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Nigeria’s fuel consumption: Wilderness of unknowns


When the Nigerian National Petroleum Corporation (NNPC) stated the other day that daily consumption of Premium Motor Spirit (petrol) in the country is unknown due to smuggling of the product into other West African countries, there could not have been a better way to illustrate how shrouded in various mysteries operations in the oil industry – upstream, mid-stream or downstream – have been over the years.

It was further disclosed in the same breath that NNPC had been mandated by the National Economic Council (NEC) to work with the Federal Ministry of Finance and The World Bank to “do a study around consumption, to determine the actual consumption by the people.” According to the official who spoke for the national oil company, “we have to determine what we call the daily load out or the evacuation as against the actual consumption.” He then ascribed the unknown element to “..the fact that we have cross-border smuggling” and that “Nigeria remains the cheapest source of PMS in the West African sub-region.”

Given the history and systemic importance of PMS to the economy of Nigeria the farcical and disturbing nature of these statements cannot be overstated. Nigeria now enjoys the dubious status of a nation that does not know with any degree of certainty how much crude oil it produces and also clueless about the consumption level of refined products that it tragically imports. This chain of unknowns is not only a disgrace to the people and government of Nigerian, it is the tether with which the country and its people are held to corruption, underdevelopment and extreme poverty in the midst of plenty.

It is clear that the prevailing intentional opacity that plagues the industry does serve vested interests and is now proving to be a critical threat to the stability of the economy. Back in 2011 when Senator Bukola Saraki, now the Senate President, blew the whistle on the fuel subsidy scam, the nation was presented with corruption on a scale that was breathtaking. Indeed, the scale of the fraud perpetrated against the nation was a significant contributory factor to the electoral downfall of the administration of President Goodluck Jonathan.

The current Muhammadu Buhari administration railed against the subsidy scam assault on the commonwealth and indeed came into office on the back of a successful electoral campaign that vigorously promised to tackle corruption head-on. Unfortunately it appears that the Buhari administration has hit reality and not only is the subsidy scam alive and well again but it may be worse than the first iteration.

By 2011, the alarming trajectory was that Nigeria’s daily fuel consumption rapidly escalated in tandem with the scale of the subsidy scam. At its height, subsidy claims equated to a daily consumption of 60.25 million litres per day consumption (PPPRA). When the scam was blown open, consumption dropped to 39.79 million litres daily and Nigerians gained insight into an elaborate, carefully constructed shadow downstream industry whose architecture and players had only a singular business objective – to defraud the Nigerian people. It was populated by legitimate as well as illegitimate industry and regulatory operatives and included almost all the actors in the downstream petroleum sector value chain.

As the Buhari administration is finding out, at a huge cost to Nigerians, attempting to defy fundamental economic principles of supply, demand and market pricing can only lead to one outcome: a distorted market that fuels arbitrage and rent-seeking.

Not only is fuel subsidy back despite initial denials by this administration, it is now unquantifiable as it has been taken ‘below-the-line’ and out of view, buried in the opaque operations of the NNPC. For good measure, subsidy has been renamed ‘cost under-recovery’ that, by design, gives the impression of a benign accounting process in the ordinary course of economic activity. Nothing could be further from the truth.

The true scale of the ‘cost under-recovery’ is now manifesting in open disagreement between the Department of Petroleum Resources (DPR) and the parent NNPC over the correct metric for determining consumption levels. NNPC’s Group Managing Director, Maikanti Baru recently wrote to the Minister of Finance, Kemi Adeosun to take issue with the DPR arriving at consumption figures based on PMS evacuations in contrast to NNPC that derived its consumption levels from supply volumes. Given NNPC’s current sole PMS importer status the attraction for NNPC in utilising that metric is obvious.

This is no ordinary bureaucratic disagreement. The Federation Account Allocation Committee’s (FAAC) last few meetings have generated heated discussions and the June meeting was adjourned for the third time last week and the fifth time since the beginning of the year. Tempers are fraying between the States and the Federal Government over continued under remittances by the NNPC.

The political decision to hide the impact of fuel subsidy by burying it in NNPC’s books and avoiding to appropriate funds through the National Assembly has transferred part of the cost burden unfairly to the states. They are clearly pushing back against the lack of transparency as they rightly feel short-changed by NNPC being the sole determinant of what is declared as proceeds available for distribution after what they feel are exorbitant financial claims of subsidy on the volumes of petrol it imports.

This situation remains unresolved and the Presidency has been forced to wade into the matter. What is undeniable is that this administration missed a glorious opportunity to implement what it promised when the price of petrol was raised to N145 at an opportune time of low oil prices. Nigerians were promised price modulation as the relatively low landed cost of PMS meant there was available headroom for partial deregulation of petrol pricing adjustments. Lacking the political will, as international oil prices recovered and the cost of petrol increased, a subsidy situation was recreated. Sadly, the allure of a renewed subsidy payment regime by another name and the slush fund opportunity, with 2019 around the corner, have proven irresistible even to a government that once set so much store of transparency, integrity and zero tolerance for corruption.
Who will save Nigeria in this wilderness?


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Muhammadu Buhari‎NNPC
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