The report of House of Representatives ad-hoc committee on the management of petroleum subsidy reveals a sleaze of unimaginable proportion even as campaigns were mounted to kill it
A few days before the report was presented to the House of Representatives on Wednesday April 17, a well-oiled campaign to kill it had started in Abuja. An Abuja-based publisher was commissioned to anchor the media campaign to rubbish the report and make it go the way of the Ndudi Elumelu committee power probe which, apart from being disowned by some of the committee members, was drowned by counter attacks by those indicted through orchestrated negative media campaign.
As a raw material for the media team, a shadow of the report was sneaked out to a few journalists in Abuja the preceding weekend to ambush the report. The game plan was double-pronged – one, pre-empt the report and discredit it; and two, turn members of the House against the committee and stampede an investigation into a supposed leakage of the committee report. The plot is to cause so much confusion and instigate the House to reject the report and appoint another committee to repeat it as in the case of the capital market probe. It was gathered that, just like with the media, some members of the House of Representatives have been recruited to anchor resistance to the report when it is debated. Likewise, emergency “stakeholders” emerged overnight contesting the report that was yet to be presented.
A group that called itself Petroleum Stakeholders Movement condemned the report as “lopsided and unfair.” According to Frank Diobi, its president, “From the publications, we have every reason to suspect the report because it is silent on many issues. One, many oil firms appeared before the committee, what informed the conclusion that led to the singling out of 69 oil firms out of 100 involved in fuel importation?” The group puts up another pedestrian argument, “Why did the committee ignore official fact sheets from the NNPC and Petroleum Products Price Regulation Agency, PPPRA, on payment of 2010 subsidy arrears on household kerosene, HHK, which shot up the 2011 fuel to about N1.6 trillion?”
Part of the plan is also to neutralise the report by campaigning that the probe be expanded to include subsidy management from 1999 to 2011. And to drum up support for the conclusion of the Senate probe of the subsidy saga to be concluded with the hope it could be influenced to counter the House report.
By the time the report was finally laid before the House last Wednesday, the reason those indicted were panicky became clear. The Farouk Lawan-led committee has indeed opened the Pandora’s box of Nigeria’s legendary corruption industry, and nobody appears to be free of the uncovered sleaze.
The committee established that the actual subsidy paid out by the federal government for 2011 was N2.587 trillion as at December 31, 2011 instead of the N245 billion appropriated in the 2011 budget. The confusion in government camp was underscored by different figures they canvassed in public domain. For instance, the initial official figure was N1.3 trillion; the office of the accountant general of the federation gave another figure of N1.6 trillion; while the Central Bank of Nigeria, CBN, figure was N1.7 trillion. Furthermore, as at the time of the committee public hearing was concluded, outstanding claims by Nigerian National Petroleum Corporation, NNPC, and the marketers as subsidy payments for 2011 were over N270 billion. The N2.587 trillion established subsidy payment represents 900 per cent increase over the N245 billion appropriated.
The government has appropriated N888 billion for subsidy in the 2012 budget. However, for the months of January and February alone, N304 billion has been paid out, raising fear that nothing has changed.
According to the committee, the N2.587 trillion is based on the CBN figure of N844.944 billion paid to NNPC; another figure of N847.942 billion reflected as withdrawals by NNPC from excess crude naira account and 894.201 billion paid as subsidy to the marketers. “The figure of N847.942 billion quoted above strongly suggests that NNPC might have been withdrawing from two sources especially when the double withdrawals were also reflected both in 2009 and in 2010,” noted the report. Subsidy payments included payments for kerosene.
As suspected by many Nigerians, the committee noted that NNPC is riddled with corruption and “unaccountable to anybody or authority.” This is reflected in the corporation’s lack of accountability. For instance, in 2011, it processed the payment of N310.4 billion as 2009-2011 arrears on kerosene, contrary to a presidential directive, which removed subsidy on kerosene in 2009. It also deducted subsidy from money received as Joint Venture before paying the balance to the Federation Account. This depletes the shares of states and local governments, which have been consistently accusing the federal government of voodoo mathematics. In 2011 alone, the direct deductions by NNPC amounted to N847.942 billion. This deduction was effected “without any provision in the 2011 Appropriation Act,” regretted the committee.
All the parties involved dipped their itching palms into the nation’s common wealth. “While NNPC feasted on the Federation Account to bloat the subsidy payable, some of the marketers were involved in claiming subsidy on products not supplied,” the committee found. On its part, PPPRA was found to have provided the conducive environment for fleecing the nation “by allocating volumes of products each quarter to the marketers which it knew were not in conformity with its own guidelines.”
The committee also found that some marketers collected subsidy of over N230.184 billion on 3.262 billion litres petrol or premium motor spirit, PMS, without supplying it. Not only that, PPPRA paid itself N158 billion in 2009 and N157 billion in 2010.
It was also found that the accountant general of the federation in 2009 made a curious payment of N999 billion each to 128 different accounts totalling N127.872 trillion within 24 hours on January the 12 and 13, 2009. These payments were confirmed by the CBN but till today, the beneficiaries have not been disclosed. Even at that, only 36 marketers participated under the Petroleum Support Fund, PSF, scheme, in 2009. So the thinking of the committee is that “even if there were 128 marketers, it was inconceivable that all would have imported the same quantity of products to warrant equal payments.”
From the calculations of the committee, daily PMS consumption for 2011 was 31.5 million litres. The Department of Petroleum Resources, DPR, had confirmed that subsidy was paid on daily importation of 59 million litres. In 2012, the committee has projected a marginal increase of 1.5 million litres daily to cover unforeseen circumstance which might take the consumption to 33 million litres daily. In 2011, NNPC claimed they imported additional 24 million litres daily, above their stated daily consumption of 35 million, yet they did not have the storage capacity. Consequently, the committee recommended 806.766 billion as subsidy payment for PMS and kerosene for 2012. This is about N82 billion lower than the N888 billion, which the government has appropriated in the 2012 budget for subsidy.
Even more radical is the committee’s finding and recommendations on Nigeria’s local refining capacity. Based on the 445,000 barrels per day, bpd, crude oil allocation to NNPC, at the current confirmed refining capacity of 53 per cent and SWAP/offshore processing arrangement of the balance of 47 per cent, the committee affirms that it makes subsidy unnecessary as that is more than enough to take care of the country’s local consumption as it should provide the following products: 40 million litres per day of PMS; 10 million litres daily of kerosene; 8.97 million litres daily of diesel; 0.62 million litres of liquefied petroleum gas and 2.31 million litres of fuel oil.
According to the committee, “The implication of this finding is that if the NNPC properly manages the allocation of 445 barrels per day efficiently, the availability of the products can be achieved by NNPC alone.” TELL had asked Ngozi Okonjo-Iweala, the finance and co-ordinating minister of the economy, in an interview recently what part the local refined petroleum products played in the subsidy regime. She explained that its contribution was minimal because the refineries buy the crude at the international price of crude oil. According to her, the only difference is in the landing and shipping costs. The committee regrets that NNPC’s claim that it makes a savings of N11 per litre on locally refined fuel could not be accounted for in the payment of subsidy.
Consequently, the committee recommended that NNPC be unbundled through the Petroleum Industry Bill, PIB, to make it efficient and accountable while all the members of the management and board of NNPC indicted for the 2009 to 2011 infractions should be investigated and prosecuted by the anti-graft agencies.
Put together, the committee recommended that a total of N1,067,040,456,171.31 be refunded to the government as follows: NNPC as illegal payment for kerosene subsidy – N310,414,963,613; NNPC as payment above PPPRA recommendation – N285,098,000,000; NNPC as unapproved self discount – N108,648,000,000; marketers in violations of PSF – N8,664,352,554; companies that refused to appear – N41,936,140,005.31; and PPPRA as excess payment to self – N312,279,000,000. “If the (Petroleum Subsidy Fund) PSF scheme was properly managed, this sum of N1.070 trillion would have been available to the three tiers of government for budget enhancement,” regretted the committee.
On the role of government agencies in the subsidy racket, the committee found intentional infractions. For instance, the PPPRA which is the registered account name of PSF in the CBN is supposed to verify all authorisation after which it would authorise CBN to effect payment; however, it was found that instead PPPRA made some payments to itself. The committee judged these payments to be higher than what should have accrued to the agency as administrative fees. In 2009, the agency paid itself N158.470 billion and N157.894 billion in 2010.
That notwithstanding, the committee found collusion between PPPRA staff and some oil marketers “to defeat the envisaged purpose of the monitoring and verification,” which the agency was set up to prevent. “The agency witnessed and confirmed all purported discharges of imported cargo and went ahead to process all the documents to the Federal Ministry of Finance, yet false claims were rampant,” regretted the committee. This failure provided the environment for the subsidy scam.
The agency further expanded the scam with the proliferation of oil marketers, thereby admitting politicians and briefcase companies as subsidy beneficiaries.
Ahmadu Ali, a former Peoples Democratic Party chairman and chairman of the board of PPPRA from 2009 to 2011, admitted before the committee that the board under him approved the proliferation. During this period, it was found that “companies without facilities for storage or distribution sometimes got substantially more allocation than most major oil marketers and other independent marketers.” Even worse, some companies without permit were paid subsidy in clear violations of the guidelines. Compromise of the entire PSF scheme resulted in “round-tripping, back loading and other fraudulent practices. The number of companies approved for the scheme skyrocketed from six in 2006; 36 in 2007; 49 in 2009 to 140 in 2011, “thereby altering the objective of the scheme to become a limitless drain on the economy.”
The multi-dimensional conspiracy and collusion among all the agencies involved was highlighted by the case of a vessel, which claimed to have brought products for NNPC. The Navy, NPA, PPPRA, Federal Ministry of Financen and other agencies documented it, but the claim was a phantom. Llyods List Intelligence, LLI, revealed that the vessel was rather in South Africa and not in the Nigerian waters as recorded by these agencies!
The case of Eco-Regen further highlights the fraud in what may well become the largest in-house economic sabotage in the history of democracy. According to the committee, two promoters allegedly received e-mail and came in from the United States with a proposal for waste management with NNPC. Instead, the two promoters teamed together and incorporated Eco-Regen Limited on August 3, 2010 with corporate address as 3rd Floor, UAC building, Central Business District, Abuja. The company applied for PPPRA registration on September 11 and got its first allocation of 15,000 metric tonnes on January 20, 2011, and was paid N1.988 billion “as subsidy for products Not supplied”! According to the committee, “It was obvious that the reason why it got the allocation in January 2011 was because the last quarter of 2010 had been concluded before the registration with PPPRA.”
Abiodun Ibikunle, a former executive secretary of PPPRA, confirmed the anarchy and impunity that was the order of the day to the committee: “You walk in and indicate interest and you are considered.”
Consequently, the committee recommended that all staff of PPPRA involved in the processing of applications by importers and verifications, confirmation and payment of imported products by importers and NNPC should be investigated/prosecuted for criminal negligence, collusion and fraud. The executive secretaries who were the accounting officers under whose watch these abuses occurred should be held liable for the scam. The general manager field services, ACDO/supervisor, Ullage team1 and ACD/supervisor, Ullage team 2 are also recommended for sanctions for their role in the subsidy scheme through the mismanagement of the ullaging task.
The Federal Ministry of Finance was indicted for acquiescence to direct deductions by NNPC. According to the committee, though direct deductions by NNPC on first line charge before revenue is shared by the three tiers of government, it is granted by the constitution, it is only applicable to Joint Venture Cash Calls and does not cover under-recovery (payment of subsidy). The committee regretted that none of the ministers of finance, petroleum resources or heads of parastatals under them cared to seek authoritative interpretation from the attorney general of the federation, as confirmed by the latter. The direct deductions by the NNPC are a clear breach of Section 162 of the constitution, as amended.
The ministry of finance was seriously indicted for failing in its core responsibility of managing the federal budget; manage, control and monitor federal revenues and expenditures. In 2011, 245.96 billion was appropriated for subsidy but under its watch, N2.587 trillion was actually expended. “This is certainly a record that can hardly be rivalled in the history of a warped budget management of any nation anywhere in the world,” admonished the committee.
Consequently, the committee recommended that the services of the accounting firm of Akintola Williams, Deloitte and Olusola Adekanola and Partners should be examined for professional incompetence, and blacklisted by ministries, departments and agencies, MDAs, for a period of five years for not detecting the scam as consultants to NNPC. Culprits at the ministry of finance, the director general of Budget Office and the office of the accountant general of the federation should be sanctioned in accordance with Civil Service Rules and the Code of Conduct Bureau.
On the other hand, CBN was given a clean slate and is deemed to have “discharged its responsibility well under the scheme and it is evident that its financial reporting was highly commendable.” However, many people feel that CBN should have been more proactive by refusing payment after the budgeted amount was exceeded without a supplementary appropriation.
Similarly, the committee wondered if CBN could be unaware of the forex scam in the subsidy bazaar. To qualify for forex transaction, an applicant or marketer must be an importer of petroleum products. To qualify for this, the port of loading must be outside Nigerian territorial waters. This ambiguity was cleverly exploited by Nigerian marketers who then instructed their sellers to berth a few nautical miles outside Nigerian territorial waters where ship to ship, STS, transfers between the seller’s mother vessels and the Nigerian marketer’s shuttle vessels were carried out. These STS operations often occurred offshore Cotonou or Lome illegally.
Legally, STS should only be carried out in areas so designated by the concerned country. In the case of Nigeria, the STS locations were not known to any country. “We established that no port duties or other legal levies were paid to any country. It was a massive illegal activity and we were unable to establish the existence of such practice anywhere else in the world,” stated the committee.
This encouraged round-tripping, and it was found that some vessels claimed to be making two impossible trips in three days between the imaginary Offshore Contonu/Lome and Lagos. Foreign importers admitted they were ready to berth in Nigeria but being businessmen, they did the bidding of their Nigerian buyers. Vitol SA and Trafigura, two leading foreign importers, confirmed as much. “No responsible seller will flout these regulations,” stated Vitol SA, which made over 250 voyages of PMS to 34 different marketers in 2011. The same foreign importers, including Vitol and Trafigura discharge all PMS belonging to NNPC/PPMC in Nigerian territorial waters and discharge those of other marketers offshore, yet no regulatory agency raised eyebrows because the sleaze is beneficial to all. The explanation is that NNPC is not affected by CBN forex regulation as it deducted its forex claims directly from source. This way, CBN “created through its forex policy avenue for easy falsification of records of quantity of petroleum products discharged.”
On NNPC, the committee stated, “NNPC acted as importer, marketer, claimant, payer and payee. Simply, NNPC was not accountable to anybody or authority.” The committee established that NNPC deducted directly from source the sum of N408.255 billion (in addition to the payment of N81.6488 billion by CBN) in 2009; N407.801 billion (in addition to the payment of N402.423 billion by CBN) in 2010; and N847.942 billion (in addition to the payment of N844.944 billion by CBN) in 2011, contrary to Section 162 of the 1999 Constitution, as amended. In other words, CBN and NNPC appear to have made parallel payments for the same shipments.
Similarly, it was established that the NNPC deducted the total sum of N844.944 billion in 2011 as against the sum of N540.419 billion recommended by PPPRA, an over deduction of N285.098 billion. Consequently, in addition to the refund of all the money, it was recommended that all staff of NNPC/PPMC involved in the scam should be investigated/prosecuted by the anti-graft agencies.
The committee established that the reason for the dramatic rise in subsidy claims was the subversion of PSF guidelines “propelled by unashamed urge to swindle and defraud government.” It noted that the ministry gave a different reason, attributing it to “corresponding increase in PEF payments, resulting from increased bridging.” They also claimed that the price of crude oil was another factor as well as increase in demand.
Sharp practices were also established against some marketers. For instance, Vernro Energy Limited allegedly claimed subsidy payment with falsified Form M No MF475241 BA No 03320104910009 purportedly dated September 24, 2010. Vitol SA testified against Mobil Nig Limited on the issue of products brought in through MT Mileura, thus resulting in the committee recommending Mobil for investigation and prosecution. Several companies whose claims of importation could not be established are to provide the products for which subsidy has been paid. Fifteen companies that obtained forex but did not import petroleum products have been referred to the anti-corruption agencies for further investigation. In 2010, this amounted to $337,842,663.86 and $64,767,763.22 in 2011. Seventeen other companies are to be further investigated on the suspicion of money laundering by importing oil into the country to repatriate offshore proceeds of corruption. This amounted to N7,141,217,151.72 in 2010 and N55,019,978,401.14 in 2011.
Twenty companies got their first allocation for product supplies before they were registered with PPPRA; while three marketers got allocations, even though they never applied to PPPRA. Four others in this category are Nasaman Oil Services Limited, Sfax Oil & Gas Co. Limited, Conoil and AX Energy Limited. Another four – Lingo Oil & Gas Company Limited, Nadabo Energy Limited, Nasaman Oil Services Limited, and Prudent Energy & Services Limited – had no tank farms and no throughput agreement with any depot but claimed to have discharged products. The committee recommends that they refund the subsidy paid to them accordingly. That is not all. The report also states that 12 companies with no tank farms had agreements but never used the facilities and yet claimed to have imported products under PSF. Seventy-one claims to discharges and subsidy claims were disallowed. This amounted to N3.262 billion in 2010 and N230.184 billion in 2011.
The committee has recommended to the House to direct that NNPC be audited to determine its solvency because of the large claims of indebtedness against it. Indeed, the whole agencies involved in the subsidy saga are in for a total overhaul, if the House has its way.
However, the fight is not over. The vested interests with their large financial war chest are poised for a fight through many counter channels, especially through the media and some special purpose non-governmental organisations. On what fate awaits his committee’s report, Lawan was rather philosophical: “The House gave us an assignment and we feel we have done a good job. We have laid it before the House; whether the recommendations are accepted and implemented is not our concern.”
Additional report by Tajudeen Suleiman