much of their resources is being sold by the government and how much the government earns in return.

Another co-author of the report, Lorenz Kummer, who is a policy advisor with SWISSAID therefore urged Switzerland to as a matter of urgency take steps to ensure all trading-related payments to governments by Swiss traders are disclosed.

“This should include, among other aspects, the volume, grade, date and amount paid for each individual purchase. Otherwise, huge revenue flows like the ones discussed in our report will remain secret,” said Kummer.

On the Nigerian end, it would come as an encouragement that the nation’s once most prominent and most recognizable agency in the fight against graft and economic crimes is finally waking up to its responsibility to tackle the wanton corruption that has bedeviled the subsidy payment process.

To this day, the EFCC has remained surprisingly nonchalant and mute over the mind-boggling allegations of more than $620,000 bribery that rocked the House of Representatives committee, which had originally set out to investigate the gross mismanagement of oil subsidies by several government agencies and oil and gas companies in the country. The Commission has assumed a wait-and-see approach even as the drama of the bribe allegation plays out on the political theatre.

Furthermore, no action has been taking by the Commission, nor any government agency for that matter, on the report of the House Ad hoc Committee, which revealed that over N1.06 trillion was paid out to companies and the Nigerian National Petroleum Corporation (NNPC) under questionable circumstances.

But, maybe, things are about to change and Nigerians can begin to see corrupt public officials and oil marketers brought to justice. So far, Nigerians can only hope.

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