More details have emerged from the Senate on the illegal kerosene subsidy regime in Nigeria, showing that the Federal Government and the Nigerian National Petroleum Corporation (NNPC) spent a total of $4.43 billion on the subsidies that were not appropriated for.
“The total kerosene (DPK) subsidy paid but not appropriated for by the National Assembly in 2012 and 2013 was the sum of N685,909,513.076.02 ($4.443 billion),” said the Senate Committee on Finance in a report on the outcome of the investigation on the Central Bank of Nigeria’s (CBN) allegation of unremitted $49.8 billion oil revenue by the NNPC.
“Mr President (Goodluck Jonathan) having publicly defended payment of kerosene (DPK) subsidy clearly shows that the said presidential directive by the late President Umaru Musa Yar’Adua had been set aside by the current president. However, it remains unconstitutional since it was not appropriated for by the National Assembly,” said the report.
The Senate began its investigation after Lamido Sanusi, former CBN governor, alleged a multibillion-dollar subsidy racket inside the state-owned oil company, NNPC, which has led to huge shortfalls in oil earnings in Africa’s largest oil-producer.
Nigeria produces 2.3 million barrels a day and funds 70 percent of its budget from crude oil sales.
Diezani Alison-Madueke, minister of petroleum resources, testifying at the Senate on February 2014, defended the kerosene subsidy despite its illegality, saying “the subsidy was kept at N50 per litre for the benefit of the Nigerian masses, even though the landing cost is N150 per litre”.
However, evidence from across most of Nigeria shows that kerosene is not sold at a subsidised rate. It is bought by the NNPC at N150, sold to oil marketers at N40-N50, but retailed at between N170-N250. The Senate report estimates that N965.49 million is wasted on kerosene subsidy each day.
The kerosene subsidy is bleeding Nigeria’s public finances, even while the government is seeking to borrow $1 billion to buy equipment for the military that is fighting an Islamic insurgency in the north-east.
Adding to the problem is the fact that most of the subsidised kerosene is imported because government’s four refineries with a combined 445,000 barrel-a-day capacity operate at less than 20 percent of their capacity, due to poor maintenance and ageing equipment, despite billions of dollars spent on turnaround maintenance (TAM) by the NNPC.
“The imports of refined fuel products create pressure on the current account and on the local currency,” said Gregory Kronsten, analyst at FBN Capital.
“A recent World Bank study on the ground showed that the poorest 10 percent of the population consumed no more than 1 percent of subsidised fuel. There is no case for product subsidies, and we hope that the government formed after the elections in 2015 will move to deregulation,” Kronsten said.
US Energy Department data released last week showed that American sales of refined-petroleum cargoes like gasoline and kerosene to Nigeria have almost converged with US imports of Nigerian crude.
Nigeria imported more than half of its fuels from America in 2013, from less than a fifth three years ago, according to IHS Inc., a consulting firm.
Demand for refined products such as petrol, diesel, kerosene and aviation fuel among Nigeria’s 170 million people is growing amid a booming economy forecast by the International Monetary Fund (IMF) to expand by 7.1 percent this year, up from 6.4 percent in 2013.
That burgeoning growth in domestic energy demand, combined with an inability to boost output, “is further exacerbated by the fact that domestic consumption is mostly subsidised by the Federal Government”, said Ildar Davletshin, energy analyst at Renaissance Capital, in a May 26 report.
PATRICK ATUANYA
