Says N13trn spent on fuel subsidy in 16 years
The implementation of full deregulation policy in the downstream sector of the petroleum industry will permanently end the problems associated with crude oil swaps subsidy payments, the Nigeria Extractive Industries Transparency Initiative (NEITI) has said.
Speaking at the Policy Dialogue on using beneficial ownership data to fight corruption in Nigeria’s crude oil swaps, the Executive Secretary of NEITI, Orji Ogbonnanya Orji, said there was need for the in-coming administration to urgently decide on what to do with proposed removal of fuel subsidies.
He after spending over N13 trillion ($74 billion) on fuel subsidies under the Direct Sale-Direct Purchase (DSDP) arrangement between 2005 and 2021, full deregulation of the petroleum sector was the only way to lay to rest the conversation around crude oil swaps permanently.
The Policy Dialogue was co-hosted by NEITI and Policy Alert, an indigenous civil society organization, with support from the Opening Extractives.
The crude oil swap scheme was introduced in 2010 by the then Nigerian National Petroleum Corporation (NNPC) to enable the allocation of 445,000 barrels of crude oil per day for refining for domestic fuel consumption amid the dearth in refining capacity from the country’s four refineries in Port Harcourt, Warri and Kaduna.
Consequently, the NNPC resorted to be exporting the bulk of the crude oil allocation and relying on its marketing and distribution subsidiary, the Pipeline and Products Marketing Company (PPMC) or private fuel marketers to import refined products to meet local consumption demand.
The opaque arrangement resulted in huge debts, amid growing scarcity of refined petroleum products and long queues at petrol stations nationwide.
To find innovative and less expensive ways of ensuring availability of refined petroleum products across the country, the NNPC, in 2010, introduced the oil-for-product swaps as a solution.
The swaps arrangement involved barter transactions in which the NNPC and private traders swapped crude oil for refined petroleum products, rather than for money.
Under the crude swap arrangement, the NNPC had two agreements. One was for Offshore processing (OPA), in which refiners or commodities trading companies entered contracts to lift a specified volume of crude oil for refining into petroleum products abroad (particularly petrol) that are brought back to the country for distribution.
The other was for Crude-oil-for-Refined-Product Exchange (RPEA), in which crude oil was allocated to traders, who would then be responsible for importing refined products to match the value of the crude oil lifted, less agreed fees and expenses.
But, in January 2016, the offshore Processing Arrangement (OPA) was replaced with the Direct Sale, Direct Purchase (DSDP) arrangement under the Crude Oil Marketing Division of the NNPC.
However, the NEITI boss said the N13 trillion spent on the payment for fuel subsidy under the swap arrangement, in relative terms, was equivalent to Nigeria’s entire budget for health, education, agriculture, and defence in the last five years, and almost the capital expenditure for 10 years between 2011 and 2020.
He said other economic opportunity costs of fuel subsidy include, among others, the cut in allocations for the health, education, and technology infrastructure sectors; deterioration of the downstream sector with the declining performance of Nigeria’s refineries and zero production in 2020.
The other opportunity costs, Orji said, include disincentivized private sector investment in the down and mid-stream sectors of the petroleum industry; low employment generation since the refining process was done outside the country; worsening national debt; declining balance of payment, foreign exchange pressures and depreciation of the Naira, and product losses, inefficient supply arrangements that resulted in perennial scarcity and queues.
As part of the agenda set for the incoming administration come next May 29, Orji urged civil society groups to insist on government’s implementation of the provisions of the Petroleum Industry Act (PIA).
One the key provisions in the PIA the NEITI Executive Secretary noted, was for the full deregulation of the downstream sector of the petroleum industry, for which a Presidential Steering Committee to coordinate the implementation of the PIA was set up in 2021.
On Crude oil theft, Orji said NEITI policy brief on crude oil theft and data from NEITI industry reports of the oil and gas sector showed that between 2009 and 2020 (12-year period), Nigeria lost a total of 619.7 million barrels of crude oil valued at $46.16 billion, or N16.25 trillion.
“The volume of crude oil losses represents a loss of more than 140,000 barrels per day. Between 2009 and 2018, Nigeria also lost 4.2 billion litres of petroleum products from refineries valued at $1.84 billion,” he added.
Also, Orji said the PIA 2021 mandates the Nigeria Upstream Petroleum Regulatory Commission (NUPRC) to publish the details of any new license, lease or contract, or amendment immediately after being granted or signed.
He said NEITI, which is representing Nigeria as the Chair of the 20-member countries EITI Global Network on Contract Transparency, was committed to the enforcement of the framework for contract disclosures.
To deliver on this assignment, he said NEITI was currently coordinating the activities of an inter-agency committee on contract transparency in the extractive sector.
The Committee, he disclosed, has already produced a draft implementation roadmap and work plan, apart from hosting a stakeholder engagement to review some of the regulations to guide the operationalization of the PIA.
Meanwhile, he said allegations about the Glencore bribery scandal involving some Nigerian government officials at the NNPC to secure crude oil contracts and other business advantages were reported the federal government through the Office of the Secretary to the Government of the Federation.
Providing update on the issue, Orji who said the case has been brought before the Economic and Financial Crimes Commission (EFCC) for further investigations, urged the anti-graft agency to speedily conclude investigations and prosecute culprits found culpable.
The Executive Director, Policy Alert, Tijah Bolton-Akpan, said the policy dialogue on using beneficial ownership data to fight corruption in Nigeria’s oil swaps became necessary with additional responsibility imposed on civil society by the PIA.
With the coming into force of PIA 2021, there was additional obligations on the NUPRC, the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), NNPC Limited and the domestic and international companies doing business in the oil and gas sector in the areas of contract openness and beneficial ownership transparency.
Bolton-Akpan said it was important for civil society groups to be aware of they can leverage on the provisions of the PIA to ensure that hidden company ownership was not exploited to shield corrupt industry players and their collaborators in government from accountability as they continue to bleed the country dry.
“How can the NNPC get back on track on some of the impressive strides it had begun on mainstreaming proactive disclosure, but which have recently been rolled back, almost creating a dent on its credentials as an EITI supporting company?
“With the beneficial ownership reforms under the CAMA 2020, how can the CAC increase the quality of beneficial ownership disclosures to ensure that such data becomes more useful for accountability actors such as civil society, law enforcement and the legislature in tracking transactions such as the crude swap deals?
“How can this conversation improve the scope and quality of NEITI’s subsequent audits, and even beyond the progress on remediation issues? How do we situate this whole conversation within the context of a rapidly unfolding energy transition which appears to be leaving Nigeria behind with a piece of huge governance baggage from the fossil fuel era?” he said
He said holding just weeks before the exit of the present administration and the new government, the dialogue should contribute to the agenda set and policy recommendations being proposed for the incoming administration to work with.
