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Farida’s Removal And The Faceless Cartel By Jide Olateju

December 23, 2011

I could not help but laugh out loud when I read a recent newspaper report that quoted unnamed associates of recently removed EFCC Chairman, Farida Waziri. According to the report, Mrs. Waziri was removed because she had uncovered and was about to arrest members of the faceless cartel that has a stranglehold on the downstream petroleum sector.

I could not help but laugh out loud when I read a recent newspaper report that quoted unnamed associates of recently removed EFCC Chairman, Farida Waziri. According to the report, Mrs. Waziri was removed because she had uncovered and was about to arrest members of the faceless cartel that has a stranglehold on the downstream petroleum sector.

It was funny because there was little in her tenure as EFCC chief that would suggest she would have the will or ability to arrest key persons from the presidency, cabinet members, a number of legislators, the executive leadership of the NNPC, the leadership of the NLC and TUC, and key current and past leaders of the PPPRA.

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The major oil marketers often get a large part of the blame for the problems in the sector, but as recent entrants to the field, they have only taken advantage of a bad situation, in an industry that encourages and rewards corruption. Their (alleged) actions are merely symptoms but not the cause of the problems facing the sector.

Until about eight years ago, NNPC dominated the downstream sector as the sole importer and refiner of petroleum products. Since very little refining occurred locally, NNPC mostly imported refined products using traders and brokers, and occasionally engaged in contract refining abroad. Ordinarily, we (the public) and the government should not get into the intricacies of where and how a company sources its products (as long as it meets safety and legal standards and taxes are paid). But this is a different scenario, since up to N70 of public funds is used to subsidise every litre of produce ‘consumed’ in the country. At 32 million litres per day on petrol alone, it adds up to a whole lot. About $10 billion in 2011 alone, which is much more than the nation spends on capital expenditure[i], and about 25% of the budget President Jonathan just presented for 2012 fiscal year.

Major oil marketers entered the importation fray following the inability of NNPC to adequately meet the needs of the country. Prior to that, petroleum subsidies were the little secret of NNPC and the custodians of the public treasury. I say secret because unlike every other vendor or supplier that presents a bill to get paid for the verified value of the product, NNPC does not have to bother about this simple but fundamental principle of commerce that has been established throughout history.

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In addition to being the de facto operator, regulator and policymaker of Nigeria’s petroleum industry, NNPC curiously plays the role (that should logically be played by the FIRS) of revenue collector in the upstream sector. As such, NNPC has the responsibility of funding the Federation account with petroleum proceeds. Adding a level of complexity are the billions of dollars withheld each year by NNPC to fund its Joint Venture operations. Turning an already opaque situation into a complete mess, are the deductions NNPC makes for subsidy payments for imported petroleum products. This amount (like the actual quantity of products supplied to the market) are pretty much unverifiable, and the PPPRA which is meant to regulate the downstream sector, is functionally (not legally) a subsidiary of the NNPC.  Going by NNPC’s claim that it imports over half of petroleum products into the country, we can infer that it will receive (or withhold) at least $5bn for petroleum subsidies in 2011.

To be fair, even the most focussed and determined management would find it difficult to reform NNPC given the current circumstances, although there is little incentive to do so, as there is usually strong political cover from whatever government is in place. A new GMD of NNPC is usually announced by a new government even before a cabinet is in place. For the past three decades or so, successive NNPC managements have enjoyed a somewhat symbiotic relationship with successive governments based on an unwritten but active quid pro quo. As an insider once remarked, ‘major damage is already done before you ever get to the federation account or the budget’. That is the legacy bequeathed to Nigeria by Generals Buhari and Obasanjo, who midwifed the current structure of the petroleum industry in the late 70’s.

Oil Marketers And Public Awareness

A positive fallout of NNPC’s inability to adequately supply the local market has been the forcing of the subsidy issue into the space of public discussion. Also unlike NNPC that can withhold and deduct revenues as it pleases, major marketers need to paid the differential between the subsidized price of products and the landing costs agreed with the PPPRA. Since there is no way to verify the volume of products supplied to the market, the overstatement of importation numbers translates to easy (pretty much free) money, and this practice is suspected to be widely practiced.  The smuggling of (subsidised) products also became widespread due to price differentials between Nigeria and her neighbours.

The outlandish bills presented by oil marketers (as subsidy refunds), and the difficulty of government in meeting these payments fully brought the issue of subsidies to the public space. The fact that these payments were not provisioned in the budget and reserves were depleted to make these payments aggravated the situation.

While this is just a brief overview, the occasional banter between NNPC and the Ministry of Finance over who owes what, and if the nation or NNPC is bankrupt is more than enough evidence that a whole lot is wrong. Nigeria’s petroleum industry is a hall of mirrors, and the public has been kept in the dark or intentionally deceived for a long time. The latest act in this long line of deceptions was the show put up by the petroleum authorities in the Senate recently, which listed the recipients of subsidy payments. The total sum stated was only a fraction of the cost to the nation, as the underfunding of the federation account, revenues withheld and other forms of subsidy payments to NNPC were intentionally omitted.

I’ll conclude right where I started, with Ms. Waziri. If indeed she was about to arrest members of the Petroleum cabal, it’ll be interesting to see who was on her list. I wonder if she passed the case files on to her successor, the highly regarded Ibrahim Lamorde, and if he’ll finish what she (reportedly) started by arresting members of the cabal.
I dey laugh!

[i] This is nothing short of tragic for a developing nation with a huge infrastructural deficit. It is not a stretch to conclude that all Nigeria spends money on is to pay subsidies, and run a loated and largely ineffective public sector (civil servant, executive and legislative politicians)

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