Bogus subsidies and junk refineries

APRIL 6, 2021

By Olatunji Dare

 

Just a little more than 15 years ago, the British All-Party Parliamentary Group, issued a report on the Nigerian oil industry that exposed the essential falsity of the claim by a long line of Nigerian rulers from 1985 to the present that the government has been paying out colossal sums of money to shield Nigerians from having to pay the real cost of their prodigal consumption of petroleum products.

Quoting documents supplied by Shell, the British All-Party Parliamentary Group stated in a report prepared for the Blair Commission (Guardian, January 23, 2006) put the “technical costs” of extracting a barrel of crude at $ 4.00, and the “industry margin” at $1.87.  The balance, the report  said, went to the government in equity and taxes.

This meant, the report added, that if crude sold for $30 a barrel, the government was taking $24:13, or 80 percent of the total cost.  At the $50 dollar per barrel that ruled the market at the time of the report, the government was hiving off $44.13, or 88 percent, of the total.

With crude selling at an average of $120 per barrel thereafter for the better part of two years until the price fell by more than one-third, the government had literally been gorging itself on cascading oil revenues.  Even when the cost of refining and distribution ws factored into the equation, oil revenues accruing to the government could be reckoned only in stratospheric figures.  And the more the government earned, the more it sought to appropriate.

Employing typical British understatement, the report said that some N625 billion was lost every year through “organized pilfering” from the sprawling pipeline network and from bunkering on the high seas.  The team said it gathered that “senior military and political personnel” were involved in the theft, as well as their collaborators in neighbouring countries.  It said it learned that “no serious attempt” was made to prevent stolen oil from being transferred from land to sea and traded in international waters.

It was “impossible,” the report said, “to be certain how much the government actually receives and where the money is spent.” It should have added that it is also almost impossible to be certain how much oil is actually lifted or sold.

Yet, another round of “subsidy” removal or reduction was to have been instituted in June 1998

But President Musa Yar’Adua had “graciously consented” to hold off the measure, the Minister of State for Petroleum, Odein Ajumogobia, assured his anxious compatriots.

After decades of denial, deception and obfuscation, the Federal Government in a statement finally confirmed the damning report of the British All Party Parliamentary Group.  The statement painted a picture of racketeering, incompetence, inefficiency and sabotage almost beyond belief.  It spoke of refined petroleum products being shipped from local refineries, emptied into other tankers at sea and then returned to shore as imported stuff qualifying for hefty subsidies

Yet, the Federal Government would claim the following year that, in the face of the global economic recession, it could no longer afford to underwrite the “subsidies” to the tune of N640 billion a year.   Was it pure coincidence that the alleged subsidy was just N15 billion higher than the amount lost to the Nigerian oil industry through fraud every year, according to the British All-Party Parliamentary Group?

That was then.

A study researched by Professor Gbenga Oduntan of Kent University for the anti-corruption group Human and Environmental Development Agency HEDA, and published in this newspaper yesterday, found that Nigeria’s oil and gas sector accounted for roughly 93 per cent of Nigeria’s illicit financial flows.

Between 2011 and 2014, $12 billion of the flows went to the United States, $3 billion to our arch- creditor China, and some $800 million to Norway – yes, Norway, the poster-nation for international best behavior.

The study also confirmed anew a notorious fact of the industry — under-reporting of oil lifting of production and lifting volumes by the NNPC and the Department of Petroleum Resources.

Once again, as happens whenever the government is experiencing balance-of-payments difficulties, the first expedient it can conjure up is abrogating or reducing alleged subsidy on petroleum products.  Now, as before, the existence of the ‘subsidy’ is merely asserted, never demonstrated.

They had begun the campaign to end the alleged subsidy in 1985 by declaring that a situation in which a gallon of petrol cost far less than a bottle of soda was pernicious and unsustainable. But     so did the cost of a daily newspaper at that time as well as a family-size loaf of bread, to continue the false comparison.

When this line did not work, they came up with the argument that if they sold the products in Europe or the United States, they stood to get higher prices than they were getting in Nigeria. The difference, they said, was a ‘subsidy’ that had to be eliminated if the oil industry was to be saved from imminent collapse.

Opponents countered that the difference being claimed as a ‘subsidy’ was really an opportunity cost, and that a subsidy would be operative only when a product sells for less than its cost.

How much did it really cost to produce to gallon of petrol and deliver it at the pump, then?

The unspoken answer of the authorities was that the question was irrelevant, because even if crude oil was delivered to the refinery free, the retail price of petrol would still fall far below the production cost.  The situation was that dire. Nor was the question any longer merely a eliminating a subsidy on petroleum products; it was now a matter of subjecting them to “correct pricing.”

Higher prices, they said against all human experience, would curb adulteration and hence end the explosions that resulted from using such doctored products in kerosene lamps and stoves and the horrific, oftentimes fatal, injuries they inflicted on innocent consumes.   It would also serve they said, as a disincentive to cross-border smuggling into neighbouring countries where they were traded for windfall profits.

The smuggling was real, to be sure.  But as the Yar’Adua Administration was moved to admit, it was an inside job, carried out by persons within the system, who were in turn protected by the system. That explains why no big-time smuggler has ever been caught or prosecuted.

Eliminating the subsidies now reckoned in the trillions, they said further, would generate revenues that would be more productively invested in refurbishing the obsolescent oil refineries, expand their capacities and even build new ones to produce for export.  Everyone would be a winner.

Yet, as they stripped away the alleged subsidy and reaped enormous revenues, they never built a single refinery.  Year after year, they spent fortunes carrying out Turn-Around Maintenance (TAM) on the broken refineries.  Nothing was turned around except the pockets and fortunes of officials and their proxies.

Today, it is the same old, tawdry game, with the Federal Government set to spend billions of dollars on refurbishing those same refineries again, when it could build several state-of-the-art facilities for the same amount.  Given the rot, the pervasive corruption in the system, it is a bet that in another year or two, we would be refurbishing the refurbished refineries again.

There is no longer any question that what successive governments since 1985 have claimed to be subsidising has never been the consumption of petroleum products but racketeering, fraud, sabotage, inefficiency and incompetence on a scale beyond belief.  The entire industry is as transparent as a black hole.

It is almost as if a malignant hypnotist has, since the discovery of oil in Oloibiri in 1956, cast a spell on Nigeria’s  industry policy-makers and rendered them impervious to all that is decent and honourable.

It is time to break it.

SOURCE: THE NATION

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