Kerosene Subsidy: the Facts, the Lies

Fri, Feb 21, 2014
By publisher

BREAKING NEWS, Featured, Oil & Gas

The controversy over the kerosene subsidy is still gathering momentum as members of the National Assembly investigating the scheme cannot agree with government officials about the legality of the subsidy

By Anayo Ezugwu  |  Mar. 3, 2014 @ 01:00 GMT

THE ongoing kerosene subsidy probe by the National Assembly is becoming quite dramatic. On Thursday, February 20, the Senate rejected N700 million daily deductions for kerosene subsidy by the Nigerian National Petroleum Corporation, NNPC, saying it was illegal. Babajide Omoworare, a senator from Osun State and member of the All Progressives Congress, APC, said he noted through admission by the Petroleum Products Pricing and Regulatory Agency, PPPRA, the ministry of petroleum resources and the ministry of finance that the deduction was illegal.

In his presentation, Omoworare said findings from the finance committee investigation, showed that current kerosene subsidy scheme was illegal, unconstitutional and a brazen breach of the Appropriation Act passed by the National Assembly. He said that the expenditure was in contravention of Sections 80 and 162(1) of the 1999 Constitution (as amended) and attendant Appropriation Acts. The senator said the kerosene subsidy scheme had woefully failed to ameliorate the living condition of the suffering masses of the country who were the targeted beneficiaries but transformed into an “engine of fraud and conduit for enriching the ever manipulative super rich.”

But Mohammed Adoke, attorney-general of the federation and minister of justice, disagreed. Adoke, in his legal presentation at the public hearing of the Senate committee on finance on the alleged unremitted $20 billion oil revenue, said the NNPC was empowered by the NNPC Act to remit only to the federation account its net earnings after deducting cost of its operations. He said the NNPC was generally under an obligation to remit its revenue from the upstream petroleum operations into the federation account. The AGF legal opinion was in response to the invitation by the Senate committee, led by Ahmed Makarfi, former governor of Kaduna State and serving senator, investigating the alleged missing $20 billion. The AGF explained that in determining the issue of oil revenue remittance to the federation account, the NNPC, by virtue of Section 7 (4) of the NNPC Act, could defray all expenses incurred in the course of its business in the upstream operations. “I am of the considered view that NNPC is generally under an obligation to remit its revenue from the upstream petroleum operations into the federation account. This is however dependent on the definition of ‘revenue’ within the meaning and intendment of Section 162(10) (c) 0f the Constitution. I am also of the considered view that the NNPC can by virtue of Section 7(4) of the NNPC Act defray all expenses incurred in the course of its business in the upstream operations. Consequently, what NNPC is required to pay into the federation account is the ‘net revenue’ as opposed to the ‘gross revenue.’


“This position is further reinforced by the decision of the Supreme Court in A.G. Ogun State & Ors v. A.G. Federation (2002) 18 N.W.L.R (Nigeria Weekly Law Report) (Part 798) 232 at 284, where the court recognised similar provisions as the ones contained in Section 7 (4) of the NNPC Act in the Public Enterprises (Privatization and Commercialisation) Act, Cap P.38, LFN 2004 i.e. Section 20 thereof. I am therefore of the respectful view that only the net revenue from upstream petroleum operations of the NPDC should be paid into the federation account by the NNPC. In other words, NPDC is required to pay only what amounts to the dividend of its crude oil proceeds to NNPC (as its holding company) and the NNPC will in turn pay that into the federation account,” he said.

That notwithstanding, the PPPRA said on Wednesday, February 19, that about N543.89 billion subsidy claims on imported kerosene by the NNPC had not been fully verified. The agency said the subsidy covered importation for 19 months from January to December 2012 and the first seven months of 2013. Reginald Stanley, former executive secretary of the regulatory agency said the subsidy claims were for 3.907 billion litres of kerosene imported during the period. He said this when he appeared before the House of Representatives committee on petroleum resources, which is investigating subsidy payments on kerosene between 2010 and 2013.

Stanley informed the committee that the verification process involved checking the records of products discharged by bigger vessels into small ones on the high sea and the eventual discharge of the product into tank farms. Members of the committee were taken aback when he said that it was not necessary for officials of the PPPRA to be at the point of discharge of the product on the high sea to confirm whether the quantity quoted in the accompanying documents was actually discharged.

According to Stanley, the job of the PPPRA stops at confirming that the product gets to the tank farms, where marketers load for downstream distribution. He explained that the agency’s work was also being aided by the marketers, who would confirm receipt of the quantity discharged on the high sea. “Our men will not usually be at the point of reception, but we can confirm based on the documents the NNPC presents to the PPPRA. We have documents showing that the vessels came in, but when a vessel arrives and anchors in Lagos, we are not there,” he said.


Stanley told the committee that between 2009 and 2011, the PPPRA under his predecessor, verified kerosene subsidy claims of N331.4 billion for 4.229 billion litres of the product. “My predecessor issued a certificate to the NNPC; that is all I can confirm.” He also said he was aware that the NNPC was allocated 445,000 barrels of crude oil per day for its swap arrangement and refining by the refineries in the country. Stanley also disclosed that the corporation paid for the crude at international price. “The crude is fully paid for by the NNPC; it is not sold at any concessional price; it is important to clarify this,” he said.

Stanley stated that whether the kerosene supplied to the country came from the 445,000 barrels of crude or from direct importation, it would attract subsidy since the NNPC was not taking the crude free of charge from the federal government. Many lawmakers expressed dissatisfaction that the subsidy verification was being done purely on documents presented to the PPPRA by the importer or supplier and not through physical presentation. When they sought to know the average landing cost of a cargo of kerosene in the country, Stanley replied that a standard cargo could carry 30,000 metric tonnes of the product, adding that the price per tonne ranged from $1,085 to $1,115. He added that this would translate to $34.2m for a cargo of 30,000 metric tonnes.

The PPPRA boss also put the daily consumption of kerosene in the country at 10 million litres, though he said this depended on the season of the year. “On the average, 10 million litres is the industry figure per day. However, during the wet season, more kerosene is consumed because cooking wood is wet and people use kerosene more to provide energy. In the dry season, the consumption will drop because again, there will be more reliance on dry wood,” he said.

Like what the NNPC and the Pipelines and Product Marketing Company earlier told the committee, the PPPRA boss also blamed the scarcity of kerosene in the country on the government subsidy, diversion, as well as the use of the product in road construction and the aviation sector. According to him, the competing demands have forced marketers to cut corners and adopt any means at their disposal to sell to the highest bidder as against the recommended N50 per litre.