Lack of accurate data especially in Nigeria’s oil and gas sector has predominantly fueled conspiracy of theft and provided unimaginable frightening figure in terms of loss both in local currency and foreign exchange.
The thriving blame game among key government agencies saddled with the responsibility of monitoring movement of petroleum products either from production facilities to export assets further confuses data collection agencies who now work with inaccurate and largely estimated figures.
While the Central Bank of Nigeria, CBN, collates figures based on rough estimate of volume of crude produced and sold the Nigerian National Petroleum Company, NNPC Limited, on its part issue data based on its myopic and flawed understanding of production and export index.
The Nigeria Extractive Industry Transparency Initiative, NEITI, dealing with near accuracy data based on strict inquest into operations of oil production entities jolts the nation with figures that is far from what NNPC and CBN flaunts.
The National Bureau of Statistics, NBS, whose responsibility is to provide reliable data on its part juggles around unreliable figures from the above two agencies.
What plays out is jumbo loss or huge import product volume that is utterly bewildering and perplexing data that has further created loopholes helping crooks occupying public offices to drain national coffers with escalated and abstruse subsidy payment.
Given the current consumption profile being circulated by the NNPC, the House of Representatives Ad-hoc Committee on Fuel Consumption has now commenced the assessment of the volume of petroleum products being consumed in the country daily.
This is coming as the Nigerian National Petroleum Company Limited, NNPCL, just revealed that the country’s average daily petrol supply came to 68 million litres from January to August 2022
NATIONAL ECONOMY reports that the chairman of the committee, Rep. Uzoma Abonta, led other members of the committee on an oversight visit to tank farms in Calabar.
The lawmakers were conducted round the farms by Mr George Ene-Ita, Regional Coordinator, Nigerian Midstream and Downstream Petroleum Regulatory Authority, South South Regional Office, Calabar.
Abonta said in view of the current debate on whether fuel subsidy should be removed or not, the House of Representatives set up the committee to ascertain the product consumption in the country.
According to him, the report of the committee will be used by the House as an indicator to perfect the issues surrounding the subsidy.
“We are trying to find out the volume of product being consumed in the country daily. This report will be used by the House of Representatives as an indicator to perfect other issues.
“Subsidy has become a topical issue that has bedeviled Nigeria for a long while and you cannot get or calculate subsidy without knowing the actual volume.
“At the end of the exercise, if we get it right, the House of Representative will be in a better position to direct or properly place this issue of subsidy or to do otherwise.
“From what the Nigeria Customs Service had told us about products getting into our neighbouring countries, if that is true, then it is not part of what we claim we consume,” he said.
He noted that part of the committee’s mandate was also to find out the exact volume of product brought into the country.
“For now, we are on a mission to find out the volume of product been brought into the country and in doing that, we need to take a comparative and quantitative data from all the depots.
“After that, we can then analyse our consumption on a monthly or yearly basis; then we can place it side by side with the subsidy paid out.
“There has been so much controversy on the issue of subsidy; especially on who paid what, who got what and the issue of value,” he added.
Some of the tank farms visited included, Northwest Petroleum, Ammasco Petrochemicals Company, Mainland Oil and Gas, Alkanes, Sobaz, Ibafon and Blokks.
It has always been seen that Nigerian neighbours over time have benefited from organised theft and smuggling of Premium Motor Spirit (PMS), called petrol which is aided by the country’s porous borders.
An estimated 15.64 million litres of petrol are smuggled out of Nigeria daily as the petroleum products retail on average 3.7 times cheaper than those of her neighbours, which has given smugglers unfair possibilities for arbitrage.
Thieves smuggled an estimated 15.64 million gallons of petroleum products out of Nigeria in August 2021, according to Chapel Hill Denham in a document titled “Dangote Refinery can provide the needed breather for Nigeria’s public finances”
The NNPC, said that between January and August 2022, the total volume of Premium Motor Spirit (PMS) imported into the country was 16.46 billion litres, which translates to an average supply of 68 million litres per day.
Similarly, import in the year 2021 was 22.35 billion litres, which translated to an average supply of 61 million litres per day.
The NNPC Ltd notes the average daily evacuation (Depot truck out) from January to August 2022 stands at 67million litres per day as reported by the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA).
Daily Evacuation (Depot load outs) records of the NMDPRA do carry daily oscillation ranging from as low as 4 million litres to as high as 100 million litres per day.
The NNPC also pointed out that rising crude oil prices and PMS supply costs above PPPRA (now NMDPRA) cap had forced oil marketing companies’ (OMCs) withdrawal from PMS import since the fourth quarter of 2017.
In the light of these challenges, NNPC has remained the supplier of last resort and continues to transparently report the monthly PMS cost under-recoveries to the relevant authorities.
NNPC limited also notes the average Q2, 2022 international market determined landing cost was US$1,283/MT and the approved marketing and distribution cost of N46/litre.
The combination of these cost elements translates to retail pump price of N462/litre and an average subsidy of N297/litre and an annual estimate of N6.5 trillion on the assumption of 60 million litres daily PMS supply.
This will continuously be adjusted by market and demand realities, the NNPC said.
The NNPC, further assured that it shall continue to ensure compliance with existing governance framework that requires participation of relevant government agencies in all PMS discharge operations, including Nigerian Ports Authority, Nigerian Midstream and Downstream Petroleum Regulatory Authority, Nigerian Navy, Nigeria Customs Service, NIMASA and all others.
The NNPC, in addition recognizes the impact of maritime and cross border smuggling of PMS on the overall supply framework and in addition acknowledges the possibilities of other criminal activities in the PMS supply and distribution value chain. As a responsible business entity, NNPC promised to continue to engage and work with relevant agencies of the Government to curtail smuggling of PMS and contain any other criminal activities and to also deliver on its mandate to ensure energy security for the country with integrity and transparency.
The Chapel Hill Denham report said, ”As of August 2021, the NNPC put PMS domestic consumption at 56.44mn on average per day but in any case believed the actual number is at least 28 per cent lower. For context, we estimate Nigeria’s actual PMS consumption at 40.6mn litre per day on average, with the balance smuggled to neighbouring West African countries.”
The report explained why this massive smuggling operation is rampant in Nigeria. The report said, “This is possible owing to the collapse in the “Law of one price,” which states that an identical product should trade at an identical price, irrespective of the location, once the exchange rate has been factored in. Since Nigeria’s petroleum products retail at 3.7x lower on average when compared to neighbouring countries, this created undeserving arbitrage opportunities for smugglers.”
The report said, “Against that backdrop, Nigeria now effectively subsidises PMS products for the consumer in other countries while also preventing the formation of a legitimate market for cross-border PMS transportation and sale. With Dangote refinery, we believe change is imminent.”
The Blame Game Syndrome
But the Nigeria Customs Service, NCS, perhaps believed that the NNPC is to be blamed for the exponential rise in product smuggling.
The Controller General of the Service, Hameed Ali, Nigeria Customs Service, said he had on many occasions proposed to the NNPC to establish petroleum retail outlets in neighbouring countries to curtail smuggling of fuel but that the advise was repeatedly ignored.
Mr Ali spoke to members of the House of Representatives Committee on Finance on the 2022-2024 Medium Term Expenditure Framework (MTEF) and the Fiscal Strategy Paper (FSP), in August 2021.
While responding to concerns raised by a member of the committee, Abdulahi Saidu (APC, Niger) on the increasing daily consumption of PMS in the country, Mr Ali specifically blamed the now defunct Department of Petroleum Resources (DPR) for giving licences to filling stations around the borders.
He argued that the establishment of the retail outlets would help to end the smuggling of PMS across Nigeria’s borders.
He said since the price differential was responsible for the smuggling, the NNPC could sell at similar prices to Nigeria, including transport cost.
“We have also proposed to NNPC, if the price differential is the problem, we have our banks, Zenith Bank, GT Bank, operating in the West coast. What stops us?
“NNPC or DPR should establish petrol stations in our neighbouring countries, and move these products at the cost that we sell, and sell to these people. We will make money. We have the market and by doing so we will completely diminish the anxiety or the penchant for smuggling.
“Because if a Beninoise will get the fuel at the price we are getting and the cost of transportation, which is the minimum, there is no way he will wait for people to import to him at twice the price.
“We have made this proposal, we have made noise about it, no one seems to listen,” the CG said.
Ali said there was nothing Customs could do to stop smuggling of fuel outside the country because of the method the smugglers use in carrying out their activities.
According to him, “There is hardly anything we can do to stop the smuggling of fuel outside the country because they use the creeks, they use land borders, they use virtually everything possible. We cannot be everywhere; we must begin to think out of the box.
“We should extend our petrol stations into these countries. We should move these products there.
“If you recall, when we closed the border, NNPC recorded a drastic drop in fuel that is being released to the public and all of a sudden, we have opened four entrances on our land borders and yet we have seen historical increases in terms of the quantity being reported as being consumed or released.
“This, I must say, we have very porous borders very lengthy borders and very porous. Secondly, we have by the aid of the NNPC created so many filling stations right at the border. And Mr Chairman, these filling stations get daily supply, and when they get these supplies, they release the supply in the tank at night, and by the morning, it has been siphoned.”
Ali called for investigation into the figure being released by DPR, noting that the agency was unwilling to cooperate with Customs on illegal filling stations around the border.
“That is why we said, filling stations that are 20km of the border should not be given petroleum products,” he said.
“We must monitor DPR. Are these figures really what are being released? This thing keeps going up and down. We had a series of meetings with the DPR. They said most of those filling stations at the borders are illegal.
“So, we said, give us the names and list of those illegal fueling stations, then we will take care of the legal ones. Three years after, we have not received one name. These are the problems.
“There is a law that says that no Nigerian fueling station should be established within 10km to the border. But the DPR will do their survey, they will issue licences to people to operate there. Our concern is the inflow and outflow.”
The Denial
On its part the NNPC, maintains that smuggling across the borders had actually increased the consumption of petrol.
better known as petrol, to 102 million litres per day.
Mele Kyari, group managing director of NNPC, told a stakeholders meeting on strategies to curb the twin menace of petroleum products smuggling and crude oil theft which are negatively impacting the nation’s economy July last year that products stealing raised consumption to 102 million litres a day .
Kyari said the corporation was collaborating with the Economic and Financial Crimes Commission, EFCC, Department of State Services (DSS), Nigeria Police Force (NPF), Nigeria Customs Service (NCS), Nigeria Security and Civil Defence Corps, NSCDC, and other relevant security agencies to tackle the smuggling problem.
“We all agree that smuggling is not a business that should be condoned because even for deregulated petroleum products, it brings extra cost burden on this country both in terms of safety and security of supply and in securing of foreign exchange,” Kyari said.
With discrepancies in the volume of consumption and blame game on negligence, the NNPC, said it is offering itself to a forensic audit of fuel supply and subsidy management, insisting daily fuel supply is 68 million.
Industry operators however, see the NNPC as determined to guarantee the energy security of the country.
Data available in the public domaine indicates that a total of 38.81 billion litres of petrol was supplied in last 20 months covering January 2021 to August 2022.
The NNPC has remained the supplier of last resort with a mandate to guarantee National energy security.
To meet the energy requirements of the country, the NNPC Ltd emplaced the crude oil for product swap arrangement which entails value-for-value crude oil swap for product delivery.
Analysis of the petrol supply data showed that out of the 38.81 billion litres of PMS imported into the country, 22.35 billion litres were supplied in 2021 giving an average daily supply of 61 million litres.
According to the NMDPRA, the average daily evacuation of petrol in 2022 stands at 67 million litres per day, a slight difference from the 2021 evacuation rate of 62 million litres.
For the first eight months of this year, the data showed that 16.46 billion litres were imported into the country. This translates into a daily average consumption of 68 million litres of petrol.
This is just as the under-recovery recorded by the NNPC for PMS importation was put at N5.12trn.
In 2022 (January to August), Nigeria’s has paid a total of N3.35 trillion for petrol underrecovery. A significant leap from the N1.77 trillion paid for the enitre 2021
A breakdown of the N5.12trn showed that in 2021, during the period of low crude oil price as a result of the COVID-19 pandemic, the sum of N1.77trn was recorded as under-recovery or subsidy while the balance of N3.35trn was recorded in the first eight months of this year.
The N3.35trillion actual under-recovery for the first eight months of this year could be attributed to many factors such as the return to normal activity level post COVID-19, increase in exchange rate, and rise in product landing costs due to the negative impact of the war between Russia and Ukraine.
Based on analysis of the data, the volume of crude oil imported into the country and the amount recorded as under-recovery followed have been following similar trend.
For instance, in the Month of January last year, the NNPC imported 1.68 billion litres of petrol and recorded actual under-recovery of N34billion.
In February, March and April of last year, the importation of crude oil rose to 1.88 billion, 1.91 billion and 2.23 billion litres respectively, with under-recovery following similar upward trend of N61billion, N120billion and N149billion respectively.
In the month of May, crude oil importation dropped to 1.55 billion litres, before rising again in June and July to 1.94 billion litres, 1.99 billion litres and then dropped again to 1.73 billion litres and 1.52 billion litres in August and September respectively.
In the same period, the amount recorded as under-recovery followed the same pattern from N103billion in May to N143billion and N172billion in June and July before dropping to N149billion and N124billion in August and September.
For October, November and December last year, the NNPC, supplied 1.60 billion litres, 2.41 billion litres and 1.90 billion litres of petrol, while incurring N182billion, N321billion and N208billion as under-recovery during the period under review.
For the current year, the NNPC imported 1.81 billion litres of PMS into the country with about N195bn incurred as subsidy during the process.
In February, March, April and May, 1.79 billion, 2.69 billion, 2.98 billion and 1.44 billion litres of petrol were imported with subsidy put at N243billion, N566billion, N533billion and N357billion respectively.
For the months of June, 1.74 billion litres of PMS was imported with under recovery of N506billion, while July and August saw the company importing 2.27 billion and 1.74 billion litres of PMS with under-recovery of N586billion and N362billion respectively.
Further analysis indicated that peak period evacuations from the depot occurred on Fridays due to the anticipation of low or no activity in some depots over the weekend for maintenance and other purposes.
Conversely, the lowest evacuation periods are usually during the weekends, especially on Sundays.
Overall, as a result of the evacuation pattern in the month of August 2022, the average daily evacuation was 66.9 million litres per day, according to the figures.
What this means is that for a simple computation of annual subsidy estimate, even if daily evacuation was estimated to drop to 60 million litres per day, year 2023 subsidy would be a minimum of N6.37trillion.
As regards the subsidy amount proposed in 2023 budget by the responsible authorities, experts have said that validating the estimate is ordinarily a very simple arithmetic, because international prices of crude oil and products are well known and accessible by all interested parties including the Nigerian Customs.
For instance, the gasoline price in Europe being the primary sourcing location for Nigerian deliveries averaged $1,230 metric tonnes free on board price, while freight averaged $53 metric tonnes.
What this means is that Cost, Insurance and Frieght for Lagos cost will be $1,283/MT which at the N435 per dollar 2023 budget foreign exchange assumption would translate to N416/litre based on metric ton to litre conversion factor of 1341 as sighted on the approved PMS template.
Based on this global price realities, even if all other cost from offshore Lagos to retail station is N40 per litre, the subsidy per litre is a minimum of N291 per litre.
Furthermore, due to the fact that the federal government strives to ensure uniform prices and pays bridging cost, the NNPC Limited cannot be held liable for efforts aimed at alleviating the economic crunch on citizens.
The NNPC has consistently highlighted the impact of PMS subsidy on Federation revenues profile and its effect on government ability to fund more impactful projects like education, health and infrastructure.
Various senior government officials have acknowledged that smuggling plays a factor in the cost of subsidy and by implication the daily consumption of PMS in the country.
With the determination of the House of Representatives to determine the actual consumption figure Nigerians await to know whether any agency will be found culpable at the end of the day.
