Sleazy subsidy and selling of refineries

Warri Refinery
| credits: http://www.urhobotimes.com

A Senate committee that investigated the alleged non-remittance of $20 billion into the Federation Account by the Nigerian National Petroleum Corporation has recommended the scrapping of subsidy on petroleum products. Attempts to implement this policy by the Federal Government in 2012 without clearing the mess in the petroleum downstream sector triggered an eight-day strike that cost the economy an estimated N207.4 billion, according to figures released by the National Bureau of Statistics.

The subsidy regime in Nigeria has been feeding some fat cats in and outside the corridors of power for more than two decades. It is why our four refineries – in Port Harcourt, Warri and Kaduna – with a combined production capacity of refining 445,000 barrels per day, have been reduced to just 18 per cent capacity utilisation on the average.

The decision to stop subsidy by the Finance Committee of the Senate, chaired by Ahmed Makarfi, followed its discovery that the NNPC had spent N685.9 billion to subsidise kerosene, without parliamentary approval. The amount is part of the $20 billion oil revenue, which the Central Bank of Nigeria, under its former governor, Lamido Sanusi, said was not accounted for by the national oil behemoth.

Going by the provisions of Section 80 (2) (3) (4) of the 1999 Constitution, no moneys shall be withdrawn from any public fund of the Federation without authorisation of the National Assembly. The NNPC action, therefore, was in clear breach of our supreme law. It should have been obvious by now to its managers that the Act that established the corporation, often used to justify its spending, is not superior to the constitution. To remedy its cocktail of reckless charges on public treasury, the committee has advised the Federal Government to submit a budget covering the said amount to the parliament for approval.

We believe that immediate withdrawal of subsidy and legalising a violation of the constitution are off beam response to a fundamental economic crisis. The best way to solve the problem is to make the downstream of the petroleum sector work – first, by privatising the refineries, and then passing the Petroleum Industry Bill. Since it was initiated in 2008, the PIB has been entangled in a maze of corruption and vested interests. The Ministry of Petroleum Resources says it has spent N500 million to promote the bill, which it could not account for, when its Permanent Secretary, Danladi Kifasi, appeared before the Senate Committee on Gas in March.

The overall goal of the PIB is the entrenchment of transparency and best practices in the oil and gas sector. Specifically, it contains sufficient powers to make the international oil companies answerable; authority to call for a company’s returns; prohibition of gas flaring; an agency for the regulation of the downstream sector, increase in local investment and compelling operators to take responsibility for the environment.

Pressured by public outrage, the Federal Government in 2012 empanelled the National Refineries Special Task Force, headed by a former minister of finance, Kalu Idika Kalu, to evaluate the state of the refineries. The committee did not only discover that the four refineries were operating at just 18 per cent of their installed capacity, it recommended that they be sold within 18 months of the submission of the report, to stop further waste of public funds in maintaining them.

Surprisingly, shortly after the committee submitted its report, the Federal Government secured a $1.6 billion foreign loan for the maintenance of the refineries, which it said would be sold in the first quarter of 2014. This is mid-year, and there is no word yet from official quarters on how far the maintenance work has gone. No doubt, this silence gives room for speculations. Shenanigans have long been associated with the repair of refineries in the country; this should stop.  

The Minister of Petroleum Resources, Diezani Alison-Madueke, had earlier in London said, “We would like to see major infrastructural entities such as refineries moving out of government’s hands into the private sector…Government does not want to be in the business of running major infrastructure entities, and we haven’t done a very good job at it over all these years.”

Given what must have happened to the N500 million purportedly spent on the PIB, the ministry’s unabashed request for $3.16 billion in 2012 for gas infrastructure development, when Kifasi confessed to the ministry’s lack of capacity to embark on such a project, it is beyond question that the disorderliness in the petroleum downstream would not end soon. It is laughable that Nigeria is the only major global oil producer that depends on imports for domestic consumption of petroleum products.

With the Federal Government’s embrace of tendencies that suggest that it sees nothing wrong in a major OPEC member-country perennially buying refined fuel from outside, or lacking the political will to privatise the refineries, a return to the fuel subsidy bazaar of 2011 when N2.5 trillion was expended is not unlikely. From 49 companies in the first quarter, a total of 140 firms were involved in fuel importation at the end of that year, many of which were racketeers. Decidedly, that was a rank show of shame and looting of the treasury.

That abuse of public funds, for which nobody has been made to account, forced the Federal Government to review subsidy payments down to N971 billion as contained in the 2014 budget. This corruption template can be destroyed, but it can only work when our petroleum downstream sector is made to function the way it is in other oil-producing nations.

The mere removal of subsidies as had been done in the past will not solve the problem. What the Federal Government should be working on now is how to refine petroleum products locally. There should be a concerted effort to encourage those who have obtained licences to establish refineries to start refining.