• Sunday, June 23, 2024
businessday logo


Govt study team questions NNPC’s 25 years old subsidy regime

Hiding group accounts, oil-backed loans show NNPC veils in secrecy again

Claims by Nigeria’s National Petroleum Corporation (NNPC) that the process by which it supplies refined petroleum products for domestic consumption leads to losses that translate into fuel subsidy have been exposed as false and fraudulent.

BusinessDay can now authoritatively report that the National Economic Intelligence Committee (NEIC), a government study group, found 14 years ago said categorically that there was no fuel subsidy in the country.

It also found that if the secondary benefits of domestic production of petroleum products are ignored, it is cheaper for Nigeria to import petroleum products than to produce them locally.

It added that the pump prices fixed by NNPC between 1990 and 2001 were higher than could be justified, even by the international price of crude oil at that time.

The Study Group was coordinated by Akinola Owosekun, the NEIC’s then Director of Research in 2001, and comprised the technical team of Ode Ojowu, Associate Professor of Economics at the Centre for Development Studies, University of Jos and A.F. Akinbinu, an Associate Research Professor at the Nigerian Institute of Social and Economic Research (NISER) Ibadan at the time.

The report of the Study Group was reviewed by ‘Sesan Ayodele, Director, Economic Development Department of NISER and  E.E. Bassey, an Electrical and Petroleum Engineer/Consultant, who represented the NEIC.    

The Group held that the domestic crude supply in Africa’s largest economy by GDP ($510billion in 2013), had been the bedrock of sleaze in high places. The process involved NNPC exporting unutilised crude oil which the domestic industry was not able to process due to its low capacity utilisation.

Read also: Increasing consumption, insurgency fuel N225bn soybean supply shortfall

The export proceeds derived from the transaction were then used to import white products for domestic consumption. This arrangement which is often dubbed “domestic crude allocation swap” has been in existence for over 25 years,

“Indeed, the revenue from the export of unutilised crude in the eleven-year period [ending 2001] exceeded the value of imported refined products by N30 billion,” the study group stated. “This fact contradicts the claim that the country incurs an annual deficit of up to N200 billion from the swap arrangement”, the study group concluded.

The study group adopted the Long Run Marginal Cost (LRMC) model, which is approximated by the Average Incremental Cost (AIC) approach of the World Bank/IMF. The calculation of AIC takes account of historical data as well as planned investments in year 2001 naira value.

BusinessDay gathered that the coordinator, all members of the technical team had worked on similar assignments as consultants to either the World Bank or the Utilities Charges Commission, or both.

“Engr. Ogunnaike has himself served as the Secretary of an NNPC in-house Study Group on the determination of the domestic price of petroleum products using the ABC model. The NNPC nominated Engr. Ogunnaike to participate on the study group and to facilitate the link between the study group and the NNPC and its subsidiaries.

“All the data employed in the analysis were provided through the NNPC nominee after due certification by the Managing Directors of the Pipelines Products and Marketing Company (PPMC) and each of the respective refineries.”

 Questionnaires for the study were prepared on the basis of the AIC model to obtain primary data from each of the four refineries, the PPMC and NNPC Corporate Headquarters.

A dialogue at which all the refineries, PPMC and NNPC Corporate Headquarters were represented was subsequently held, and the questionnaires were exhaustively discussed and re-designed along lines suggested by the NNPC.

The completed questionnaires were duly certified by the Chief Executive of each organisation and were returned to NEIC through the NNPC’s representative on the study team.