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Fuel subsidy, oil theft swallowed up N29tn, FG said.

The Federal Government, on Thursday, said the amount spent on subsidising Premium Motor Spirit, popularly called petrol, between 2005 and 2021 was N13tn, adding that the country lost N16.3tn to oil theft from 2009 to 2020.

It disclosed this in Abuja through the Nigeria Extractive Industries Transparency Initiative at a policy dialogue on oil swap, co-hosted by NEITI and Policy Alert, an indigenous civil society organisation, with support from the Opening Extractives.

In a presentation by NEITI’s Executive Secretary, Orji Ogbonnaya-Orji, which was made available to our correspondent, he said there was an urgent need to make decision on the agitation for the removal of fuel subsidies.

He stressed that the full deregulation of the petroleum sector would permanently lay to rest the conversation around oil swaps, adding that latest findings by NEITI showed the humongous amount spent on subsidising fuel by the government.

NEITI’s latest policy brief titled, ‘The cost of fuel subsidy: A case for policy review,’ revealed that Nigeria expended over N13tn ($74bn) on fuel subsidies between 2005 and 2021.

“The figure in relative terms is 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 2020. It is also important to note other economic opportunity costs of fuel subsidy which include slashing allocations for the health, education, and technology infrastructure sectors.

“Others include the deterioration of the downstream sector with the declining performance of Nigeria’s refineries and recording zero production in 2020; disincentivised private sector investment in the down and mid-stream petroleum sector; low employment generation since the refining process is done outside the shores of Nigeria; worsening national debt; declining balance of payment, forex pressures and depreciation of the naira and of course product losses, inefficient supply arrangements, scarcity and its attendant queues, etc,” Orji stated.

On crude oil theft, he said NEITI policy brief and data pulled from industry reports of the oil and gas sector “showed that between 2009 and 2020 (12-year period), Nigeria lost 619.7 million barrels of crude oil valued at $46.16bn or N16.25tn.”

Orji explained that the volume of crude oil losses represented a loss of more than 140,000 barrels per day, adding that between 2009 and 2018, Nigeria also lost 4.2 billion litres of petroleum products from refineries valued at $1.84bn.

“These findings and recommendations on tackling crude oil theft have been submitted to the President through the Presidential Committee on Crude Oil Theft, in which NEITI also served as a member.

The committee has concluded its work and submitted its report to the President. The committee did an excellent job with far reaching recommendations. I will like to commend the Office of the NSA (National Security Adviser) that coordinated that panel’s work,” the NEITI boss stated.

Progress on PIA implementation unknown

The presentation also talked about the status of the implementation of the Petroleum Industry Act, stressing that its progress had not been made public.

Recall that the PIA made copious provisions for the deregulation of the downstream sector of the petroleum industry. A Presidential Steering Committee on the implementation of the PIA was set up in 2021 to coordinate the implementation of the Act.

“Not much is in the public domain on the progress of the committee’s work. Civil society should step up advocacies for the conclusion of the committee’s work and submission of its report to the President before the expiration of this administration with clear recommendations to the next administration on what has been done and outstanding work,” Orji stated.

Flaws around oil swaps

On oil swap, the NEITI helmsman said it dated back to the period when the Nigerian National Petroleum Corporation used to receive a daily crude allocation of 445,000 barrels per day from the Federal Government to refine for domestic consumption.

“The near-total collapse of the country’s four refineries meant that the NNPC could not refine the 445,000 bpd domestic crude allocation. Instead, NNPC exported most of the crude and then depended on the Pipeline Products Marketing Company Limited or private oil marketers to import refined products for local consumption.

“This led the country into huge debts and did not guarantee sustained imports of refined products to meet domestic demand. The debts got so heavy, and refined products were scarce with long queues at petrol stations nationwide.

“The government had to find innovative and less expensive ways of making refined petroleum products available for the citizens. Thus, in 2010, the NNPC introduced oil-for-product swaps as a solution to this problem,” Orji explained.

He, however, pointed out that oil-for-product swaps were complex barter transactions in which NNPC and private traders swapped crude oil for refined petroleum products, rather than for money.

He said the NNPC had to adopt two kinds of swaps, including the Offshore Processing Agreement, in which a refiner or trading company entered a contract to lift a specified volume of crude (with clear terms on the expected product yields), refine it abroad, and deliver the resulting refined products back to the NNPC.

Under this model, the refining company also can pay cash to NNPC for any product that Nigeria does not need.

Orji said the second was the Crude-oil-for-Refined-Product Exchange Agreement, in which crude was allocated to a trader, who was then responsible for importing refined products to match the value of the crude, less agreed to fees and expenses.

“However, these swap deals were not sustained as there were major operational changes within the NNPC on the management of domestic crude allocation in 2016.

“The Direct Sale Direct Purchase replaced offshore Processing Arrangement with effect from January 2016 and a functional unit was created within the Crude Oil Marketing Division to manage the DSDP,” he stated.

Orji, in the presentation, therefore stated that the oil swap policy dialogue was designed to provide a platform to share data and analytical insights on Nigeria’s crude swaps, identify gaps and weaknesses in the swap deals, and highlight corruption red flags or risk areas.

He said the dialogue would initiate inter-agency collaboration on the use of beneficial ownership data between anti-corruption agencies and regulators.

“We also want to use this dialogue to extract a commitment from state actors, especially anti-corruption agencies to follow-up investigations on the crude swaps, strengthen partnerships with specific agencies for follow-on action and generate interest around the subject of crude swap deals among key stakeholders.”

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