03 July 2012, Sweetcrude, ABUJA – IN continuation of its recommendations for efficiency in the Nigerian fuel subsidy scheme, the Technical Committee on Payment of Fuel Subsidies set up by the Nigerian government on February 28, 2012 and headed by Mr. Aigboje Aig-Imoukhuede, Group Managing Director/Chief Executive Officer, Access Bank Plc, says:
•That PPPRA should create a template for quarterly capacity assessment of oil marketing and trading companies using various factors such as performance history on previous allocations, financial capacity, ownership of storage facilities and retail outlets, genuineness of previous subsidy claims, submission of bank guarantees, etc. The outcome of this quarterly capacity assessment must be used as a basis for import allocations to oil marketing and trading companies.
•PSF guidelines must be strengthened to make key participants (both operators and regulators) personally responsible for any violations of the guidelines, including criminal acts.
•PPPRA suspends oil marketing and trading companies that are unable to deliver their allocated quantity of products within the validity of the allocation from the PSF scheme to ensure that only companies with the proven capacity to deliver are given allocations.
•PPPRA stop the payments of subsidy where violations of the PSF guidelines are detected. In addition, oil marketing and trading companies must comply with the guidelines going forward.
•Only oil marketing and trading companies that meet the eligibility criteria set in the guidelines for the administration of the Petroleum Support Fund should be given allocation to import products by PPPRA.
• PPPRA should use effective vessel tracking tools such as the Lloyds intelligence list to verify the status and location of the vessels supposedly used to import petroleum products and to compare such information with the details on bills of lading presented by oil marketing and trading companies as part of the documentation for their subsidy claims.
•Federal Government should appoint an independent expert to advise the country on which of the following methods to use as the basis of determining the conversion factor from metric tonnes to litres used to compute the volume of imported products for which subsidy is paid:
GOV – Gross Observed Volume
GSV – Gross Standard Value
A fixed conversion factor
The PSF Guidelines should be amended to compel the PPPRA to use the method determined above for computation of subsidy payments. Staff of all government agencies and oil marketing and training companies involved in the discharge of products should be trained on the method determined above. This will eliminate manipulation of the volume of imported products for which subsidy should be paid.
•The Committee recommends that Government should put in place a funding mechanism that would ensure that funds are set aside (by all tiers of Government or the Federal Government) to meet amounts appropriated for subsidy, should the Government decide to continue the subsidy regime.
•That the Federal Government should put in place a mechanism for reimbursing NNPC on a timely basis to ensure that monies due to the Federation Account are remitted without unauthorised deductions. In addition, an independent auditor or an independent standing Committee should re-confirm the PPPRA’s subsidy computation for NNPC before payment.
•Government should take appropriate steps to document and legalise the process for payment of NNPC’s subsidy claims in a transparent and unambiguous manner in view of the significant financial impact of the NNPC subsidy payment process on the finances of the nation.
•Relevant Government agencies such as PPPRA and DPR in line with their mandates as regulators and others such as the Ministry of National Planning, Federal Bureau of Statistics, etc., using the information at their disposal on locally refined, imported and stored volumes of petroleum products should be mandated by Government to continually determine the nations’ daily consumption levels of petroleum products independent of the industry operators.
•In line with the PSF guidelines, PPPRA should verify and keep records of evidence of sales and distribution of petroleum products within Nigeria by operators under the PSF scheme (private and public).
•The Committee recommends that NNPC’s roles in the downstream petroleum industry in the import, refining, storage, supply, distribution and retailing of petroleum products be regulated appropriately by the existing regulatory agencies in the industry i.e. PPPRA and DPR.
Quantity of products
Specifically, PPPRA must regulate and determine the quantity of products to be imported by NNPC in line with its mandate as stated in the PSF guidelines. All importation of products by NNPC (within or outside PPPRA approved quotas) must be approved by PPPRA. This will prevent a repeat of the uncontrolled importation of petroleum products beyond the country’s requirement that occurred in 2011.
•The Committee recommends that in order to stop paying huge subsidies for kerosene that are financing “rent” for middlemen and not benefitting its citizens, the country must decide on at least one of the following options in the short run:
•Deregulate the local pricing of kerosene i.e. eliminate subsidy on kerosene. •Allow both private importers who meet the eligibility requirements of the PSF guidelines and NNPC to import kerosene and pay kerosene subsidy under the PSF (as currently obtains) with the role of private importers in the distribution of the product monitored properly by PPPRA and OPR . •Restrict NNPC’s local distribution to only groups that own significant retail outlets i.e. MOMAN, IPMAN and NNPC Retail at the approved ex-depot price of N40.90.
In the long run the option of using cooking gas should be explored. It is expected that the cost of subsidising kerosene would be saved if more Nigerians embrace the use of LPG. In addition, the Committee is unable to recommend payment of subsidy claims on OPK in view of the extant presidential directive of June 15, 2009.
•The Committee recommends that OMO, CBN, PPPRA and the OAGF should reconcile all outstanding SONs. In addition, all four agencies should set up a quarterly reconciliation process of their respective positions on outstanding SONs to eliminate the occurrence of “open” positions and to prevent abuse.
The outcome of each reconciliation exercise should be submitted to the Federal Ministry of Finance, OMO, CBN PPPRA and the OAGF.
•The Committee recommends that accounting best practices should be adopted by NNPC to enable separate audit trails of sales proceeds of imported and locally refined petroleum products and to determine the cost of domestic refining of petroleum products. •The Committee recommends that PPPRA should stop the practice whereby multiple mother vessels discharge into a stationary mother vessel before discharge to daughter vessels in Nigeria.
•The Committee recommends that PPPRA should revert to using CBN rate plus one per cent (CBN commission) and 50kobo (maximum bank spread allowed by CBN) as the basis for exchange rate computation in its template. The excess payment of N14.021 billion is based on the use of one per cent instead of 50kobo as bank spread should be refunded by the affected oil marketing and trading companies. For oil marketing and trading companies that have genuine claims for exchange rate differentials, the excess funds paid to them can be used to offset such claims after verification.
•The Committee recommends that PPPRA should review and obtain appropriate approvals for the inclusion of the $10 “trader’s margin” in the computation of exchange rate in its template. The excess payment of N17.037billion based on the inclusion of I $10 “trader’s margin” should be refunded by the affected oil marketing and trading companies. For oil marketing and trading companies that have genuine claims for exchange rate differentials, the excess funds paid to them can be used to offset such claims after verification.
Standard electronic archiving system
•The Committee recommends that a standard electronic archiving system should be installed by PPPRA to manage the large number of documents associated with the processing of subsidy payments. •The Committee recommends that PPPRA should collate an authorised signatory booklet containing the names and signatures of every person authorised by the various parties involved to sign all documents associated with the processing of subsidy for petroleum products. This will enable the authentication of these documents and confirmation that they were appropriately signed.
•The Committee recommends that PPPRA should build additional controls in the analyzer and ensure that the identified key-man risk is mitigated. •The Committee recommends that PPPRA should place less reliance on the use of photocopies of documents for the processing of subsidy payments and where possible, PPPRA should insist on original documents.