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Petroleum Equalisation Fund (PEF): A temporary agency?


What people call magic is, in fact, an illusion. When a magician puts a woman in a box and saws the middle of the box, one expects her to be sawn into two except that this does not happen. The magician shouts some incantation and behold the lady is standing untouched by the mechanical sawing blade. In many respects, the operations of the Nigerian National Petroleum Corporation (NNPC), Petroleum Equalisation Fund (PEF), the Central Bank of Nigeria (CBN) and its forex policies, the pension are all magic, abracadabra, or total illusions. What is not an illusion, however, is the heavy cost to the economy and the people.

The problems facing NNPC are numerous and complicated. The solutions devised to end these problems are confusing, obfuscating and almost deliberately framed to be incomprehensible to the rational mind.

The NNPC had three refineries – Port Harcourt, Warri and Kaduna. It negotiated for itself an allocation of 450,000 barrels of crude for the refineries. All refineries are due periodically for servicing and maintenance. Ordinarily, a normal business concern will produce enough stock for the period during the Turn Around Maintenance (TAM) so that there is no shortage. Money would be available for such maintenance costs. I am not yet here dealing with the obvious problem of conflict of interest within NNPC itself – as between production and the refinery which does not show an arm’s length relationship.


Even so, such problems can and have been overcome in other countries. When BP ran the refinery in Port Harcourt, these problems existed but they were all solved within the operational procedures of Nigerian Petroleum Refinery Company (NPRC) and Nigerian National Petroleum Corporation (NNPC). Problems began to mount when NNPC took its eyes, as it were, off the ball. If NNPC did not have the guaranteed supply quantity, NNPC, Warri Refinery Company (WRC) and Kaduna Refinery Company (KRC) would have each been ready to source for the crude they would need to operate. The prices might have been different but they would have been operating in the market place and responding to normal market pressures. The problem would have been solved once and for all.

I am saying all this now because new refineries are being built, (over 21 licences for refineries have been issued) and each one is seeking a guaranteed supply quantity. Were they to be given guaranteed crude oil supplies like NNPC, then we would be in greater problems than we had ever dreamt of.

What NNPC did with its 450,000 allocation was to sell, swap the 450,000 for refined products. In doing so, it opened itself up to more charges than it could cope with. But, by far more catastrophic, for the economy, it forced the subsidy regime on Nigeria and the most rapacious elements to enter the energy market. Careful manipulation of supply easily led to panic measures, increase in fuel prices, uncertainty in industry because of uncertainty in power supply and transport cost, etc. On top of all these confusion is another body, the Petroleum Products Pricing Regulatory Agency (PPPRA).

Nearly every major problem of Nigeria’s crude oil marketing, petroleum production and sales stems from this NNPC allocation which is held by the corporation in a death embrace. It is ownership of the 450,000 barrels per day which has encouraged the corporation to go into retailing pms thus reaping from another self-imposed bonanza called the Petroleum Equalisation Fund. Moreover, the NNPC is not interested in cutting the cost of oil production in Nigeria, or pushing efficiency to bring more revenue to the economy. Every view of that corporation is dedicated to how to maximise the benefits of the 450,000 barrels daily allocation to nearly all other interests except the national one.

It may be doing no more than reflecting the national psyche. Let us look at the Petroleum Equalisation Fund in some detail. This is a fund established so that the pump price of petrol will be uniform throughout Nigeria. It is claimed that before 1974, Nigeria was experiencing shortfalls in petroleum supply, uneven distribution capacity and major price differentials in different parts of Nigeria.
After a meeting of stakeholders – Nigerian Ports Authority (NPA), Railway, Ministries of Mines and Powers, Transport, Pipelines and Product Marketing Company (PPMC) and NNPC, a temporary solution was worked out then known as Petroleum Equalisation Fund.


It was meant to provide funds for the equal cost of petroleum products at the pumps throughout Nigeria and this would enhance economic growth. Unfortunately, matters got worse: the refineries were unable to meet their quotas, the pipelines had not come on stream and when they did, they were not maintained or were subject to militant attacks.

The Railways which used to be major movers of petroleum has also deteriorated; the attempts to move petroleum products by barges after dredging the Niger River failed. By 1977 Nigeria had been fully supplied with pipelines throughout the country, with strategic tank farms and depots throughout the country. This was all abandoned and unutilised. The explosion of the tanker business was about to occur following the establishment of the PEF by Decree No. 9 of 1975, No. 32 of 1989 (now Chapter 352 of Laws of Nigeria).

Basically, the Petroleum Equalisation Fund (Management) Board reimburses petroleum marketers for “any losses suffered by them solely and exclusively” as a result of the sale of petroleum products at the same price throughout the federation. There is obviously a complex procedure set out to achieve this including the endorsed Bridging Acknowledgement Forms, marketers payment claim, loading and receiving stamps appropriately signed and stamped by PEF depot representative, Department of Petroleum Resources (DPR) and NNNPC loading and receiving stamps, other relevant documents showing receipt and discharge of products at outlets, etc.

•To be continued.
• Dr. Cole is former Ambassador to Brazil.


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