Petroleum Subsidy: What Corruption has made of it...

More than one year budget has been lost to
sleaze in the last nine years
How we are subsidizing dishonesty in the
petroleum sector
Once we refine to meet our local needs,
importation will stop and subsidy claims will
end
BY SONNY ATUMAH
INTRODUCTION
Nigeria has been entrapped by subsidy since
2011 when the Federal government envisioned
the idea of subsidy removal. The regime of
subsidy on petroleum products had been
fraught with dishonesty or fraud as the case
may be.
The argument had been whether Nigeria should
jettison the subsidy scheme which had become
a tube to siphon funds from the Nigerian
commonwealth.
Between 2006 and 2014, over N7 .5trillion was
paid out as subsidy claims by the Federal
Government.
Funds for infrastructural and human capital
development have been frittered on the utter of
subsidy claims and payments to less than 40
corporate citizens in Nigeria.
As the administration of Muhammadu Buhari
took office yesterday with enthusiasm, it is
expected that this issue be addressed head-on
for overall benefit of the Nigerian people
WHAT IS SUBSIDY?
Subsidy in economics is the money paid by a
government or an organization to reduce the
cost of services of producing goods so that their
prices can be kept low. It is to reduce the
market price of an item below the cost of
production. It is also called subvention.
It is economic benefit (such as tax allowance, or
duty rebate), or financial aid (such as cash
grant or soft loan), provided by government to
support a desirable activity (such as exports) to
keep prices of staples low, maintain the income
of producers of critical or strategic products,
maintain employment levels or induce
investment or reduce unemployment.
Subsidy anywhere is a cushion; to enhance the
welfare and wellbeing of the people. We have
subsidy all over the world; both in the more
developed and least developed countries. In the
more developed countries like the United States,
UK and other EU countries, China, all have
subsidies in one form or the other for her
citizens.
FOR SUBSIDY IN THE US
The Weatherization Assistance Programme of
President Jimmy Carter in 1977 has reduced
heating bills for more than 5.5 million low
income American families by 31 percent. That
is subsidy.
Subsidies in the United States range from tax
credit to free parking, registration, special lane
use or cash. The United States offer consumer
subsidies to purchasers of hybrid and electric
cars. Drivers get up to $7500 credit. Automobile
companies like GM, Ford and Chrysler have
been encouraged through subsidies to produce
and sell E85 (Flexible fuel) Vehicles that run on
gasoline (85 percent) and ethanol (15 percent)
blends.
Nearly 10 million flex fuel vehicles have been
sold and the government has tax credit as
subsidy for producers and users. Corn farmers
in the Mid-west states are being encouraged to
produce more for the ethanol content of Flex
fuel/E85. Agriculture in the US is highly
subsidized to encourage farmers and also to
reduce the cost of farm produce for her people.
In Canada, subsidy for the use of Electric
vehicles attract 8600 dollars subsidy.
IN THE UK
One must point out this fact that the UK,
housing, education, health and transportation
are subsidized for her citizens. The various
council flats and mortgages are to protect the
people. The UK government in her recent
immigration laws made sure that citizens are
protected. If you are an immigrant for the
purpose education, you are not allowed to seek
employment. This is to reduce the level
unemployment for her citizens. Drivers are to
get 5000 pounds electric car subsidy from
government if they buy electric cars. That is
subsidy.
SUBSIDY ON PLUG IN ELECTRIC VEHICLESIN
EUROPE
In Europe, the need to reduce the use of liquid
fossil fuels has made the various governments
especially the Organisation for Economic
Cooperation and Development (OECD) members
to subsidise the use of Plug in electric vehicles.
In France subsidy is up to 2000 euros and free
parking; Germany-exemption from annual
circulation tax for five years; Italy-75 percent
reduction of tax rate; Spain-6000 euros tax
incentive; Netherland-exemption from
registration fee and road taxes amounting to
5324 euros over four years.
ASIA
In China, Plug in electric vehicle, there is
exemption from taxes up to 7634 dollars while
in Japan, it is between 2000 and 9000 dollars.
THE REFINERIES AND HOW WE GOT WHERE
WE ARE
As we discuss subsidy it is imperative we know
where we are coming from to determine the
right step forward. In the 1990s we started the
importation of petroleum products into Nigeria
as a result of inadequate maintenance of our
four refineries. Our refining capacity went
down to near zero that we had to rely wholly
on importation of products.
1. Port Harcourt Refinery: Constructed in 1965
by Shell/BP with a refining capacity of 38,000
barrels per day. It was expanded after the civil
war to 60,000 barrels per day. Report on this
refinery is that it is old and practically dead.
2. Port Harcourt Refinery 2: It was an
expansion of the old one in 1989 with a
refining capacity of 150,000, bringing the
total to 210,000 barrels per day. It was
conceived as an export refinery to
produce Premium Motor Spirit (PMS or
petrol), Dual Purpose Kerosene (DPK),
Automotive Gas Oil (AGO). Specialty
products were Liquefied Petroleum Gas
(LPG), Jet Fuel etc. Recent report on the
facility is that of poor maintenance,
unreliable for uninterrupted domestic
production of products even at best of
times.
3. Warri Refinery and Petrochemical
Company Ltd: Constructed in 1978 for a
refining capacity of 125,000 barrels per day.
Report is not different from others. It has a
history of corrosion problem, frequent shut
down and the petrochemical section is
comatose.
4. Kaduna Refinery and Petrochemical
Company Ltd: The Refinery came on stream in
1980. It was to produce LPG, PMS, DPK, AGO,
Fuel Oil, Sulphuric acid, lube base oil, wax,
asphalt, urea, powder and liquid biodegradable
detergents, etc.
With a combined refining capacity of 445,000
barrels per day, we can get the following
products when we refine locally- 47 percent
comes out as PMS amounting to about
33,204,654litres; 10 percent comes out as DPK
amounting to about 7,064,820; 23 percent comes
out as AGO amounting to 16,249,086. There is
other by products and derivatives like propane
(4 percent); asphalt (3percent)and
petrochemical feedstock (18 percent). The total
is 105 percent because there is a five percent
gain when we refine.
SUBSIDY IN NIGERIA
Two products for our subsidy examination are
PMS and DPK. The DPK in question here is the
house hold kerosene (HHK) and not the second
component, the aviation turbine kerosene
(ATK). These products are the ones in
contention in Nigeria.
It was reported that between 2006 and 2011, the
Federal Government spent N3.655 trillion on
PMS and DPK subsidy. In 2011 alone, N1.3
trillion was paid; revised to 2.19 trillion with
the arrears paid in 2012 by the Ministry of
Finance. In 2012, N888 billion was allocated for
subsidy; N161.6 billion was also approved in a
supplementary budget submitted by the
President and passed by the National Assembly.
In 2013, N971 billion was budgeted for subsidy;
N832billion was released. In 2014, N971 billion
was budgeted; N414 billion was released. In the
2015 budget, N143 billion was budgeted for PMS
(N100billion) and DPK (N43 billion). N154
billion was recently released to marketers..
N1.35 trillion was as DPK between 2012 and
2013. Between 2006 and 2014, over N5.63
trillion was paid out as subsidy claims by the
Federal Government .Technically more than
one year’s budget had been lost to sleaze in the
last nine years.
What are we really subsidizing? We are
subsidizing dishonesty in the petroleum sector.
In August 2011, the Petroleum Products Pricing
Regulatory Agency (PPPRA), claimed that the
landing cost of a litre of petroleum was
N129.22; margin for transporters and marketers
was N15.49; with the expected pump price put
at N144.70 while the official pump price was
N65. Government increased the pump price to
N140 and with protests and resolutions, it
settled at N97 per litre.
Government enquiries that followed the protest
proved some of us right. The Farouk Lawan
Committee of the House of Representatives that
investigated the operations of the downstream
operations unraveled the rot in the sector. We
all watched with amazement the discordant
tunes over quantities imported and amounts
approved and paid as subsidy by the operators.
At present the pump price is N87 per litre.
Pricing of petroleum products depends on the
vagaries of the market. It is a roller coaster
business characterized by sudden, extreme, and
often repeated changes. We neither determine
the supply nor the demand side of the market.
The middlemen in the supply chain that the
Nigerian National Petroleum Corporation
(NNPC) ‘employ’ are business men and women
who invest to reap profit by whatever margin
they decide. They are not more than 40 in
number.
AGAINST SUBSIDY
Arguments have been put forward against
subsidy in Nigeria. Some of us have been acting
on the spur of the moment that since there is
this artificial scarcity to hoodwink us we should
stop subsidy. It is the fraud we should stop. We
say this because we provide our water,
electricity and most other basic needs the state
should provide.
A former British Prime Minister, Mr. Tony Blair
recently asked President Buhari to remove
subsidy on petroleum products in Nigeria. That
advice was quite unsolicited for; coming from a
former leader of Britain, where the less
privileged are adequately protected with all
sorts of subsidies. Nigerians have been bruised
and battered without adequate health care,
institutional and infrastructural decay that
need upgrading.
I wish to remind Mr. Blair that Nigeria ceded
the oil rich Bakassi Peninsula on the utter of
Green peace agreement because people like
him could not offer advice to Nigeria when it
mattered most.
REFINING AS SOLUTION
We should have a holistic approach to the
problem. Rehabilitating and upgrading our
refineries could prove the magic wand. Once
we refine to meet our local needs, importation
will stop. When we stop importation, subsidy
claims would naturally be a thing of the past.
Let us give ourselves a six-month period to
work on our refineries, thereafter, we stop
importation. Let us not mothball our refineries
as it is happening to some refineries in Europe.
There is a large market for petroleum products
in West Africa. Refining locally can bring down
the price of products in Nigeria as it is in these
countries that are petroleum producers:
Venezuela (6cents a gallon); Saudi Arabia (45
cents a gallon)
For now, we need to eliminate the middle men
that have taken us on this circus journey.
Before our refineries come on stream, let the
NNPC import products directly and let us know
exactly what we consume and what we pay.
CONCLUSION
If Nigeria must get it right, we should refine
locally to stop the corruption and issue of
subsidy in the petroleum sector. That we spent
N7.5 trillion in nine years on subsidy is not
good commentary. There is subsidy all over the
world and it acts as a cushion for the less
privileged in the society. Nigeria’s has not been
well managed, resulting to the massive
corruption now threatening our lives. That’s
why people are calling for the end of subsidy.
Our final solution is in refining to meet our
local needs.
Sonny Atumah is a member of the Middle
East Petroleum Club
Email: satumah@yahoo.com