Experts see Nigeria scraping PEF, others as step in right direction

The decision to scrap agencies such as the Petroleum Equalisation Fund (PEF), an infamous drainpipe unnecessary in a liberalised downstream petroleum sector, could reduce the financial risk facing Africa’s biggest economy, experts told BusinessDay last night.

The Nigerian government is gradually mustering the political will to end petrol subsidy with the scrapping of PEF and Petroleum Products Pricing Regulatory Agency (PPPRA), two major strongholds of the opaque subsidy regime.

These two institutions cost the Nigerian economy more than N540 billion yearly trying to maintain equal price for petrol across the country, an amount higher than funds allocated to education, health, defence and agricultural and rural development that would have increased the economic growth and standard of living of its over 200 million people.

Mike Osatuyi, national operations controller at Independent Petroleum Marketers Association of Nigeria, says the scrapping of PEF, which is a cesspool of corruption and colossal waste, is a step in the right direction for Nigeria’s downstream sector.

Read Also: How Nigeria bleeds N943bn from irrelevant petrol equalisation fund

Petroleum Equalisation Fund (PEF)

“The current reform we are witnessing in Nigeria’s downstream sector is a continuous exercise which the minister is pursuing under the newly signed Petroleum Industry Act,” Osatuyi states.

Aisha Mohammed, an energy analyst at the Lagos-based Center for Development Studies, notes that the corruption in PEF has grown into a wide beast that will swallow the country if the government had not signed PIA.

“The corruption in PEF operated like a god because the majority of its beneficiaries were close to the government officials,” Awodeji says.

Like other obsolete laws in the sector, PEF is a special intervention put in place by the Nigerian government in 1975 with the mandate of ensuring that petroleum products are sold at equal prices across the country by paying petroleum product marketers for every litre of fuel they sell within 100km to 450km of a depot.

This means for every litre of petrol bought across the country, a total of N7.51 that represents ‘bridging fund’ is paid into a fund managed by the PEF’s Management Board to ensure petrol prices are equal nationwide, according to the latest Petroleum Products Pricing Regulatory Agency (PPPRA) pricing template.

The payment feeds into a subsidy mechanism that is supposed to ensure that petrol is sold at regulated equal price across the 774 local governments in Nigeria by reimbursing transportation costs incurred by petrol marketers.

In addition to this margin, the Federal Government appropriates public funds to run PEF’s operations and cover its financial shortfalls when equalisation claims exceed PEF’s income from marketers.

However, the scheme seems to have outlived its usefulness as the pump price of petrol has hardly been uniform across the country, except, perhaps, Lagos and Abuja, where petrol sells at the official price. Virtually, in all the other locations across Nigeria, petrol prices sell over and above the official price, notwithstanding that the government spends billions annually in an attempt to bridge the price gap.

For instance, while the official pump price of petrol was N160 per litre, data provided by the National Bureau of Statistics (NBS) revealed that the country was unable to keep to uniform price as petrol was sold in Abia State for as high N172.50, Ekiti State for N170.262 and Lagos State for N167.80.

The development defeated the reasons for setting up PEF as NBS further disclosed that the products sold lower in states like Ebonyi for N162.27; Ondo for N162.20, and Kano for N160.83.

“Allowing a government body to administer an equalisation fund created a rent-seeking opportunity for a gatekeeper who can easily lead to fraud, which was what we saw with PEF,” Luqman Agboola, head of energy and infrastructure at Sofidam Capital, says.

A look into Nigeria’s 2020 and 2021 budget documents showed that the budgetary releases for PEF’s operation remain hidden; sources at the agency say it presents its budget to the petroleum downstream committees of the Nigerian legislature and gets its budgetary allocation approved by the same committee.

Opportunity cost of PEF wastage

The amount of billion naira Nigeria wasted on the weak delusion of keeping the price of petrol is no longer news, but what is more infuriating is the opportunity cost forgone in a dying economy.
With government data putting local consumption of petrol at 72 million litres a day, it means PEF gulped N540 billion within a single year.

Primary health centre and education

Based on Freedom of Information requests and analysis by transparency campaign group Public Private Development Centre, it would cost an estimated N28 million to build a primary health care centre and N17 million for three-block classrooms.

This means N540 billion is capable of building at least 19,000 primary health centres or at least 30,000 each of three-block classrooms needed across Nigeria’s 774 local governments.

Housing

The N540 billion is capable of building at least 36,000 mortgage homes valued at N15 million each, a development that can play a big role in reducing Nigeria’s housing deficit projected at 20 million.