OANDO TAKES A STAND ON FUEL SUBSIDY

On 17th January, 2012, the Major Oil Marketer Association of Nigeria (MOMAN) comprising Coniol PLC, Forte Oil PLC, Mobil Oil Nigeria PLC, MRS Oil Nigeria PLC, Total Nigeria and Oando PLC issued a press statement detailing the workings of the current subsidy scheme and their roles and responsibilities. On 24th, January 2012, Oando Group chief Executive appeared before the House of Representatives Ad-hoc Committee on Subsidy to clarify Oando's position.

As far back as the mid-1970s, the Nigerian Government through the Nigerian National Petroleum Corporation (NNPC) has subsidised the cost of various petroleum products to petroleum distributors for onward delivery to the general public.

To ensure private sector participation in the importation and distribution of petroleum product with the view of eliminating the inefficiencies around the delivery of this service to the Nigerian public, the Federal Government set up the Petroleum Support Fund (PSF) in 2006. The PSF is administered by the Petroleum Products Pricing regulatory Authority (PPPRA) under the supervision of the Ministry of Finance.

OANDO says "Any insinuation or speculation that our participation in the PSF constitutes an illegal act or nefarious activity is completely false. Our claims under the PSF are reimbursements for costs legitimately incurred nut otherwise unrecoverable due to the lower regulated sale price under the government's subsidy initiative. All such costs are independently ascertained by the PPPRA and duly audited.

THE NIGERIAN OIL AND GAS SECTOR

Nigeria has a population of over 110 million people and an abundance of natural resources, especially hydrocarbons. It is the 10th largest oil producer in the world, the third largest in Africa and the most prolific oil producer in Sub-Saharan Africa. The Nigerian economy is largely dependent on its oil sector which supplies 95% of its foreign exchange earnings.
The upstream oil industry is Nigeria’s lifeblood and yet it is also central to the ongoing civil unrest in the country, which gained worldwide publicity with the trial and execution of Ken Saro Wiwa, and eight other political activists in 1995.
The upstream oil industry is the single most important sector in the economy. According to the 2011 BP Statistical Energy Survey, Nigeria had proved oil reserves of 37.2 billion barrels at the end of 2010, equivalent to 42.4 years of current production and 2.68 % of the world's reserves. The Nigerian government plans to expand its proven reserves to 40 billion barrels by 2010. Most of this is produced from the prolific Niger River Delta. Despite problems associated with ethnic unrest, border disputes and government funding, Nigeria’s wealth of oil makes it most attractive to the major oil-multinationals, most of whom are represented in Nigeria, with the major foreign stakeholder being Shell. Nigeria produced an average of 2401.6 thousand barrels of crude oil per day in 2010, 2.94% of the world and a change of 16.2 % compared to 2009.
According to the 2011 BP Statistical Energy Survey, Nigeria had 2010 proved natural gas reserves of 5.29 trillion cubic metres, 2.82% of the world . Due, mainly, to the lack of a gas infrastructure, 75% of associated gas is flared and 12% re-injected. Nigeria has set a target of zero flare by 2010 and is providing incentives for the production and use of gas. The government also plans to raise earnings from natural gas exports to 50 percent of oil revenues by 2010. It has been reported in the 2011 BP Statistical Energy Survey that Nigeria had 2010 natural gas production of 33.63 billion cubic metres, a change of 35.6% versus 2009 and equivalent to 1.05% of the world total.
Nigeria's downstream oil industry is also a key sector including four refineries with a nameplate capacity of 438,750 bbl/d. Problems such as fire, sabotage, poor management, lack of turn around maintenance and corruption have meant that the refineries often operate at 40% of full capacity, if at all. This has resulted in shortages of refined product and the need to increase imports to meet domestic demand. Nigeria has a robust petrochemicals industry based on its substantial refining capacity and natural gas resources. The petrochemical industry is focussed around the three centres of Kaduna, Warri and Eleme.
Until 1960, government participation in the oil industry was limited to the regulation and administration of fiscal policies. In 1971, Nigeria joined OPEC and in line with OPEC resolutions, the Nigerian National Oil Corporation (NNOC) was established, later becoming NNPC in 1977. This giant parastatal, with all its subsidiary companies, controls and dominates all sectors of the oil industry, both upstream and downstream.
In April 2000, the Nigerian government set up a new committee on oil and gas reform to deal with the deregulation and privatisation of NNPC. Seven subsidiaries of NNPC are due to be sold including the three refineries, the Eleme Petrochemicals Company Ltd, the Nigerian Petroleum Development Company and the partially owned oil marketing firm, Hyson Nigeria Ltd.
Nigeria is a member of OPEC and is its 12th largest producer. The former Secretary-General of OPEC, Dr Rilwanu Lukman, is a Nigerian national and Petroleum Advisor to the President.
The petroleum industry in Nigeria is regulated by the Ministry of Petroleum Resources. The government retains close control over the industry and the activities of the NNPC, whose senior executives are appointed by the ruling government.http://www.mbendi.com/indy/oilg/af/ng/p0005.htm

Fuel Subsidy

Oando CEO sets Record Straight on Subsidy

CEO of Nigeria’s largest indigenous Oil and Gas company, Mr. Wale Tinubu appeared before the ad-hoc committee investigating subsidy yesterday.

Mr. Tinubu setting the record straight disclosed that Oando was not a beneficiary of subsidy but a petroleum products marketer getting paid for a legitimate business it was transacting.

Tinubu disclosed to the committee that marketers, for instance, import 30,000 metric tons after opening an LC of $30 million and then go ahead to sell the product at $ 15 million. He revealed that subsidy is the amount government compensates them for their losses during sales.

Tinubu stated, “The Petroleum Support Fund (PSF) expected that there would be under-recovery. For example, when the landing cost was higher than the pump price, the government owed us money, which is paid as subsidy. When there is over-recovery, that is, when the landing cost is less than the pump price, we pay back to the government. For example, during the Yar’Adua administration, when the petrol price was N65 and the crude oil price dropped to $50 per barrel, the marketers paid back to the fund. I remember that Oando paid back N1.6billion back to the Federal Government.”

According to Tinubu, Oando accounted for 53% of petrol importation in 2006 and 47% of subsidy payment.http://www.thenationonlineng.net/2011/index.php/business/34581-oando-denies-benefitting-from-fuel-subsidy.html
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Boko Haram: National Assembly To Amend Anti-Terrorism Law – THE WILL NEWSLETTER FOR JANUARY 24, 2012.

Boko Haram: National Assembly To Amend Anti-Terrorism Law

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... Police Seize 10 Wired Vehicles Loaded With IEDs.

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The Honorable Permanent Secretary in the Ministry of Foreign Affairs, Ambassador Uhomoibhi

The Honorable Security Adviser to the President of Nigeria, General Azazi

My Dear Friend from Washington, His Excellency, the Ambassador to the United States, Ambassador Adefuye

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THEY CALL IT “FUEL IMPORTATION LICENSE”, WE CALL IT “FUND RAISING FOR PDP UN-OFFICIALS”.

Things like Road network, Hospitals and Health facilities, Education, Housing, Security of lives and Properties and Environment, job creations and Industries and social security support for the vulnerable citizens, these are hallmarks of a stable and responsible society. Officially, Nigeria’s daily crude oil production post-amnesty is “2.6 million barrels per day. Our daily local consumption is estimated to be 300, 000 barrels per day. This leaves approximately 2.3 Million bpd for export to international market to generate up to 85% of our national revenue and 95% of Foreign exchange earnings.” they say.  This generated revenue is a collective patrimony and sovereign wealth with politicians and policy makers as custodian of commonwealth trusted to be invested in social and developmental infrastructure for the benefit of every citizen of Nigeria and to meet our International obligations.

If Nigeria produces 2.6Million bpd of Crude and local consumption is 0.3Million bpd, what is the need for subsidy? Why is the need to import refined fuel? How can you subsidize what is already in surplus production from the natural reserve? The concept of fuel subsidy is another word for “capital cronyism” which allows private individuals to own Oil wells belonging to Nigerians, either as a front or in trust or in corrupt collusion with people in government with vast capacity and vessels to transport it out of the country and then refine it at some privately owned refineries cited in some other countries or by other arrangements with refineries own and built by other sovereign nations in which they have vested interest and later secure import contracts to bring it in to sell at exorbitant unregulated prices at the pumps to innocent Nigerian citizens. 

The personalities behind this so called Fuel subsidy sham are not unfamiliar to Nigerians and indeed the world. Removal or no removal, these cabals still retain the import license and infrastructure to continue to import refined fuels and transport crude anyway, so the current price that the government just announced would further increase the income given to these cabals and it will also promote artificial scarcity and hoarding of imported fuel as these people also own the storage facilities for the imported fuel. The abovementioned is typical of why Nigeria found herself in the current debacle of so called fuel subsidy.

In the midst of all these absurdities, the most enlightening issue that is indicative of what is to come when we finally come to terms with the need to move beyond petrol subsidy removal. But as long as the local refineries are owned by Federal Government, they will remain dysfunctional and we will continue importing petrol and allegedly subsidizing it, and no private investor will build refineries in such a regulated environment as they will not be able to compete with NNPC and PPPRA. The issue is not really the removal or retention of subsidy but if this government can be trusted to do all it has promised.

THE TRUTH ABOUT THE “CABAL” LIES

The social contract between the people of Nigeria and its leaders integrates expectation of the highest forms of accountability, transparency and value in governance. There is no such thing as “cabal”. It is also wrong to list individual companies and categorise them as “beneficiaries” of petroleum subsidy. The original intention of the petroleum subsidy regime as envisaged under the Petroleum Support Fund Guidelines developed further to the PPPRA (Establishment) Act which set up the PPPRA has long been thwarted.

Firstly, oil trading and marketing companies are not beneficiaries of the money generated from subsidy. The primary beneficiary of petrol subsidy is every person who drives into the petrol station and pays N65 for petrol which is actually imported at a market rate and total cost that is much higher. The subsidy is simply a refund of the difference in price between the government decreed price cap and the international market price at which the products are imported. It incorporates the logistics costs of shipping the products to Nigeria.

Further, many marketers are briefcase companies with little investment in infrastructure. Most oil marketers have invested billions of naira in physical infrastructure across the country, ranging through shipping, ports, storage and logistics. These investments are operated and maintained by a corps of skilled and regularly trained professionals. A new generation of young, internationally competitive manpower, readily deployable across economic sectors has been developed by the efforts of many legitimate oil trading and marketing companies.  

Additionally, indebtedness of downstream operators is evidence of fraud. In the midst of the foregoing challenges, the Nigerian public has been misinformed, and downstream operators, vilified and crucified. Most condemnable, has been the deliberate incitement of the public against legitimate business interests. The appropriate agencies of the law should by all means do their job in identifying those who have fraudulently and criminally undermined the system, but those working hard against all odds to provide jobs and create economic value should not be painted in the same tar. 

We suggest that the deregulation policy of the government should be fully implemented, starting with an elaborate definition and development of the legal framework to guide it. The reform and renewal process must ensure true value-creation for the Nigerian people and weeding out of the system leeches.