Fuel Subsidy: How Nigeria Loses N80bn Monthly – Oforiokuma

Fuel Subsidy: How Nigeria Loses N80bn Monthly - Oforiokuma
By Kenneth Jukpor & Yusuf Odejobi

Mr. Mina Oforiokuma is a Governing Board member of the Nigerian Content Development and Monitoring Board (NCDMB). He is also the Chief Executive Officer of Sopetro Marine Limited and a founding member of Ship Owners Association of Nigeria (SOAN).  In this exclusive interview with MMS Plus newspaper, he speaks on a wide range of issues in the maritime, oil and gas sectors. He also harps on the need to start refining crude oil in Nigeria as the African Continental Free Trade Area (AfCFTA) begins. Excerpts:

Dangote refinery is situated in the Lekki free-trade zone (FTZ), for its products to be consumed in Nigeria, would Customs duty be applied on petroleum products from the refinery or be waived?

The primary raw material source for Dangote refinery is from Bayelsa. Pipelines are being connected Dangote petroleum from Brass, Bayelsa all the way to Eleko. The feed stock which is the crude oil comes from Nigeria and the finished products would also be consumed in Nigeria, so duties would not be applicable even if the products are being exported.

However, the only place where I can see duty applicable is on materials, equipment and imported consumables that would be required during the production process of which Dangote could request for import duty waivers, besides that, I don’t see other needs for customs duties.

In a free trade zone, for instance, let’s assume that KIA wants to import Completely Knock Down (CKD) units to build cars in Nigeria, those cars after being manufactured within that duty free zone, if those cars have to be exported it will be at zero duty. Meanwhile, if those cars have to be consumed in Nigeria which means they need to go across the gate into the Federal Republic of Nigeria, they will attract import duty because the raw materials CKD comes from outside. In Dangote’s case, the raw material being crude oil comes from Nigeria so that is not dutiable.

Petroleum products marketers are having issues with NPA over restrictions on the port access road. There are lots of tank farms located on the route between Mile 2 and Tin Can Island Ports, where NPA is also regulating container trucks with ETO. What would you proffer to best handle that situation?

It’s a long argument but first thing first, there is a school of thought that says in the first place those tank farms should not have been located there as they are in the middle of a densely populated zone. These tank farms should have been sited along the Ibafo axis all the way to Ijebu-Ode. Notwithstanding, the nation doesn’t take charge of urban development approvals and the tank farms are there already.

Are the tank farms operating as efficiently as they used to be 10 years ago? No they’re not. The amount of throughput of petroleum cargoes into those tank farms has reduced to about 20% when compared to what was obtainable five or six years ago.

In 2015, when the government administration changed, the oil tank farms throughput capacity reduced. What I’m trying to say is that before the subsidy was removed, the indigenous petroleum marketers like Oando, Sahara, Masters Energy, Ascon, among others accounted for at least 95% of all refined petroleum products imported into Nigeria. Gas oil which is diesel, gasoline which is Premium Motor Spirit (PMS), and also kerosene which is jet fuel or household kerosene; 95% of this was done by Nigerian independent petroleum marketers.

When the subsidy was removed, because of the argument of the subsidy at the time wherein maybe by virtue of lack of knowledge by certain quarters in Nigeria including the press, most people looked at subsidy as theft. It wasn’t theft even though there was quite a bit of fraud perpetuated in that subsidy process both in the public sector and private sector. All that is subject to EFCC’s investigations and I don’t want to comment on that. From 2012-2015 when the government changed, because there was this dispute over subsidy claims made by these indigenous petroleum marketers and claims that most of these activities were fraudulent, the government refused to acknowledge a lot of those subsidy claims which were running into trillions of naira. So, the independent marketers obviously couldn’t finance the import, the banks were running away because banks were already exposed before 2012 to financing a lot of these imports hoping that as the government had done since 2007, the government would continue to honour those subsidy claims.

So, the banks stopped financing fuel imports, the independent marketers said they can’t bring any fuel. The government had to come into the position of importer of last choice. Government started to import themselves to the extent that in 2015 about 60% of the import was done by the government and 40% by the private sector. In 2012, 95% of petroleum product import was done by the private sector and 5% by the government. From the end of 2020 to 2021, you’ll find out that 90% of the petroleum import was handled by the government and just about 10% was handled by the private sector.

Coming to your tank farm question, what I’m saying is that those tank farms have had their activities reduced in terms of throughput because the government brings in more cargoes. The government cargoes don’t come directly into the tanks anymore, they’re being distributed from offshore Lagos into other tank farms and terminals in Warri, Ogara, Port-harcourt, Calabar. So, the throughput of our tank farms here in Lagos has drastically reduced to about 20%of what it used to be in 2012.

I don’t think the effect on tankers is phenomenal because there is less movement of tankers. There’s a distinctive difference between a tanker and a container truck, so the tankers should have their way as long as they also respect the task force monitoring the call-up system.

The challenge seems to be the human element because some truckers pay to access the ports, even though that’s not legal. Consequently, the managers of the port access would seek to prioritize such trucks at the expense of other trucks and tankers on the same road. What is your opinion on this?

That’s where the human element comes in. Like they say, it’s man-know-man. When you put people in a position where they become interpreters of the law or people are saddled with the responsibility of implementing the law and they are not properly trained or properly motivated then the greed element comes in. That’s where you have a situation whereby here’s a man who earns maybe N50,000 a month and he’s put in a position whereby he has a line of 100 trucks that desperately wants to get into the port, who are willing to pay him for just passage maybe N20, 000 to N50, 000 per truck. He is likely going to be tempted by the total number of money which is higher than his salary and that’s the chaos we have today. But let’s also congratulate NPA for the initiative, obviously it cannot work overnight but I think it is also a solution in the right direction.

The African Continental Free Trade Agreement (AfCFTA) has been ratified by the nation but the Nigerian oil sector is yet to carve a niche for itself. Besides Dangote refinery coming up, what are the opportunities in AfCFTA for Nigerians with emphasis on the oil and gas sector?

From the petroleum perspective, within the petroleum value chain, AfCFTA will open up our market as Nigeria obviously being the largest producer would be able to freely move her refined products to the rest of Africa, rather than Africans depending on foreign traders.

Nigeria could be the supplier of choice. We all know that crude oil is the raw material. If crude oil is sold for $50 per barrel today as an export product, that $50 per barrel if value was added in country by virtue of refining, that $50 becomes $500 because that $50 per barrel gives you a bit of gasoline, gas oil, kerosene and a bit of heavy fuel.

So, it’s just adding value the same way the return of cocoa can be enhanced by adding value. Instead of sending a bag of cocoa to Liverpool, England for processing, adding value to the cocoa by processing into Bournvita or chocolate will yield tremendous returns when processed here.

I think AfCFTA would only be of benefit to Nigeria if we start to add value to our raw materials. So for crude oil, we need to see the springing up of about ten refineries with the same capacity as Dangote refinery. With that, we will put ourselves in a situation where we no longer become importers of refined products; but we become an exporter of refined products as we keep our crude in country.

A litre of gasoline is N172 in Nigeria but go to Chad it’s being sold for about N391, in Ivory Coast it’s about N454 even in Ghana about N400. So, it’s almost three times the price in Nigeria. You can imagine if we’re refining our crude oil here, how much Nigeria would be making in terms of turnover on gasoline export? We’ll become one of the richest countries in the world without a doubt.

So, that’s the advantage of AfCFTA. It opens our eyes to the fact that we need to add value to our raw materials rather than just exporting them in crude form and also our market is Africa; we don’t need to sell to Europe or America.

What makes the price of gasoline in Nigeria cheaper compared to other African countries? Do we still have some element of government subsidy? 

Yes, we’ve always had subsidies. Nigerian National Petroleum Corporation (NNPC) announced recently that they would no longer make contributions to the Federation Accounts Allocation Committee (FAAC) which they normally do on a monthly basis to be shared by the three tiers of government. The major chunk of government revenue in Nigeria is contributed by number NNPC from crude oil sales, Federal Inland Revenue Service (FRSC) from taxes and Nigerian Customs Service (NSC) from import duties.

Today, NNPC says it can’t contribute anymore. This is because crude oil prices internationally is about $68 which means that a litre of fuel today being sold at about N172 which in December when crude oil prices was about $40 had a landed cost of about N120, today at $68 per barrel landed cost of PMS is N180 which means NNPC is already showing a loss of about N35 to N40 on every litre of landed fuel in Nigeria.

Nigeria imports 1.5 million mt of gasoline every month which is about 2 billion litres. So, 2 billion multiplied by N40 shows the amount we’re losing on a monthly basis in terms of gasoline import. As much as the government wants to deny it, they’re still subsidizing fuel which shouldn’t be. Fuel in Nigeria should be N250 per litre because even at that price it is cheaper compared to other neighbouring countries. That is why smuggling of fuel through canoes and tankers still persist in the Southern and Northern parts of the country. People know their profit will multiply by three times when they smuggle fuel to other neighbouring countries.

As a member of SOAN you should also be interested in the shipping element of AfCFTA trade. How can Nigerian ship owners benefit from the regional free trade area especially in oil shipping?

Charity begins at home; Nigerian shipping tonnage capacity should increase for Nigerian shipping companies to be responsible for moving cargoes both within and outside Nigeria in the same way as we’re doing with our local airlines. Government needs to make concerted efforts to promote the commercial opportunities that would become an enabler for the development of local shipping.

NNPC is the largest employer of marine services in Africa in terms of ships. Every month Nigeria brings in 40 to 50 ships from Singapore, Amsterdam, Houston port and the Caribbeans into offshore Lagos. The minimum size of those vessels is 45,000 tons while the largest is about 80,000 tons. When those vessels come in via direct sale-direct purchase (DSDP) previously known as crude swap, NNPC allocates the cargoes to foreign ships. They take our crude oil out and they bring in refined products. That entire supply change in terms of value as of 2020 is about $9 billion, 99% of all those cargoes come from foreign ships, and there is absolutely no Nigerian involvement.

When they get to offshore Lagos, they do transshipment and transfer those cargoes to NNPC shuttle tanker scheme which moves those cargoes into these tank farms in Lagos, Warri, Port-Harcourt, Calabar. That’s the coastal fleet and we know that by virtue of the Cabotage Act of 2003, which seeks to promote domestic shipping, that has to be 100% Nigerian operated but it is not the case. It is still 95% operated by Greeks and foreign tankers who are chartered by NNPC.

NNPC should first stop patronizing foreign ships. Let foreigners do the first aspect of the shipment which is international when it gets into Nigeria; it has to be exclusively Nigerian ships. We have domesticated this supply chain by law to Nigerians; the Nigerian Local Content Act says that those who apply for DSDP import should be exclusively 100% Nigerian. NNPC, who should lead by example by patronizing Nigerian ships, is not doing so. How would Nigerian capacity grow and how would Nigerian ship-owners take over the African market?

The laws are there, it only needs implementation and to create the commercial opportunity to buy ships. Is it not the same Nigerians that are buying the local airlines operating in the country? Stakeholders like SOAN and Nigerian Chamber of Shipping (NCS) should take the bull by the horn. The truth is that within the government they have absolutely no respect for our Nigerian shipping stakeholder bodies and Nigerian shipping companies because they can’t come together as one voice to show the government the things needed to grow the sector.

However, I must congratulate the President of SOAN, Dr. Mkgeorge Onyung for his contributions so far to make changes. He recently spent three days in Abuja engaging robustly with the presidency, NNPC top officials, the Speaker of the House of Representatives and Senate Committee members on these crucial shipping issues to change the narrative to benefit Nigerians.

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