Nigeria fuel subsidy report 'reveals $6bn fraud'

Nigeria's parliament has discussed a report said to reveal that $6bn (£4bn) has been defrauded from the fuel subsidy fund in the past two years.

The debate, which was televised live, made official findings that have been widely leaked in recent days.

The fuel sector probe was set up in the wake of angry nationwide protests in January after the government tried to remove a fuel subsidy.

Nigeria is a major oil producer but has to import most of its fuel.

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"We are fighting against entrenched interests whose infectious greed has decimated our people," House of Representatives Speaker Aminu Waziri Tambuwal said as he opened the two-day debate.

"Therefore, be mindful they will fight back and they normally do fight dirty."

The 205-page parliamentary report uncovers a long list of alleged wrongdoings involving oil retailers, Nigeria's Oil Management Company and the state Nigeria National Petroleum Corporation.

According to the leaks, a total of 15 fuel importers collected more than $300m two years ago without importing any fuel, while more than 100 oil marketers collected the same amount of money on several occasions.

The leaked report also says that officials in the government of President Goodluck Jonathan were among those who benefited from the subsidy fund.

Many of the people named in the document have denied any involvement in fraud, with some taking out full-page adverts proclaiming their innocence in local newspapers.

The BBC's Bashir Sa'ad Abdullahi in Abuja says at least some of the findings are likely to be adopted by Nigeria's lawmakers because of the huge public anger over the attempt to withdraw the subsidy.

Many Nigerians were livid when they were told by their government that the fuel subsidy was economically unsustainable - only to now find out the scale of fraud in the operation of the fund, our correspondent says.

Despite being a major oil producer, Nigeria has not invested in the infrastructure needed to produce refined fuel, so has to import much of its petrol.

The annual $8bn subsidy means prices are lower than in neighbouring countries - and correspondents say many Nigerians see cheap fuel as the only benefit they get from their country's oil wealth, much of which is pocketed by corrupt officials.

After a week of street protests and a general strike, the government agreed to restore some of the subsidy - and reduce the pump price of petrol to 97 naira (about $0.60) per litre after it had doubled to 140 naira when the subsidy was removed without warning on 1 January.

But President Jonathan defended the subsidy cut, saying Nigeria must either "deregulate and survive economically, or we continue with a subsidy regime that will continue to undermine our economy."

Nigeria: Subsidy regime fraught with corruption and inefficiency

Following the removal of subsidy on PMS on January 1, 2012 by the Federal Government of Nigeria and the attendant spontaneous social and political upheavals that greeted the policy, the House of Representatives in an emergency session on January 8, 2012 set up an Ad-hoc Committee to verify and determine the actual subsidy requirements and monitor the implementation of the subsidy regime in Nigeria.
The Federal Government had informed the nation of its inability to continue to pump endless amount of money into the seemingly bottomless pit that was referred to as petroleum products subsidy. It explained that the annual subsidy payment was huge, endless and unsustainable. Nigerians were led to believe that the colossal payments made were solely on PMS and HHK actually consumed by Nigerians. Government ascribed the quoted figures to upsurge in international crude price, high exchange rate, smuggling, increase in population and vehicles, etc.
However, a large section of the population faulted the premise of the Government subsidy figures, maintaining that unbridled corruption and an inefficient and wasteful process accounted for a large part of the payments. To avert a clear and present danger of descent into lawlessness, the leadership of the House of Representatives took the bold and decisive action of convening the first ever Emergency Session on a Sunday (January 8, 2012), and set up the Ad-hoc Committee to verify the actual subsidy requirements of the country.
The Committee decided that the scope of this investigation should be for three years 2009 -2011 for the following reasons:
• The actual budget expendfture on subsidy for both PMS and HHK was tolerable, being N261.1 b in 2006, N278.8b in 2007 and N346.7b in 2008. 5 companies including NNPC were involved iQ 2006, 10 in 2007 and 19 in 2008 contrasted to 140 in 2011.
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How Nigeria lost N45bn freights insurance in the importation of fuel

Indigenous insurance companies have alleged that the country loses about N45 billion annually due to the preference given to foreign ship owners and their choice of insurers over the indigenous companies in the lifting and importation of fuel.

They further alleged that the Nigerian National Petroleum Corporation, NNPC, deliberately sidelined insurance companies from participating in the insurance of imported fuel both locally and internationally.

According to them, the NNPC sets unnecessary bulwarks that made it impossible for Nigerian insurance companies to participate in the insurance of imported oil business, thus shortchanging Nigeria as the country loses as much as N3.7 billion monthly in freight insurance that it should be earning. This is happening despite the existence of the Cabotage law in Nigeria.

Last year, Mr. Fola Daniel, Commissioner for Insurance, said that the National Insurance Commission (NAICOM) would not permit risks to be underwritten offshore unless local capacity has been exhausted. Daniel also said the Nigerian Oil and Gas Content Development Act 2010 desired that local insurers and re-insurers will be able to write a minimum of 45 per cent of oil risks in 2007, and 70 per cent at the end of last year, but lamented that only 33 per cent of the risks in the sector was retained locally.

He attributed the development to what he called absence of an enabling law in the past to back up the policy initiatives, adding that with the coming into effect of the Local Content Act, in accordance with Insurance Act 2003 and the National Insurance Act 1997, and the release of the guidelines for oil and gas business in Nigeria, 100 per cent, 70 per cent and 40 per cent of all life, non-life and marine insurance risks in the Nigerian oil and gas industry must be placed with insurers in Nigeria.

According to Daniel: “No risk can be placed off-shore without the written approval of the Commission, which is required to ensure that Nigerian local capacity has been fully exhausted.”

When Financial Vanguard contacted the NNPC spokesperson, Mr Levi Ajuonumah, for comments, he denied the allegation, saying that all the vessels coming into the country were insured but refused to divulge if they were locally or internationally insured.

An insurance expert who prefers to be anonymous said that all these notwithstanding; the insurance industry has been shortchanged all along. According to him, the industry was shortchanged when the exact quantity of petrol on which subsidy was being charged were not known as there were no verifiable records of importation into the country.

The industry was also shortchanged when the Nigerian National Petroleum Corporation, NNPC, refused to divulge its volume of imports and was said not to have paid any duty to the Federal Government on imported petrol since 2002 owing to a presidential waiver. Prior to 2002, the corporation allegedly owed the Nigeria Customs Service over N46 billion as accrued duty on petrol.

The insurance industry was shortchanged yet again when mother vessels berthed off-shore to discharge products instead of going to designated ports and while on the high seas, the vessels discharged products into smaller vessels for onward delivery to the ports and because Customs personnel were barred from examining offshore vessels, they could not determine the exact quantity of products the vessels brought into the country.

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