The Nigerian Senate yesterday Tuesday 16 October began an investigation into an alleged $3.5billion spent under the ‘Subsidy Recovery Fund’ of the Nigerian National Petroleum Corporation (NNPC).
A bi-monthly report on the state of Nigeria’s economy prepared by Lagos-based economic research and analyses firm, Financial Derivatives Company (FDC), was the inspiration for the probe.The report said with the rising price of crude oil at the international market, petrol subsidy should be about $3.85 billion.
The October 2018 edition of the report released yesterday in Abuja explained that Nigeria’s low refining capacity continues to deny her the benefits of rising oil price as it is forcing the government to subsidize the import of refined fuel from abroad. Oil price inched up $85 in the global oil market in recent times.
The report indicates the amount of financial subsidy Nigeria currently absorbs to keep petrol pump price at the government rate of N145 per litre had gone up to about N65.6k.
The surge followed the increase in landing cost of a litre of petrol to N196.3k, which when added to the N14.3k which is charged as distribution margin in the pricing template of the Petroleum Products Pricing Regulatory Agency (PPPRA), would amount to an open market price per litre of petrol of N210.6k and not the N145 the government pegged it.
In its analysis, FDC said: “Rising crude oil prices are set to send Nigeria’s bill for fuel subsidies rocketing, threatening to exacerbate the already precarious economic situation” of Nigeria adding that “The government has to make a decision of whether to increase fuel ,prices domestically,” in order to ease its subsidy burden.
But the Buhari administration having adjusted the pump price earlier in its administration from N87 to N145 on removing the “subsidy scam” is reluctant to admit that itself has been indulging in subsidy activity under the guise of ‘subsidy recovery fund’, and unwilling to contemplate any price increases due to the political costs in an election year.
Jubril Kareem, an energy analyst at Ecobank, explained that at the moment, no one knows exactly what the NNPC pays itself for such under-recovery, adding “NNPC is just too big a company, and the opaqueness of the operations is actually aided by its own structure. It produces crude, buys crude, sells fuel as well as regulates itself.
“At least before, we knew what NNPC was paying in subsidy (because of monthly reports that the NNPC no longer regularly issues). Now you don’t know that. You would understand why a government would want to keep it that way.”
The report reiterated that petrol subsidies have long been the subject of abuse and corruption and that it equally encourages smuggling into neighbouring countries which include Cameroon and Benin, where fuel can be sold for twice the price, and even more as international oil prices rise.
It was on the basis of this report that the Senate Minority Leader, Senator Biodun Olujimi, raised her point of order in plenary yesterday..
The Senate Minority Leader said, “I bring before this chamber this very important issue of national importance. It has to do with an article published in today’s ThisDay newspaper and it deals with the $3.5billion earmarked as subsidy recovery funds by the NNPC.
“Mr. President, since 1999, there has always been a budget for subsidy, however, this has been jettisoned by the current government, which leaves this administration in a very dire strait.
“What is happening now is that there is a fund named the ‘Subsidy Recovery Fund’ and it is being managed by only two individuals in the NNPC: the Managing Director and the Executive Director on Finance.
“This fund is too huge for two people to manage, and right now, the $3.5billion is too huge to be managed without appropriation without recourse to any known law of the land.
“You remember Mr. President that following the passage of the budget, you mentioned in your remarks, that there should be a budget for the subsidy and it should be brought before the National Assembly — that has not been done.
“What has happened is that by the report of ThisDay newspaper, it is almost certain that $3.5billion is a slush fund which is just being managed by just two individuals — and that is not correct.
“I want to urge the Senate to cause the Committee on Downstream, Chaired by Senator Marafa, to compel the NNPC to come before the Senate Committee and explain why this is so. Nigerians need to know what has happened to the funds that have been used so far — and the new terminology that is being used under subsidy recovery,” Senator Olujimi said.
Responding, the President of the Senate, Dr. Abubakar Bukola Saraki, reminded the Senate that he had called for the executive to submit its petroleum subsidy budget to the National Assembly when the 2018 budget was passed in May.
“Distinguished Colleagues, when we passed the budget, I said that there was a need for the executive to bring forward the budget for the subsidy.
“In light of the enormity of the issues before us — where we are talking about a subsidy of almost $3.5billion — I would like to direct that the Senate Leader and the Chairman of the Committee of the Downstream, should urgently summon those in NNPC who are responsible for this. We must look into this matter and report back to the Senate plenary by next week, where the Committee will have a report that we can debate.
“On this issue, I do not want us to be speculative. Let us go by the facts, so that our contributions are not seen to be partisan. This matter is too serious for us to be partisan about it.
“A lot of us have been around long enough to know how this matter should have been treated. Now, it has gotten to a level where it involves over $3billion — which is not a small amount of money.
“With the leave of my colleagues, if we all accept, we direct the Leader and the Chairman of the Downstream Committee, to look into this matter and report to the Senate by next week,” the Senate President said.
