Nigeria spent N 1.185 tn on fuel subsidy in three years

A whopping N 1.185 tn was spent on fuel subsidy from 2006 to 2008, according to the Petroleum Products Pricing and Regulatory Agency (PPPRA). The expenditure was disclosed when the Acting Executive Secretary of PPPRA, Mr Wole Adamolekun, appeared before the Senate Committee on Public Accounts at an interactive session in Abuja.
In his presentation to the committee, PPPRA said that it paid a total subsidy of N 272.713 bn in 2006 out of which the Nigerian National Petroleum Corporation (NNPC) got N 243.603 bn while the oil majors and independent marketers received N 19.212 bn.

Chairman of the of the Senate Committee on Public Accounts, Senator Ahmad Lawan, reeled out the breakdown of the expenditure to set the stage for the inquisition of Adamolekun. According to him, "In 2007, the people of Nigeria, through their government, paid a total subsidy of N 278.86 bn; NNPC took N 227.47 bn and the oil majors and independent marketers received N 51.388 bn."
"Last year (2008) a total subsidy of N 633.192 bn was paid, out of which NNPC received N 370.490 bn and oil majors and marketers received N 260.08 bn. NNPC, in the three years that you (PPPRA) administered the subsidy, received N 841.536 bn while oil majors and independent marketers received N 330.016 bn, and a total of N 1.185 tn was paid as subsidy in the last three years," he said.

Lawan, who queried Adamolekun on the subsidy, also asked him if the current pump price of N 65 per litre for Premium Motor Spirit (PMS) (petrol) is the correct and right price for Nigerians to pay in the face of the crash in crude oil price in the international market. Adamolekun said that the Federal Government was still subsidising fuel consumption by N 2.72 per litre at the pump price of N 65 per litre.
According to him, "You raised the issue of what government has done since the reduction in the price of crude oil. The issue of the price in 2007 rising up to $ 147 per barrel was worrisome but somehow the price started coming down and it did not really comedown below the N 70 set price until November last year".

"In November last year, we had for the first time below the set price and therefore what happened was that government fixed a price of N 70 which meant that throughout the period of 2007 and 2008, it was under recovery; that is to say, those people bringing in products were selling below their cost and Petroleum Support Fund (PSF) was the safety net that they had to make up the differential," he said.
He explained further, "That is to say at $ 147 per barrel, what Nigerians should have been paying should have been N 120 per litre, but we were all paying N 70 which means that when it was $ 80, $ 90, $ 100 per barrel, the price was fixed at N 70 per litre".

"So, for Nigerians to be able to enjoy that, government needed to pay that subsidy. For example on kerosene, which is till today sold at N 50 per litre, the real price is about N 83.3 which means a subsidy of N 33.3 on kerosene, which is still on."
"Before, the price of crude was in tandem with product prices and all the other derivatives; but in the last two years, that has not been the case and Nigeria's case became worse in December 2008 when foreign exchange dropped from N 117 to N 150 to the dollar, and what that means is that you had N 33 added to whatever it was that you were bringing. That is the implication," he said.

On oil majors, Adamolekun stated further: "Joining the majors, Oando, we have MIRS oil and Gas and Chevron and Total. Those were the only four that did anything in 2006. In 2007, the government budgeted N 100 bn, but the projection that we had was about N 300 bn because it is easy if you watch the prices, you can look at the fixtures, what the prices were likely going to be".
"At the end of the year, the total expenditure was N 278 bn. But in 2007, may more people had joined in importation because, like I said, part of our mandate is to ensure that sector is deregulated for Nigerians to have the benefits so that it is not only government that is doing it andI am sure you know that the NNPC is a government company and it was their responsibility 100 % before that time."

"So in 2007, we had improved participation by other people-about 21 % and NNPC-79 %. In that particular year, by about July, we discovered that Nigerians were not getting the benefit of the PSF because if government guarantees the ceiling price and says that is the price that it must be sold, then it means that there was no need making the importation exclusive to anybody, particularly if you are talking about majors, you are talking about maybe two of them that are indigenous -- AP and Oando."
"Total, Mobil, Texaco, Chevron import very little even till today. So, that year, by about July, we discovered the guaranteed price of N 70 was not reigning in Nigeria; that is, even in Port Harcourt and up North, we had people selling at higher prices and that was because the supply was restricted to a few people."