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The Big Fuel Subsidy Rip-Off

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A full report of the ad-hoc committee of the House of Representatives opens a can of worms in the administration of the fuel subsidy regime in Nigeria

The storms are gathering over the alleged involvement of some top government officials and key players in the Nigerian oil sector in the more than one trillion Naira fuel subsidy fraud. The report of the Ad-hoc Committee of the House of Representatives led by Farouk Lawan which investigated the fraud in the management of petroleum subsidy and which indicted highly placed individuals, government agencies, oil marketers and accounting firms, has continued to anger many Nigerians.  Indeed, some eminent Nigerians have demanded that the perpetrators of the sleaze should be prosecuted.

Last Monday, Wole Soyinka, Nobel laureate, was so alarmed by “the level of thievery” in the oil subsidy rip-off that he admonished Nigerians to prepare for a massive demonstration against it. “Just as we thought we had recovered from the pension scam, along came a humongous scam, material assault on the resources of the ordinary people. All that I will ask is a specific plea that the populace should be ready for another determined march on corruption. The level of thievery is not unrelated to the level of violence we witness today. When you are robbed in this way, you are dehumanised with insults and arrogance,” he said. 

The literary icon who said he was overwhelmed by the disclosures, chided the government for insensitivity to the plight of the public. He was emphatic that the anti-graft agencies - the Economic and Financial Crimes Commission, EFCC, and the Independent Corrupt Practices and Other Related Offences Commission, ICPC, should prosecute those involved in the scam without further delay and those found culpable  be brought to book.

Indeed, the interest which the oil subsidy fraud has elicited among Nigerians is understandable. The 205-page report of the ad-hoc committee contains the sordid details of the complicity of the dramatis personae in the scandal that has stirred unending controversies since snippets of the rip-off  were made public a few weeks ago.

The ad-hoc committee established that certain highly placed government officials compromised the entire Petroleum Support Fund, PSF, scheme to the extent that “round tripping, back loading and other fraudulent practices became the order of the day.”  Some of the politicians and   key government officials, bureaucrats, and their cronies who were indicted by the committee for their alleged involvement in the oil subsidy fraud are Ahmadu Ali, former national chairman of the People’s Democratic Party, PDP,  who served as the chairman of the board of the Petroleum Products Pricing Regulatory Agency, PPPRA, from 2009 to  2011; Diezani Alison-Madueke, minister of petroleum, who is also the chairman of the board of the Nigerian National Petroleum Corporation, NNPC, and Augustine Oniwon, group managing director of the corporation.

Other individuals indicted in the report include Abiodun Ibikunle, who served as the executive secretary of the PPRA from January 2009 to October 2011 and his successor, Goddy Egbuji, who served in that capacity from February to August 2011.

The ad-hoc committee further recommended that the anti-corruption agencies should investigate the fraudulent activities of some oil marketing companies which obtained FOREX but did not import petroleum products. Some of the marketers allegedly found culpable include Zenon Petroleum and Gas Limited, Carnival Energy Oil Limited, East Horizon Gas Company Limited, Tridax Energy Limited, Emadeb Energy and East Horizon Gas Company Limited.

The committee found out that the oil subsidy fraud was perpetrated by these government agencies, marketing companies and public officers in the industry because contrary to statutory requirements and other guidelines under the PSF scheme mandating them to keep reliable information data base, there seemed to be a deliberate understanding among the agencies not to do so. “This lack of record keeping contributed in no small measure to the decadence and rot the committee found in the administration of the PSF.”

The Lawan-led committee found out that the subsidy regime, as operated between the period under review (2009 and 2011), was “fraught with endemic corruption and entrenched inefficiency. Much of the amount claimed to have been paid as subsidy was actually not for consumed PMS. Government officials made nonsense of the PSF guidelines due mainly to sleaze, and in some other cases, incompetence. It is, therefore, apparent that the insistence by top government officials that the subsidy figures were for products consumed was a clear attempt to mislead the Nigerian people.”

The committee stated that contrary to the earlier official figure of subsidy payment of  N 1.3 trillion, the Accountant-General of the Federation put forward a figure of N1.6 trillion, the Central Bank of Nigeria, CBN, N1.7 trillion, while the committee established subsidy payment of N2,587.087 trillion as at 31st December, 2011, amounting to more than 900% over the appropriated sum of N245 billion. This figure of N2, 587.087 trillion is based on the CBN figure of N844.944 billion paid to NNPC, in addition to another figure of N847.942 billion reflected as withdrawals by NNPC from the excess crude account, as well as the sum of N894.201 billion paid as subsidy to the marketers.

The committee submitted that 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.

However, the committee noted that as at the time the public hearing was concluded, there were outstanding claims by NNPC and the marketers in excess of N270billion as subsidy payments for 2011. Curiously, although the mandate of the committee was necessitated by the removal of subsidy, it found out that subsidy payment on kerosene formed an integral part of the total sum.

According to the committee, the NNPC was found not to be accountable to anybody or authority. “The corporation, in 2011, processed payment of N310.4 billion as 2009 – 2011 arrears of subsidy on kerosene, contrary to a Presidential Directive which removed subsidy on Kerosene in 2009. The corporation also processed for itself, direct deduction of subsidy payment from amounts it received from other operations such as joint venture before paying the balance to the Federation Account, thereby depleting the shares of states and local governments from the distributable pool. Worse still, the direct deduction in 2011 alone, which amounted to N847.942 billion, was effected without any provision in the Appropriation Act.” The committee therefore recommended that  NNPC should refund to the federation account  the N310 billion  being money paid to it illegally as subsidy for kerosene, contrary to the Presidential directive of July 29, 2009.

In addition, the committee found out that “while the NNPC feasted on the Federation Account to bloat the subsidy payable, some of the oil marketers were involved in claiming subsidy on products not supplied.” According to the committee, “the PPPRA laid this foundation by allocating volumes of products each quarter to the marketers which it knew were not in conformity with its own guidelines for participation.” It, therefore, asked government agencies, namely the NNPC; PPPRA, and the Office of the Accountant-General of the Federation and 72 oil marketing companies which were neck deep in the sleaze to refund N1.7 trillion.

With particular reference to the level of involvement of the PPPRA in the oil subsidy fraud, the committee’s findings showed that the agency failed in its statutory mandate to deploy its staff to monitor and verify data on petroleum products’ recepts and distribution at the jetties and depots. Rather, the committee observed that “there was massive collusion between PPPRA staff and some oil marketers to defeat the envisaged purpose of monitoring and verification.” Although 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, the committee discovered that false claims were rampant.

The committee established that this fraudulent practice worsened during the tenure of Ali, former PDP boss as PPPRA chairman when he decided to proliferate petroleum product importers to allegedly break the stranglehold which the major marketers had on the system. Indeed, Ali admitted before the committee that the increase in number was meant to flood the market with the products as a result of the scarcity at that time.  However, this was done without setting a target volume, leading to supply glut in the quarter and throughout the year. The figure then became a baseline which was increased at every successive year. Consequently, the PSF guidelines on prequalification and monitoring completely broke down and the scheme became an avenue for all forms of patronage. The number of importers increased from an initial figure of six in 2006, 36 in 2007, 49 in 2009, and 140 in 2011.

The committee also confirmed that Ibikunle and Egbuji, the executive secretaries of the PPPRA who served between 2009 and October 2011 created room for the violation of the processes, abuse of the procedure, and fraudulent increase in the number of importers.

The committee was particularly piqued that despite the noticeable non-viability of the policy of proliferation of oil marketers and the unbearable pressure of the ensuing corrupt practices on the economy, the PPPRA never deemed it fit to modify or reconsider its decision for the betterment of the system.

To worsen the ugly situation, there was abuse of discretion in allocating quantity during this period as companies without facilities for storage or distribution got substantially more allocation than most of the major oil marketers and other independent marketers with impressive facilities.  Worse still, some companies without permit in a given quarter imported products and were paid subsidy, in clear violation of the guidelines.

Taking into consideration the role of the former chairman of the PPPRA, the former executive secretaries and the entire members of the board collectively and individually in aiding the absurdities, the committee recommended that they should be reprimanded because their decision “opened the floodgate for the bazar.” The committee asked the anti-corruption agencies to investigate and prosecute the two former executive secretaries under whose watch these abuses were perpetrated that led to government losing billions of Naira.

After a critical examination of the role of the NNPC  in implementing the fuel subsidy regime under Oniwon, its current  group managing director, GMD, the committee  claimed that the corporation deducted the total sum of N844.944 billion as against the sum of N540.419 billion recommended by the PPRA in 2011 thereby overdeducting the sum of N285.098 billion. The committee observed that the “NNPC operated a very inefficient system of importation of petroleum products that led to pilling up of demurrage payments. Requests by this committee to the GMD to establish the exact figures yielded no results, typical of the opaque system of non-disclosure that reigned in the corporation.” The committee alleged that the NNPC operated a system that created room for abuses and lacked accountability.

In like manner, the committee alleged that the Department of Petroleum Resources, DPR, was inefficient as there was the lack of monitoring of trucked out products, distribution/ sales of petroleum products as well as supervision of retail outlets. It claimed that this led to diversion and smuggling of petroleum products. “As a result of the inability of DPR to monitor the importation, distribution and sale of petroleum products nationwide, they have no records to establish daily consumption and product stock levels across the country. Nigerians are subsidising the products consumed by other countries, as huge volume of the product finds its way into neighbouring countries through diversion and smuggling,” the committee stated.

In terms of the supervisory role played by the Ministry of Petroleum Resources over the agencies under its ambit, the committee wondered why the ministry kept a blind eye while the NNPC, an agency under its direction “illegally depleted amount of distributable pool available to the three tiers of government. It resulted in the escalation of “subsidy” scam. The committee explained that although the “Honourable minister acknowledged sharp practices and manipulation in the industry, which have become quite evident from this investigation, the Ministry of Petroleum Resources failed to act in time to stem the corrupt practices.”

The committee further observed that the ministry was aware of the “unacceptable lacuna but all it could do was lament.” 

The report admitted that getting the right statistics was a big challenge. “As we all know, getting the right statistics has been a challenge in our country. And it was even tougher getting actual PMS consumption figures from PPPRA when I took over the agency last year,” the minister was quoted to have said.

The committee, therefore, recommended that the president should reorganise the Ministry of Petroleum Resources to make it more effective in carrying out the much needed reforms in the oil and gas sector. It further recommended that two ministers should be appointed to take charge of upstream and downstream sector.

The Lawan-led committee also exposed the sordid manner in which the oil cabals colluded with the government agencies to collect fuel subsidy without supplying petroleum products through financial infractions.   For instance, some marketers were found to have obtained forex for petroleum products importation between 2009 and 2011 but could not be found to have utilised same for the purposes they were meant for. This was confirmed by comparing the CBN submissions on forex and PPPRA details of product supplies under the subsidy regime.  While 15 oil marketing companies allegedly obtained forex but did not import petroleum products, 17 others did not obtain forex, but claimed to have imported petroleum products based on which they collected subsidy. The committee listed the oil marketing companies allegedly involved in the sleaze in its report and urged the anti-corruption agencies to conduct further investigation on the issue.

The committee observed that although the state of the nation’s refineries is nothing to write home about, it appears that greed, and  corruption among the operators in the downstream sector were the factors which strangulated the refineries despite their installed refining capacities of 446,000 barrels per day, bpd. “The daily allocation of 445,000 bpd to NNPC for domestic consumption if well managed and harnessed has the potentials of satisfying the daily PMS and DPK needs,” the ad-hoc committee submitted.

Already, the House of Representatives has adopted the report and recommendations of its ad-hoc committee which investigated fraud in the management of petroleum subsidy after intrigues and intense manoeuvrings that nearly marred proceedings. After several amendments through clause by clause consideration of the report, the House concluded consideration of the 62 recommendations of the report with an additional recommendation that the resolution of the House be served on President Goodluck Jonathan, the Senate and the relevant anti- corruption agencies for information and action.

The House, in adopting some of the recommendations of the committee also asked the EFCC to prosecute foremost accounting firms, Akintola Williams Deloitte and Olusola Adekanola and Partners for professional negligence. The two firms were sacked by the federal government a few weeks ago, for the alleged professional misconduct in the oil subsidy saga.

Lawan,  who was elated by the adoption of his committee’s report, expressed gratitude to Nigerians and his colleagues, hoping that the efforts of his committee and the House would not be in vain and that the recommendations would be implemented fully. Aminu Tambuwal, speaker of the House, also echoed similar sentiments as he urged the executive to implement recommendations of the House. “Our only interest here is to mitigate the suffering of Nigerians by showing how the subsidy regime has been hijacked for the benefit of a few. At the end of our deliberations we hope that the executive arm will act upon the resolutions of this House and bring more transparency to bear on the system,” he said.

However, since the committee’s findings were made public, some of the agencies indicted by the report have faulted some of its submissions. For instance, the NNPC reacted angrily to the allegation that the corporation was involved in a N845 billion fraud, which it described as absurd and baseless.  In a statement   issued in Abuja by Levi Ajuonuma, group general manager, public affairs, the NNPC challenged the CBN and the Ad -Hoc Committee to provide evidence that such payments, as alleged, were made to NNPC. “They must show authorisation for the payments as well as breakdown of the amount, purpose for the payments, beneficiary accounts in which such payments were made and the utilisation of such payments,” Ajuonuma said.  

Ajuonuma said rather than collecting such payments from CBN as alleged, the NNPC applied such subsidy approvals as credit due to the corporation towards the cost of its domestic crude allocation. “For the purposes of clarity, subsidy payments to NNPC are not based on cash remittance. The mechanics of subsidy recovery by NNPC is not fund based but by way of deduction from crude cost due. As a matter of fact, from the commencement of the subsidy regime, there was never a time the CBN paid any money to NNPC in respect of subsidy claim.”

  Ajuonuma said the House committee, headed by Lawan, did not make use of the documents and information provided to it by the NNPC. “NNPC presented to PPPRA approvals for 2011 totalling N981billion out of which only N844.9 billion has been credited to NNPC. But surprisingly, the committee claimed that PPPRA approved only N504 billion and that the balance was excess payment to NNPC. What logic.”

Ali, former chairman of PPPRA equally said the findings of the Lawan-led committee on subsidy regime were faulty and undemocratic. According to him, there were too many fundamental flaws in the compilation of the report. He added that the committee should know the limits of the powers of a non-executive chairman of PPPRA and the operating processes in such an establishment. Ali said he would have dismissed the allegations as the handwork of his political detractors or, at best, maintain dignified silence in the face of the struggle by some people to smear his reputation.   He explained that based on the glaring flaws in the report, it became expedient for him to join issues, if any, to correct the erroneous impressions and obvious misrepresentation of facts in the recommendations.

However, to many prominent Nigerians, members of the ad-hoc committee should be commended for handling assignment with a high sense of responsibility.  Tunde Bakare, convener of Save Nigeria group, SNG, said the House of Representatives has endeared itself to Nigerians by proceeding with the probe of the scam. He gave federal government a two- week ultimatum to prosecute officials indicted in the subsidy scandal. Bakare said companies involved in fuel importation and unpatriotic auditors are culpable in the scam, adding that they are guilty of economic sabotage and corruption.

 “We are giving two weeks to see concrete steps in the direction of prosecuting the indicted officials failing which, we shall be calling our people out to protest,” he said.

Bakare warned that rolling out tanks by government at the Gani Fawehinmi Freedom Park, Ojota, was meaningless, because that venue is not the only area of protest. The park hosted last January’s anti-fuel subsidy removal protest that reverberated in the country.

 He also called for the appointment of a private prosecutor to deal with the prosecutions.  

Olorunmbe Mamora,  former chairman, Ethics, Privileges and Petitions  committee of the Senate  was happy that the report has unearthed a lot of hidden facts. “People are happy that such things came to the public glare. I will like the House to do more of that routinely not until there is crisis situation. I hope that it will not be dumped like the power probe report which had a lot of dramatisation, but at the end nothing came out and nobody was brought to book,” he said.

 Mamora’s fear that the president may not have the audacity to implement the resolution of the House appears to have been justified by insinuations that there is a plot to kill the report. The first indication that the report  of the committee may be swept under the carpet  manifested last Wednesday when Ahmed Gulak , the president’s political adviser, said that the House ad-hoc committee  should get to the root of the subsidy issue in order to give the probe a measure of credibility. He explained that as it is now “it looks like the probe is targeted at some individuals”.

He wondered why the committee did not invite some of the former officials of the government who also presided over the oil industry during fuel subsidy regime. He said: “Why did they not invite Rilwanu Lukman? He was the minister of petroleum resources during the period of the probe? Where is Mohammed Barkindo who was the Group Managing Director, GMD, Nigeria National Petroleum Corporation, NNPC? Where are the other key actors who were at the vanguard of the subsidy regime? The House of Representatives must call these individuals before we can truly say they are doing the right thing otherwise the report will lack credibility. What is worth doing at all is worth doing well”.

The presidential adviser added: “Yes, money has been stolen in NNPC and we have to get to the root but in doing that we must go back to when it all started? At what point did things go bad? Mr. President is even the one that is saying no more stealing with the subsidy regime and that it must stop, how can he then turn around and sit on something that will help him sanitise the sector? People should not allow themselves be used to promote the political agenda of some selfish individuals”.

He, however, said since the president had not received the report, it would be wrong for people to accuse him of refusing to implement the recommendations. “The Economic and Financial Crimes Commission has been given the mandate to go into the matter and you will also recall that not too long ago, Mr. President approved the appointment of Mr. Nuhu Ribadu, former EFCC chairman, to help sanitise the oil and gas sector. The president is determined to do more if he is given the necessary support by Nigerians,” Gulak said.

Newswatch, however, gathered that the EFCC may disregard the report of the House of Representatives’ ad -hoc committee in favour of its independent investigations into the management of fuel subsidy. But sources at the EFCC told Newswatch that the report by the House of Representatives will only complement the investigation which the commission has already carried out on the contentious fuel subsidy saga. 

Beyond the investigation of the EFCC, the big question agitating the minds of many Nigerians is whether President Jonathan would  take into consideration the interest the House ad-hoc committee’s report has so far generated and implement the report or whether it will be swept under the carpet like the report on the power probe? Only time will tell.


Reported by Tobs Agbaegbu and Haruna Salami



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