Nigeria: Fuel Subsidy - Massive Fraud, Messy Fight

Sophie Saar's Blog (Redgage) - Finance Minister Ngozi Okonjo-Iweala's resolve to isolate fraudulent oil marketers in payment of fuel subsidy, based on a report of an investigation panel, had a backlash last week. Though NUPENG has returned to work, there are fears that difficult times lay ahead.

A typical scenario of how pockets government funds were pumped into the tanks of oil marketers in the name of subsidy goes thus: "Conoil imported 19.820 million litres of PMS (petrol) with Form M No.1078673 and mother vessel bill of lading dated 31/08/2011 for which N1,532,684,020.31 was paid subsidy.

This payment was made ahead of external auditors' verification in line with the PPPRA procedure; however external auditors did not subsequently verify the claim. Discussion with PPPRA showed this payment was yet to be verified by the external auditors due to their error in sending the verification request to Akintola Williams Delloite instead of Adekanola & Co who witnessed the vessel discharge. Akintola Williams Delloite returned the request unsigned and before they could be sent to Adekanola for their signature, both firms had been disengaged from further participation in the subsidy payment process.

"Differences were noted between the observed volume of litres in the shore tank certificates and the volume in litres used to calculate the subsidies claimed. This is in violation of the requirement of the PSF guidelines that the volume of products for which subsidy is paid should be paid based on duly signed shore tank certificates. The total value of the overpayment in this respect was N33,383,300.79."

The scene above was real, according to the report of the Federal Ministry of Finance subsidy claims verification committee headed by the Group Managing Director of Access Bank Plc, Mr Aigboje I. Aig-Imoukhuede. Here we observe the lack of due diligence on the part of the Petroleum Products Pricing and Regulatory Agency (PPPRA), which made payments when external auditors and independent inspectors had not certified the transaction. Apart from instances involving Conoil mentioned above, the committee said that there were many transactions in which the total subsidy payment of N121,897,757,962.56 was made "In the absence of duly signed shore tank certificates, it appears that processing and payments of subsidy claims were based on fictitious receipts of products."

A typical example of another kind of fraud perpetuated in the subsidy regime is captured on Page 32 of the report thus: "There is no proof of the existence of the mother vessel of bill of lading or the daughter vessel for some transactions for which subsidy was paid. The total value of subsidy paid in respect of these transactions was N11,762,998,358.89. It appears that the PPPRA paid subsidies for products that were not supplied and/or delivered... The Lloyds Lists Intelligence (as of June 1, 2012) revealed that the mother vessels for the following (16 transactions mentioned) were not in the location claimed at the time that the daughter vessels supposedly loaded from them... This implied that subsidy was paid on PMS that might not have been delivered. Subsidy claims were paid on the transactions for a total of N21,361,071,313.24..."

These few lines from the 92-page report by the probe committee can evoke tears down the cheeks of poverty-stricken Nigerians. They read like the report of the House of Representatives Ad Hoc committee on fuel subsidy fraud headed by Farouk Lawan. Though the report is tainted with the $620,000 allegedly bribery, Aig-Imoukhuede's investigation has lend credence to the fraud that attended to the fuel subsidy regime. At least, 25 oil marketers have been indicted in the report (see table).

Incidentally, the strike action by the National Union of Petroleum and Natural Gas (NUPENG), which paralysed activities in Abuja was seen as a support for oil marketers, many of whom have questions to answer over the sums they received for petroleum products they imported (and may not have imported). The Minister of Finance, Dr Ngozi Okonjo-Iweala, who seems determined to ensure that the stolen subsidy funds are repaid by oil marketers, demonstrated her resilience throughout the period NUPENG's strike lasted. According to her, those behind the strike were indicted oil companies. In her word, "The firms are being investigated based on evidence that they may have engaged in fraudulent activities under the fuel subsidy regime." She added that while the government said it will do its best to encourage honest efforts by genuine companies engaged in fuel importation, it added that "we will not fall for the cheap blackmail of indicted marketers who are using all kinds of subterfuge to escape sanctions. We would also like to stress that marketers with legitimate and unencumbered claims have been paid and will continue to be paid."

The minister disclosed that government was in discussion with companies with infractions which were relatively minor to ensure quick resolution, adding that, "for marketers with a negative balance with government, i.e. they owe government more in refunds than government owes them, the Aig-Imoukhuede committee will accelerate review of their documents after the Sallah break so that their claims can be processed and settled, if cleared without further delay... We want to make it clear that government will fully investigate their activities and if found guilty, bring them to book and recover all public funds fraudulently obtained in the guise of fuel subsidy claims."

OIL MARKETERS' REACTION OF SUBSIDY FRAUD ALLEGATIONS

In spite of the fact that Mr Aig-Imoukhuede's report has been hailed in many quarters, some oil marketers have faulted it. For instance, in an advertorial in several newspapers, MRS Oil and Gas Co Ltd complained that the report lacked thoroughness as some vital verifications were not conducted before the committee came up with its report.

It argued thus: "Following the invitation and appearance, our company submitted all relevant documents requested by the committee and to the best of our knowledge and understanding, there was no single document that was outstanding after our appearance and no single issue was left unanswered. In fact, all our submissions were wholly accepted by the committee. To the greatest chagrin and bewilderment of our company, the committee in its report recklessly and in total disregard of all documents submitted before it, remarked in Appendix 1, S.N 242 of the said report that "subsidy payments for which there were no shipping documents or evidence of payments for the products in foreign exchange" totalling N6,086,531,305.33 admitted that "all required documents were submitted, but swift confirmation to be provided." The panel then remarked that the issue should be "referred for further investigation," but this was quite clearly disregarded and the committee went on to recommend it as "likely fraudulent case for criminal investigation."

Arguing that it submitted all the required documents to warrant the subsidy it received, MRS said, "It is important to note that providing evidence of sales proceeds is not a requirement under the PSF scheme. However, we went ahead to provide our bank statements to the committee to demonstrate our transparency and resolve to clear any doubts the committee may have had, but this was still disregarded."

It is not clear how many oil marketers have challenged the committee, but from the prosecution of some of the Chief Executive Officer (CEOs) of some oil companies by the Economic and Financial Crimes Commission (EFCC), many of them may have actually committed the fraud.

NUPENG'S ROLE IN THE SUBSIDY PALAVER

NUPENG had cut supplies of petroleum products to Abuja for the period the strike lasted with warnings that the action could snowball into a national strike if the Federal Government refused to implement the recommendations of a communiqué it signed with the unions and other stakeholders.

The communiqué was signed on July 27th, 2012 and in it government agreed to resume payment of 2012 petroleum subsidy arrears, look into non-payment of salaries and threat of job losses for union members, state of the nation's refineries and roads, address labour issues in Shell Petroleum Development Company (SPDC) and Chevron and the restructuring of loan of depot owners and oil marketers.

However, close to three weeks later and without implementation, according to NUPENG, it was left with no choice but to "persuade" government to honour its agreement.

But there is a new twist to the whole matter and maybe also a first in the practice of trade unionism; part of NUPENG's demand is for government to restructure loan obtained by marketers in a purely private business matter. Also perplexing to most Nigerians is NUPENG's initial silence on what government should do with oil marketers and companies indicted in the oil subsidy scam.

Many Nigerians were taken aback and had questioned the rationale behind these positions taken by NUPENG with many wondering if the industrial action was really about workers or if the union was playing the role of an attack dog for some undisclosed interests.

While the strike lasted, Minister of Finance Ngozi Okonjo Iweala had severally stated that the action was orchestrated by interests bent on truncating the investigation and prosecution of those found culpable in the oil subsidy scam.

A union leader, who wanted to remain anonymous, also raised questions with regards to the demands of NUPENG in a private chat with Sunday Trust.

He said "it is a shameful thing when a union is unable to draw the line between unionism and selfish political interests. We have become the laughing stock of Nigerians and worse than that, everywhere you turn to are insults: on the pages of newspapers, on social media, we have been bombarded with accusations and even curses."

The union leader who was also part of the negotiations added "I want to tell you authoritatively that NUPENG has lost it and it lost it the day it admitted oil marketers as members. How can you have employers and employees in the same union, what cause do you think the union will fight? The union has been hijacked and it needs to retrace its steps, if it is serious about defending workers or even remaining relevant to itself and Nigerians. This nonsense must stop."

However, when Sunday Trust contacted NUPENG's President Igwe Achese on the allegations, he said it was "a wrong information which must be cleared," stressing that the reason for the strike was basically to safeguard jobs because marketers were owing drivers up to five months salaries. There're fears of shutting down depots which could lead to shedding of about 15,000 jobs, including those of filling station workers."

He said people were sponsored to run a smear campaign on the legitimate demands of the union which solely seeks to protect workers.

"About 15,000 are going to lose their jobs because marketers are shutting down their depots and the purpose of our strike was for government to tell these people not to sack our workers.

"We went on that strike and when we discussed with a team of government and marketers, we discovered that marketers were agitating in their demands that government owed them and so they cannot continue operations.

"And we said government must secure the jobs of 15,000 Nigerians who are about losing their jobs. We reacted to the insensitivity of government."

He explained that the union was fully in support of the prosecution of subsidy thieves but stressed that their accomplices in government were left out in the trial.

"These issues are arising because of government's insensitivity towards making sure that the refineries of the country are optimally working. We say the refineries must work.

"Government should make our refineries to work and then stop subsidy payment but if they don't want the refineries to work, then they should continue with subsidy payment. These are the two different arguments.

"If we are in shock of such amount of money paid as subsidy, take that money. In fact, if half of that money in question goes into rehabilitating the four refineries of this country to bring them to the optimum capacity, it will be good.

"Nigeria is just wasting her money and here we are. You want people to suffer because you are also involved in fraudulent activities at the ministerial level: officers who are in charge. You ask yourself who approves payment, who signs those documents, is it me, is it you? Is it not the same government officials?

"So, where are the government officials that are being prosecuted in this matter? Nigerians must get it right. When you say something, few individuals will be sponsored to come and make noise on something they don't even know about."

Well, the strike had come and gone but only the next meeting of the stakeholders in two weeks time will determine if there is more pain to come or not.

For Abuja residents, it was nightmare while it lasted while those in the states girded themselves for the worst, with some places in the neighbouring Nasarawa State feeling the same heat if not more than some residents of Abuja.

On Thursday 23rd, August 2012 when the strike was called off, Minister of Labour and Productivity Emeka Wogu, who read the communiqué, said all parties agreed to work together towards finding a lasting solution to all the issues in dispute.

Wogu said the Federal Government and the unions agreed that all those accused in the fuel subsidy scam should endeavour to submit to the ongoing verification exercise and confirmed that the Federal Government has been paying all verified claims and will continue to pay all claims verified.

He explained that the meeting set up two subcommittees to respectively look into issues concerning unfair labour practices in SPDC and of penalty clauses in the PPPRA rules.

According to him, the government agreed to provide platform for all critical stakeholders to meet and discuss efforts being made in the provision of infrastructure and rehabilitation of the refineries with view to find a way forward.

He stated that depot owners and oil marketers agreed to keep their facilities open and pay the salaries of their workers, stressing that "the meeting agreed to meet in two weeks to review the status of implementation.

NUPENG President Comrade Igwe Achese told reporters that the outcome of the meeting was satisfactory and expressed hope that two weeks were enough for all concerned to reach an amicable resolution. Acting president of the NLC Comrade Adewusi also echoed NUPENG's sentiments.

WHAT FUTURE FOR AVAILABILITY OF OIL IN THE COUNTRY?

Speaking with Sunday Trust, the former chairman of Depot and Petroleum Products Marketers Association (DAPPMA), Key Sylverius Okoli said marketers do not have the money to finance importation of petrol. They rely on banks. Unfortunately, since the commencement of the probes, banks have suspended granting credit facilities.

"As a result, many of our colleagues have not even concluded the importation of products under the second quarter allocation, not to talk of third quarter due to lack of funds and failure to secure loans from banks as a result of the N200 billion outstanding owed by the federal government," he explained.

He said if government fails to open letter of credit for the marketers, they will not import. "What we have in stock presently is almost exhausted and if nothing is done urgently to beef up supply, Nigeria will again witness major fuel scarcity as supplies from the Nigerian National Petroleum Corporation (NNPC) alone cannot meet the current spate of consumption in the country," he stated.

Okoli who is also the Chief Executive Officer West Africa Bitumen Company (WABECO) lamented that the delay in payments has led to accrual of lots of interest from banks they borrowed the funds from, adding that the neglect has caused marketers great pains. "If we suspend operations, certainly there will be problem because the fuel we bring to augment that of NNPC will not be there," he stressed.

The DAPPMA leader said inability to settle led to significant rate of interest and exchange rate differential coverage, which has to be claimed with the participating companies and reimbursed by the federal government.

He said all concerned oil marketers have served a notice with their intention to shun importation of products in the third quarter.

He explained, "The country imports the bulk of its petrol needs through a subsidy regime. The current business environment in the sector makes it necessary for all of us to bring to attention associated with government, factors that inhibit our chance to import petrol in Q3 2012.

"Due to the fact issuance of Sovereign Debt Information covering balance 2011 and present 2012 PMS import transactions were initially severely delayed now currently suspended, we have massive outstanding, verified and unpaid subsidy claims over N200 billion from the federal government.

"Non-reimbursement of the subsidy claims impairs the flexibility of any company to meet its obligations for the banks for loans advanced for the purpose of importing PMS under the scheme for your Nigerian public."

A joint statement was issued by the oil marketing companies, including Major Oil Marketers Association of Nigeria (MOMAN), Depot and Petroleum Products Marketers Association (DAPPMA), Independent Petroleum Marketers Association of Nigeria (IPMAN), and Jetties and Petroleum Tank Farms Owners of Nigeria (JEPTFON) called for urgent payment of the subsidy claims. The statement which was signed by Obafemi Olawore, Executive Secretary MOMAN, Mike Osatuyi, National Secretary IPMAN, Ikem Ohia, Secretary DAPPMA and Enoch Kanawa, Executive Secretary JEPTFON, said the association controls 90 percent of functional facilities and market share of the downstream sector of the petroleum industry.

According to them, their members, who own over 25,000 filling stations, have tank farms and storage facilities with about 2.5 billion litres and with dealers in excess of 25,000 and employ about 300,000 station attendants and over 100,000 drivers and mates. They said there are about 100,000 direct staff and several millions of indirect staff such as contractors and peddlers.

The oil marketers warned government and the general public of the impending fuel crisis that will follow shut down of their operations should the Ministry of Finance fail to reimburse them their subsidy claims since January.

They said interest rate has risen to a minimum of 22 percent while interest charge in naira stands at N3.7 billion per month.

The associations said: "Our member-companies are under the threat of being driven into extinction due to the non-payment of the huge sums of legitimate money due to them that have been verified under the subsidy scheme.

"It is important to stress that our members financed the importation on behalf of the federal government with loans borrowed from Nigerian banks at ridiculous interest rates which are presently due. Further delays will result in additional charges that may completely erode our slim margins allowed under the scheme.

"We humbly call the attention of the federal government to the above and strongly appeal that all our outstanding payments be made immediately. We wish to reiterate our support for government's efforts towards sanitising the PSF scheme but take exception to a selective payment process where majority are deemed guilty as a result of an investigation that has lasted seven months."

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