29 June 2012

Nigeria: Major Marketers Cited in Widespread Subsidy Abuse

Major oil marketers comprising Oando Plc, Forte Oil Plc, Total Nigeria Plc and MRS Plc, among scores of other independent oil marketers and importers of petrol, have been named by a Federal Government committee as having commited multiple infractions in the fuel subsidy scheme.

Details of the 17 infractions, which were exclusively reported by THISDAY yesterday, are contained in the report of the verification committee headed by the Managing Director/Chief Executive Officer of Access Bank Plc, Mr. Aigboje Aig-Imoukhuede.

The report also showed that despite the payment of N451 billion as 2011 subsidy arrears from the N888 billion earmarked for subsidy payments in the 2012 budget, the Nigerian National Petroleum Corporation (NNPC) and private oil marketers still have outstanding claims of N384,450,487,333.99 to be paid by the Federal Government.

Independent oil marketing companies fingered in the report include Capital Oil & Gas, NIPCO Plc, SPOG Petrochemical Limited, Sahara Energy Limited, Masters Energy, Honeywell Oil & Gas, Rahamaniyya Oil & Gas, Atieo Energy Resources Limited, Eterna Plc, Obat Oil & Petrol Limited and Folawiyo Oil Limited, among others.

The report showed that the oil marketers committed a wide range of infractions ranging from lack of evidence of sales proceeds in commercial banks, to the non-payment of a N20 million re-engagement fee for non-performance in the area of petrol importation, which should have been surcharged by the Petroleum Products Price Regulatory Agency (PPPRA).

For instance, of 857 transactions reviewed by the committee, 112 transactions were discovered as not having evidence of sales proceeds based on banks' available records at the date of verification.

The total subsidy claims in respect of these transactions was N157,549,854,482.55.

Similarly, 88 companies were discovered to have collected subsidies amounting to N121,897,757,962.56 without the signatures of external auditors and independent inspectors on shore tank certificates.

Marketers, which were identified by the committee to have commited infractions, will have the over-payments ascribed to them deducted from their outstanding subsidy claims, presidency sources revealed.

The report also showed that the total outstanding arrears owed the private marketers from 2011 amounted to N67,298,074,641.03, while the outstanding NNPC claims was N317,152,412,692.96.

Both NNPC and the marketers made total claims of N2,109,386,944,946.92 in 2011, with the corporation claiming N981,734,423,649.56 while the oil marketing and trading companies submitted claims amounting to N1,127,652,521,297.36.

The committee's report, however, noted that outstanding arrears from 2009 and 2010 subsidies were included in NNPC's claims for 2011.

Of the N981.7 billion claims submitted by NNPC for 2011, the corporation paid itself N764,944,448,471.72 by deducting it directly from the cost of crude oil allocated to it by the Federal Government.

NNPC also deducted another N210 billion in 2012, leaving N6.78 billion as government's outstanding obligation.

But in 2012, the corporation submitted fresh claims of N310,362,437,515.12 as arrears of 2009, 2010 and 2011, bringing its total outstanding arrears from 2011 to N317.15 billion.

Of the N1.125 trillion claims made by the oil marketing and trading companies in 2011, the Federal Government paid N866,665 billion to the marketers in 2011, while another N246.171 billion was paid in 2012 as part of the 2011 arrears, leaving a balance of N12.8 billion.

However, in 2012, the marketers submitted additional claims of N54.48 billion as arrears of 2011, bringing their total unpaid arrears to N67.298 billion.

Of the N888.1billion earmarked for subsidy payments in the 2012 budget, a total of N231.8 billion was meant for the payment of the 2011 arrears.

But the payment of the arrears has gulped N451 billion, with N384.45 billion outstanding, which prompted the Minister of Finance and Coordinating Minister for the Economy, Dr. Ngozi Okonjo-Iweala, to suspend the payment of both the arrears from 2011 and claims for 2012, pending the completion of the forensic audit and verification exercise undertaken by the committee.

Meanwhile, oil marketers yesterday called for the immediate payment of all valid outstanding claims for 2011 and 2012.

The marketers also urged the finance ministry to ensure the immediate resumption of the issuance of Sovereign Debt Notes (SDN) by the Debt Management Office (DMO) for all legitimate transactions that have been completed and audited.

In a statement, the marketers said due to the fact that the issuance of SDNs for 2011 arrears and the current 2012 petrol import transactions were initially delayed and now currently suspended, they now have huge outstanding, verified and unpaid subsidy claims in excess of N200 billion with the Federal Government.

They argued that the non-reimbursement of the subsidy claims impairs the ability of any company to meet its obligations to the banks for loans advanced for the purpose of importing petrol under the scheme.

The marketers said conflicting statements by senior government officials on the adequacy or inadequacy of the amount appropriated for subsidy in 2012 and the subsequent halt in issuance of the SDNs, has led to an atmosphere of extreme uncertainty in which most banks are reluctant to provide further funding for importers.

Others, the marketers said, are only willing under extremely severe and uneconomic terms to fund their companies.

"Based on the foregoing, we hereby request that as a matter of extreme urgency and as the only means to ensure continued importation and supply of regulated products (petrol and kerosene), the following actions are taken: the Ministry of Finance ensures the immediate resumption of the issuance of SDNs by DMO for all legitimate transactions that have been completed and audited;

•PPPRA ensures conclusion and calculation of all outstanding legitimate claims (including but not limited to foreign exchange and interest rate differential claims) by June 30th, 2012;

•Ministry of Finance ensures cash backing for the SDNs that have already been issued and payment effected;

•All valid outstanding claims for 2011 and 2012 are paid without further delay as well as a statement assuring the finance community of the Federal Government's ability and willingness to make good its obligation to importers in relation to the subsidy scheme be issued by PPPRA and the office of the Honourable Minister of Finance."

The Federal Government committee was made up of Aig-Imoukhuede (chairman); Director General, Budget Office of the Federation, Dr. Bright Okogu; Dr. Director General, Debt Management Office, Dr. Abraham Nwankwo; Accountant General of the Federation, Mr. Jonah Otunla; and Executive Secretary, Petroleum Products Pricing and Regulatory Agency (PPPRA), Mr. Reginald Stanley.

Other members included former Group Executive Director, Finance and Accounts, Nigerian National Petroleum Corporation (NNPC), Mr. Michael Akorodare; Deputy Director, CBN, Mrs. Onyinye Ahuchogu; Mrs. David-Borha; National Secretary, Independent Petroleum Marketers Association of Nigeria (IPMAN), Mr. Mike Osatuyi; and Executive Secretary, Major Marketers Association of Nigeria (MOMAN), Mr. Obafemi Olawore.

In addition to the efforts by the finance minister to eliminate graft in the subsidy scheme and improve the management of the PSF, the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, last January set up a number of task forces to reform the oil and gas sector.

One of such task forces is the 11-panel headed by Mr. Dotun Sulaiman on governance and controls in NNPC and other parastatals under the petroleum ministry.

The other is the Udo Udoma Petroleum Industry Bill (PIB) Special Task Force, which is working with a technical committee that is reviewing all versions of the bill to produce a new draft, while a third is the Nuhu Ribadu Petroleum Revenue Special Task Force meant to enhance probity, transparency and accountability in the operations of the petroleum ministry.

A fourth is a task force chaired by Dr. Kalu Idika Kalu to review the operations of the nation's four refineries and proffer solutions to optimise performance of the plants.

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