I received a text of a press statement titled “Sack GMD, NNPC Mele Kyari and Timipre Sylva now before Petroleum Industry Act implementation commences, lets clean the saddle!”
After reading through the prayers of the group known as Partners for Petroleum and Energy Sector Prosperity Initiative, (P-PESPI) namely; calling Mr President to immediately suspends and sack the GMD, NNPC, Mallam Mele Kyari, Minister of State, Petroleum, Chief Timipre Sylva; Immediate Probe of the Subsidy Payments from May, 2020 to October, 2021 and demand for forensic Audit by international reputable Audit Company of the Subsidy Payments for PMS, from May, 2020 to September, 2021, I decide to enlighten them on what they didn’t know.
It will be recalled that the NNPC has said that it cost the corporation about N8.28 Billion Naira on Daily basis to cater for Premium Motor Spirit (PMS) subsidy payments as the consumption has risen to One Hundred and Three Million Litres per day.
Concerned by the daily increase, the NNPC conveyed a stakeholders meeting comprising of 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.
The objective of the stakeholders meeting was to find a lasting solution to smuggling which has increased the daily petrol consumption to 102m litres.
During that meeting, the GMD, Mal Mele Kolo Kyari said “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.”
All industry stakeholders collaborated with the Corporation to ensure that the daily national petroleum products consumption which shot up to 102million litres in the month of May 2021 is brought down to realistic levels around 60million litres as it was obvious to all that that volume of petrol was not consumed by Nigerians alone.
Speaking on the issue at another meeting, the National President of the Independent Petroleum Marketers Association of Nigeria, IPMAN, Elder Chinedu Okoronkwo, said the Association has taken critical steps to curb the menace of smuggling but is not getting the desired cooperation from key agencies of government.
Even though Okoronkwo said that the current partnership being sought by the NNPC with security agencies should have been tailored towards strengthening existing cooperation the Association had sought long ago, the NNPC is very much open to partnership to move the Nation’s economy forward.
It will be recalled that the Major Oil Marketers Association of Nigeria has said that the absence of subsidies in Nigeria’s neighbouring countries has for many years fuelled the incentive to smuggle an estimated 30 percent of the country’s daily consumption, which basically means Nigeria is subsidising its neighbours”.
On its newsletter, MOMAN puts the average pump price of petrol in other West African countries at between N312 and N570 per litre, compared to N166.4 per litre in Nigeria.
Early this year, the Federal Government renewed the fight against smuggling of petroleum products out of the country with a new technology commissioned by the Department of Petroleum Resources, DPR called Designated the Downstream Remote Monitoring System, DRMS.
The initiative is aimed at checking illegal activities in the downstream sector of the oil and gas industry, determining illegal petrol stations actors and providing accurate data on the industry.
The Designated Downstream Remote Monitoring System enables you to take inventories per station, location and state, where products are coming into the country, where they are stored, how they are distributed to filling stations.
When the population is not in tandem with the volume being consumed, then it shows that sinister things are happening.
Over the years, the payment of subsidies has been a controversial subject in the management of Nigeria’s oil resources in the last decade.
I have written many articles calling for the removal of fuel subsidy and have joined most stakeholders to say removing petrol subsidy is central in ending smuggling which is allegedly said to be controlled by powerful mafia organisations with links to influential politicians and bureaucrats.
While many Nigerians have called for its removal in order to enable the government to invest the fund into other developmental projects, others have condemned such calls, citing it as perhaps one of the few “benefits” the masses enjoy from the government.
Some pressure groups, such as the organised labour, have advised the government to fix the refineries before removing fuel subsidy.
In March last year, when the international price of crude oil was low, the federal government announced that it had deregulated the downstream sector, which meant that the pump price would be determined by market forces.
That policy was implemented for months until crude oil prices rose again, and the eventual return of subsidies’ payment, which the NNPC has put at about N120 billion monthly.
Recently, the President of the World Bank Group, David Malpass, has called against fossil fuel subsidies, adding that subsidised fossil fuels encourage the overuse of fuels.
He said this at the Sixth Ministerial Meeting of the Coalition of Finance Ministers for Climate Action on Tuesday.
He said G20 countries had channeled $3.3tn into fuel subsidies since 2015, calling against fossil fuel subsidies.
He said, “Recent analysis by Bloomberg shows that G20 countries have funneled $3.3tn into fossil fuel subsidies since 2015.
“Fossil fuels tend to be subsidised both explicitly and implicitly through tax exemptions. If the use of fossil fuels continues to be subsidised despite its impact on greenhouse gas emissions, it encourages individuals and firms to continue to overuse such fuels.
“The longer such subsidies remain in place, the more the economy adapts to their existence and the greater the political obstacles and economic disruptions caused by their removal. It’s critical for finance ministers everywhere to take a hard look at their fossil fuel subsidy regimes.”
He also called for appropriate carbon pricing and better linkage between climate commitments.
Alos, another cause of the high cost of subsidy is the sharp rise in global oil prices which has pushed the subsidy cost being incurred by the Federal Government to N8.28bn daily.
The GMD of the NNPC, Mal Mele Kolo Kyari has said at several forums that without subsidy, petrol would be selling for about N300 per litre as the landing cost of the product rose to N276.94 per litre July 23 from N249.42 per litre on July 30.
The Nigerian National Petroleum Corporation has spent a total of N905.27bn on petrol subsidy from January to August, according to data from the Corporation.
The subsidy, which the NNPC prefers to call ‘value shortfall’ or ‘under-recovery’, resurfaced in January this year as the government left the pump price of petrol unchanged at N162-N165 per litre despite the increase in oil prices.
It will be recalled that the Federal Government had in March 2020 removed petrol subsidy after reducing the pump price of the product to N125 per litre from N145 following the crash in oil prices.
The NNPC, which has been the sole importer of petrol into the country in recent years, has been bearing the subsidy cost since it resurfaced.
The price of crude oil, which accounts for a large chunk of the final cost of petrol, has continued to rise in recent months.
With daily petrol consumption put at about 60 million litres by the NNPC and a subsidy of N N137.94 per litre, daily subsidy increased to N8.28bn last Friday from N6.62bn on July 30.
The rising price of crude oil pushed the cost of petrol quoted on Platts to $822.75 per metric tonne (N254.25 per litre, using the I&E rate of N414.40/$1) on October 8 from $748.50 per MT (N228.91 per litre) on July 30.
The freight cost increased to $26.77 per MT (N8.27 per litre) last Friday from an average of $21.63 per MT (N6.62 per litre) used by the PPPRA in its March template.
Other cost elements that make up the landing cost include lightering expenses (N4.81), Nigerian Ports Authority charge (N2.49), Nigerian Maritime Administration and Safety Agency charge (N0.23), jetty throughput charge (N1.61), storage charge (N2.58), and financing (N2.17).
The pump price is the sum of the landing cost, wholesaler margin (N4.03), admin charge (N1.23), transporters allowance (N3.89), bridging fund (N7.51), marine transport average (N0.15), and retailer margin (N6.19).
While marketers have continued to stress the need to allow market forces to determine the pump price of petrol and do away with subsidy, it remains uncertain whether the discussions between the Federal Government and labour unions will lead to the deregulation of petrol prices.
It will be recalled that early in the year, President Muhammadu Buhari had ordered that petrol subsidies should remain in place for the next five to six months to enable the government to carry out wide consultations before reaching a final decision on the issue.
President Buhari had said that suspension of subsidy removal is necessary so that the removal does not harm ordinary Nigerians as the Federal Government had mapped out plans, which is being coordinated by the Vice President and it has three legs – continuing consultation within the government at federal and state levels, labour and civil society; provision of alternative energy sources, especially gas and fast-tracking infrastructure for that across the country; and development of an effective relief and palliative options that must cushion the effect of subsidy removal if that choice becomes inevitable.
Calling on the sack of the Group Managing Director of the NNPC, Mal Mele Kyari and the Minister of State Petroleum, Timipre Sylva is not the solution but the absolute removal of subsidy.