The controversial and highly wasteful petroleum subsidy regime in Nigeria will come to a quick end soon following Monday’s crucial meeting between Acting President Goodluck Jonathan and his economic management team (NEMT), government sources told BusinessDay last night.
It was his first meeting with the NEMT as acting president and presidency sources say the entire meeting was devoted to the petroleum subsidy question which has become the sign post of corruption and waste in government. Government accounts show that more than N1.2 trillion was paid out in subsidy between 2006 and 2008 and estimates for 2009 alone put the figure at N600 billion and now some in government believe that “unwholesome practices on the part of importers and other collaborators result in subsidy claims being much higher than it should actually be.”
One senior presidency source said “there is no question of government allowing this waste to continue and it is now simply a matter of when and how the subsidy regime will fall. Following the meeting with the economic team on Monday, the acting president, on the weight of the evidence, opted to hold quick consultations with key stakeholders like labour and it is expected that a major policy reversal will be announced after the consultations.”
He said it was because of the enormity and urgency of the subsidy issue that the meeting was devoted entirely to the matter and given that it was the first meeting Jonathan was having with the team in his new capacity as acting president. According to the presidency official, “Nigerians would have to be told the full story of this subsidy mess and the government expects that success in briefing the citizens fully should prepare their mind for the policy reversal that will follow and it is in the light of this that the acting president is holding the consultations.”
Some of these mind boggling facts now at the disposal of government show that the club of refined product importers has clearly been kept deliberately small – about 12 independent importers outside the NNPC – which routinely accounts for the importation of around 60 percent total imports, raising questions about tendering efficiency and corruption.
Strangely, the pricing template enforced by the PPRA ensures that a margin of 19 percent is guaranteed to marketers and there have been questions about the competence of the PPPRA especially in the light of corruption charges in the past.
The ring of inefficiency and corruption runs through the entire value chain whether it is local refining which is never able to produce more than 10 percent of daily domestic consumption or freight and storage which create massive holes in government pockets, guaranteeing for well connected businessmen and their agents in government hefty profits.
According to the PPPRA pricing template, 65 percent is allocated to the cost of the product, 5.75 percent to freight alone and another 5.13 percent to the controversial item called lightering while storage takes a hefty 4.18 percent and jetty as well as NPA fees getting 1.12 percent and 1.62 percent respectively. Financing is allocated 0.72 percent and margin to marketers a whopping 18.41 percent probably one of the highest in the whole world.
In 2008 alone, the sum of 113 billion was expended on demurrage cost on imported petroleum products. In the same year, the entire premium motor spirit (PMS) refined locally was 1.623 billion litres while 7.701 billion litres of PMS were imported by NNPC and other marketers. In the year 2007, because the refineries were working at their lowest capacity, the quantum of their contribution to local supply had dwindled to 356 million litres of locally refined PMS while 9.867 billion litres of PMS were imported to the country by NNPC and other marketers. Last year, 2009, 1.227 billion litres were refined locally with 10.867 billion litres imported.
The big challenge for the government, according to BusinessDay sources, has to do with the integrity of these numbers on which subsidy amounting to hundreds of billions of Naira are paid on a yearly basis and whether such opaque system should be sustained.
One official recalls “that as a member of the Nigeria Extractive Industries Transparency Initiative (NEITI) between 2004 and 2007, a civil society member once described our efforts as ‘futile attempts to instill transparency in a secret society’. Now, I know what he was talking about.”
The pertinent questions now are: How much of the PMS purportedly consumed in the country between 2006 and 2008 was smuggled out of the country after it had been heavily subsidized?