Workings Of A Cabal

NNPC Headquarters, Abuja

Government’s position on the deregulation of the downstream sector of the oil industry in Nigeria is further reinforced by new revelations on how frauds are perpetrated in the sector, as the nation loses billions to a nationwide protest
By Oluwasegun Abifarin
It was a black Monday for the nation last week as organised Labour and its civil societies allies made good their threat to ground the economy over the removal of subsidy on petrol as part of the on-going deregulation of the oil sector.
From Lagos to Lafia, Delta to Damaturu, Birni-Kebbi to Abeokuta, it was the same story of strike, protest and in some cases, death. The economy was also the worst for it as it is estimated that the nation lost about N106bn daily in Gross Domestic Product. Nigeria recorded nominal GDP of $242bn or $663m daily average last year with most of the contributions coming from the non-oil sector, especially agriculture. Total loss is put at about N960 billion in the first two days of the strike.
The Nigeria Labour Congress, NLC, and Trade Union Congress, TUC, directed that strike and protest should be sustained last week in spite of overtures by President Goodluck Jonathan, including a 25 per cent salary cut for public office holders; reduction in official travels; review of government ministries and agencies and inauguration of a nationwide mass transit programme and promises of job creation. The strike paralysed most economic activities, including closure of public offices, banks, shopping malls, airports, seaports, oil and gas facilities, motor parks and other businesses. Analysts, however, said that most of the effect would be felt in the oil and gas sector. This is so because members of the Petroleum and Natural Gas Senior Staff Association of Nigeria, PENGASSAN which hold forth in different strategic areas in the industry also threatened to jom the strike if government fails to reverse its decision. Consequently, the protest may crippled exploration and export of the nation’s crude oil and natural gas to the world. This would lead to a significant hike in prices currently hovering in excess of $110 per barrel. It could also usher in another round of instability in the volatile market which the Organisation of Petroleum Exporting Countries, OPEC, had made frantic efforts to stabilise in the past few weeks. Technically, the closure of oil facilities could also result in shut in of current oil production of 2.3 million barrels per day, which could translate into loss of $253m or N40bn per day.
Pro-subsidy analysts argue that the strike and protests have done more harm to the economy and the people than the gains of the subsidy removal, while government also insists that the long-term benefits of the deregulation policy far outweighs the initial pains. Minister of Finance, Ngozi Okonjo-Iweala had also maintained that the subsidy going into the pockets of the cabal in the sector must be taken-off and invested in areas that will benefit the generality of Nigerians. Deziani Alison-Madueke, the Minister of Petroleum disclosed last week that it was the oil import subsidy that has been fuelling the corruption in the downstream sector. Iweala added that deregulating the sector would encourage private investors into the refinery business.
Recent revelations have also shown how the cabal perching on the nation’s oil sector has been milking the economy. According to an insider, the cartel in the fuel import business operates on three levels, which the removal of subsidy will tackle. The first is the fraudulent payment on phoney import of Premium Motor Spirit, PMS. The magazine learnt that the product is fraudulently certified as imported into Nigeria but is actually diverted to other countries in West Africa. Meanwhile, the documentation is done by criminal elements in the Customs, Directorate of Petroleum Resource (DPR), Pipeline and Products Marketing Company (PPMC) and Petroleum Products Pricing and Regulatory Agency (PPPRA) These importers, it is revealed, not only collect the subsidy, they also connive to collect demurrage on product that really never entered the Nigerian market. Analysts argue that what we actually consume in Nigeria may not be up to half of what the records or statistics say we consume.
The second fraud, according to Ben Oguntuase, a former manager with National Oil, now Conoil, is the Petroleum Equalisation Fund (PEF). PPM. The Fund is designed to create a network of pipelines and depots across the country. By this arrangement, Supply envelopes were created around each depot in a way that ensured all parts of the country are covered. Each supply envelope is divided into zones. Actual transportation cost was calibrated according to zones within each supply envelope. The objective was to ensure that products sell at the same price throughout each depot’s supply envelope regardless of the distance of consumption from supply.
Another level of fraud according to Oguntuase is the issue of Bridging, it is the system whereby products are moved by road across depots as may be permitted in what was meant to be exceptional cases such as when repair is being carried out on the pipeline or at a depot.
Over time and driven by fraudulent intent, he said what was designed to augment became the routine practice. "Products would be released from Atlas Cove in Lagos ostensibly for bridging to say Kano or Sokoto but would actually be sold at nearby stations while the bridging allowance is paid. The products were also meant to be sold at equal prices at all locations nationwide. When the refineries were working and the pipeline/depots were
also functional, the products were pumped through pipelines from the refineries to the various depots from where they were picked for distribution within the supply envelope covered by each depot. In principle, the Eastern axis was meant to be supplied by the now obsolete Port Harcourt Refinery 1. The Northern axis was meant to be supplied by the now thoroughly cannibalized Kaduna Refinery. The Midwest and Middle Belt were meant to be supplied by the also obsolete Warri Refinery while the Western axis was meant to be supplied by products shipped to Atlas Cove from Port Harcourt Refinery 2. This refinery was also meant to export products to West African countries,” he said.
He revealed that “all marketers were given a price structure by PPMC which routinely decided the marketers’ margin and overhead allowance, the transportation allowance and the dealers’ margin. The standard transportation allowance was decided based on what was required to move products from the depot to Zone 3 within the depot’s supply envelope. Transporters moving products to Zones 1 and 2 are paid less than the standard allowance while the balance was meant to be paid into PEF by the marketer. Transporters moving products to Zones 4 to 9 are paid the additional cost of transportation from PEF. Most of the consumption in and around each depot occurs in Zones 1 to 3, usually up to 70%.
The fraud: sell all products within Zones 1, 2 and 3 but collect PEF allowance as if almost all products were sold in the outer zones. This has been on for a very long time.”
Oguntuase argues that the removal of subsidy will ensure that Nigeria would actually pay only for what is consumed in Nigeria. “If PEF and Bridging are removed completely from the equation and this must be the case, prices nationwide can no longer be the same. Another derived benefit would be that refineries can actually be located in Nigeria now based more on economics than political consideration. High price high volume would attract investment and eventually lead to low price high volume. This is simple supply economics,” he added.
He also enjoined President Jonathan to arrest and prosecute the fraudsters. This, in his view will reduce the hostility to the subsidy removal.
Also a secret cable of the United States Government on the fraud in the oil sector in Nigeria as published by Wikileaks reveals the workings of the cartel.
According to the document titled: SCANDAL BREWING OVER NIGERIAN FUEL IMPORTS, International fuel traders have been falsifying the dates of bills of lading to reflect particularly high market prices, overcharging the Nigerian National Petroleum Corporation (NNPC) by $300 million or more.
 Chris Finlayson, Chairman and Managing Director of Shell Petroleum Development Company of Nigeria (SPDC), told U.S Consul-General in Lagos, that a scandal is brewing within the NNPC over payments made to international fuel marketers.  Finlayson said some marketers have been changing the dates when fuel shipments bound for Nigeria were loaded in order to take advantage of particularly high market prices.  He said the total overpayment by NNPC may be as high as $330 million..
According to the cable, Femi Otedola, President and CEO of Zenon Petroleum and Gas, the largest supplier of diesel fuel in Nigeria, also corroborated Finlayson’s report. Otedola said over $300 million has been overpaid by NNPC for fuel imports, and that many leading international traders are involved.  According to Otedola, NNPC contract is to pay its suppliers the market price on the day a ship is loaded with fuel.  He said NNPC recently discovered, however, that bills of lading were altered to reflect loading on days of high market prices.  Discrepancies were found when comparing dates on the bills of lading with dates of landing in Lagos.
Pointing to examples, Otedola said that while a tanker loading fuel at a refinery in Bahrain usually takes four weeks to arrive in Lagos, comparisons between the bills of lading and dates of arrival of some shipments reflected only a four-day difference, and in other cases, if taken at face value, indicated the journey took nine months.  Otedola said 73 shipments from refineries in the Persian Gulf, England, and Venezuela listed delivery times of only one day. He went on that most of the fuel traders supplying Nigeria are implicated in over-charging NNPC, and showed a list of 17 companies that supplied fuel in the first quarter of 2004, several of which, he said, are significant players in international markets,
Otedola recommended that NNPC stop dealing with international fuel traders and negotiate purchases directly from refineries worldwide.  According to him, such a move would help to save some four billion dollars a year in expenditures on imported fuel.  This he said, will also cut out the international traders, and enhance the environment in which Nigeria’s refineries could be restored and operated. 
Otedola said he believes international fuel trade “mafias” are behind the failure to bring Nigeria’s refineries back on-line and to capacity.  He is also convinced these traders arrange for the vandalisation of crude oil feeder pipelines, which keep the refineries at Port Harcourt, Warri and Kaduna closed or under-capacity.  He said the international traders generally receive at least one million dollars per shipload of fuel to Nigeria and have grown accustomed to the easy money Nigeria offers as long its refineries remain down.
A sum of N20 billion was set aside for subsidy on a monthly basis in the 2011 Appropriation Act. Following this, a total sum of N165 billion was expended in August 2011, out of which NNPC got N88 billion and independent marketers N77.7 billion. Although N240 billion was budgeted for the entire year, N931 billion had been spent as at August ending.
In December last year, a Committee headed by Senator Magnus Abe, representing Rivers State, was set up to conduct public hearing on the issue of subsidy. Officials of the Ministry of Finance, the NNPC, PPRA and major oil marketers were invited to answer questions and clarify issues.
The Committee revealed that over 100 companies including construction companies participated in the sharing of N1.426 trillion between January and August 2011, a figure that contradicts that of the Petroleum Product Pricing Regulatory Agency, which it put at N1.348 trillion.
Senator Abe complained that some of the companies contained in the list, were construction companies that have nothing to do with oil. He further observed that the companies were too many and put the credibility of their participatory process to question.
Among the names reeled out by Senator Abe are: Oando Nigerian Plc, N228.506 billion; MRS, N224.818 billion; Enak Oil & Gas, N19.684 billion; CONOIl, N37.960 billion; Bovas & Co. Nig. Ltd., N5.685 billion; Obat, N85 billion; and AP, N104.5billion.
Also on the list are  Folawiyo Oil, N113.3billion;  IPMAN Investment Limited, N10.9billion; ACON, N24.1billion,  Atio Oil-N64.4billion,  AMP- N11.4billion; Honeywell-N12.2billion;  Emac Oil- N19.2billion; D.Jones Oil-N14.8billion;  Capital Oil - N22.4billion; AZ Oil- N18.613billion; Eterna oil- N5.57 billion; Dozil oil- N3.375 billion; and Fort oil-N8.582 billion. Integrated Oil and Gas was mentioned and is said to have benefitted to the tune of N30.777 billion.
 Oando Oil is owned by Wale Tinubu’s Oando; Mike Adenuga owns CONOIL, Femi Otedola owns AP, while MRS Oil is run by Aliko Dangote’s brother, Sayyu Dantata.  Other key players named include Pinaccle Construction Ltd, as well as Integrated Oil and Gas, which is owned by a former Minister of the Interior, Emmanuel Iheanacho.
With reference to 2011, the companies named by the Senate and the amount of money they have received this year alone include Otedola’s African Petroleum, N104.58 billion; A.A. Rano, N1.14 billion;  A.S.B, N3.16 billion; Arcon Plc, N24.116 billion;  Aminu Resources, N2.3 billion; Avante Guard, N1.14 billion; Avido, N3.64 billion; Boffas and Company, N3.67 billion; and Brilla Energy, N960.3 million.
Others also listed are: DownStream Energy, N789.648 million; Dosil Oil and Gas, N3.375 billion; Inco Ray, N1.988 billion; Eternal, N5.574 billion; Folawiyo Energy, N113.32 billion; Frado International, N2.63 billion; First Deepwater Oil, N257.396 million; Heden Petrol, N693 million; Honeywell Petrol, N12.2 billion; Integrated oil, N30.777billion; AMP, N11.417 billion; Ascon, N5.271 billion; Channel Oil, N1.308 billion; Fort Oil, N8.582 billion; Enak Oil & Gas, N19.684 billion;  IPMAN Investment Limited, N10.9 billion; Atio Oil, N64.4billion; AMP, N11.4billion; and Emac Oil, N19.2billion.
Analysts reason that the allegation that international traders defraud NNPC of hundreds of millions of dollars is yet another example of the poor management of Nigeria’s energy sector, and highlights the complex links between crude sales, fuel importation, refinery maintenance, and energy production.
This, they believe may also explain why successive government cannot get the refineries running even after spending over one billion dollars on maintenance contracts over the years. Iweala and Madueke believe the current deregulation move will break the cycle of fraud, but the music is hard on the ears of protesting Nigerians.