Dedicated to Nigeria's socio-political issues
October 3, 2007 - December 2, 2007
A President's Oily Fraud
THE NEWS, October 14, 2004
Claims of President Olusegun Obasanjo on subsidy and deregulation may border on fraud
Who owns Nigeria's 35.25 billion proven reserves of crude oil? A cabal of light-fingered "leaders", or the generality of Nigerians?
These are, in essence, questions that have been setting Nigeria on the boil over the years as manipulation of oil issues and gross embezzlement of proceeds from export of the product perpetually impoverish the people. And these are the questions that will agitate the nation this week as the leadership of the Nigeria Labour Congress, NLC, calls workers out on strike if the President Olusegun Obasanjo administration fails to revert prices of fuel products.
Government increased prices of petroleum products on Thursday 23 September 2004, with premium motor spirit (petrol) now officially selling for between N53 and N55 per litre, up from between N42 and N45.
The constant hike of prices of petroleum products has become so vexatious. Government argues it is reforming the economy and an integral part of the exercise is the deregulation of the downstream sector of the oil industry.
Its definition of deregulation seems mainly to be the empowerment of certain shadowy individuals and major oil marketers to import refined fuel and sell at prices regulated strictly between government and the importers themselves. Government says it has been subsidising the cost of refined fuel and as it reforms, pump prices would at any point in time, be adjusted in conformity with the prevailing international price of crude oil. So since global oil price began climbing last year, government and marketers have been conspiratorially adjusting pump prices upwards.
When Obasanjo was sworn into office in May 1999, petrol was only N11 per litre. By October last year, the president had hiked it to N39-N41.50 per litre. And this year alone, he has done four increases. Logical analyses have been knocking the bottom off Obasanjo's fixated arguments on subsidy and deregulation.
In 2002, a renowned professor of chemistry at Howard University, Washington D.C., Dr Mobolaji Aluko, strove to prove that "there is no subsidy whatsoever being provided by the government if the total picture, rather than just cost and sales of imported refined products, is taken into consideration." Lawyer and human rights activist, Chief Gani Fawehinmi, and the NLC have also done extensive research to support Aluko's findings. Moreover, General Sani Abacha, the late dictator, revealed that rather than subsidy, government actually builds extra revenue for itself into the pump prices of petroleum products. Abacha went on to establish the Petroleum Tax Fund, PTF, to utilise the extra income on the development of mostly road, educational and health infrastructure. The PTF was one of the first structures Obasanjo dismantled when he assumed office.
Aluko was convincing in a piece he titled "Where is the oil subsidy?" that government was insincere on its subsidy claims. Using the 2001 and 2002 Operations Reports of the NNPC as his working paper, Aluko showed how the Corporation made huge gains of N91.5 billion and N68.8 billion respectively from imports and sales of petroleum products.
An important part of Aluko's contribution was the disclosure of NNPC'S extravagance in the expenditure of its earnings. The Corporation's operating cost alone in 2002 was N80 billion, a figure much higher than the individual budget of many states in Nigeria. The NNPC also budgeted N12 billion for asset replacement and N192.56 billion for imports. In all cases, there has never been a breakdown of how the Corporation spends the monies on these areas. In 2002, the total of the three costs was N284.62 billion.
Aluko observed that in spite of the unexplained, wasteful spending, NNPC was still N27.50 billion richer. "So where might the need for subsidy that the government has been talking about arise from?" the professor wondered.
By constant fuel price increase, the people suffer the brunt of NNPC's extravagance and government's fiscal indiscipline. NNPC factors revenues for government into the pump prices. In 2002, government made N17.90 billion from sales tax paid by the NNPC.
Aluko pointed out the Corporation's own profligacy. He particularly identified NNPC's overhead cost which set it back some N12.09 billion. How its managers flaunt its money would explain how its recurrent expenditure will always be high. From 1999 when President Obasanjo appointed the immediate former Group Managing Director of the NNPC, Mr.
Jackson Gaius-Obaseki, till last year when he was booted out, the erstwhile MD was comfortably ensconced in two suites at the prestigious NICON-Hotel, Abuja. For the period, his accommodation bill, borne by the NNPC of course, ran up to N500 million. When TheNEWS interviewed him on the impropriety of his accommodation choice before he was kicked out, he simply replied his long stay at the five class hotel was a sacrifice to the nation.
Also believed to have come from the NNPC booty were numerous Ghana-must-go bags that oiled the corruption wheel between the Executive and the National Assembly. The major feature of the Executive-National Assembly relationship in the first four years were the constant threats of impeachment that flew both ways. If the Executive was not always fuelling the impeachment of a Senate president or speaker of the House of Representatives, the federal legislators themselves were threatening to remove President Obasanjo. Oil money flowed freely to settle scores. In one allegation sparked off by the legislators themselves, the rumour was rife that about N2 billion oil money came from the NNPC to the legislators to stave off the impeachment sword that dangled over the president.
Abacha's exposure of the subsidy lie is instructive. To Obasanjo and Gen. Ibrahim Babangida, another former military dictator obsessed with increasing prices of petroleum products, Nigerians live in too much splendour courtesy the cheap price of fuel. Obasanjo was the first Nigerian leader to increase the price of petrol when in 1978 as military dictator, he jacked up price by 73 per cent, from eight kobo to 15 kobo. Babangida took the lie farther, buying pages of media space to argue why it was imperative he remove subsidy on fuel price.
When Abacha was increasing the price to N11 per litre, he explained that N2.35 was actually the cost of the product.
The balance were mere peripherals. Thirty three went for excise duty and VAT; N1.30 was marketers cost and profit margin while N1.70 was NNPC's cost and margin. These costs totalled N5.68. The balance of N5.32, Abacha stated, was the profit accruing to government from every N11 per litre of petrol. The late head of state stated he was ploughing the balance into the PTF.
This arithmetic means nothing to Obasanjo whose own calculation is an obstinate tie-in to the prevailing cost of crude oil at any given period. So if the price of oil at the market goes up to $100, consumers should be prepared to pay nothing less than N105 per litre at the pump.
Energy experts described Obasanjo's calculation as most fraudulent. One, it is sheer thievery, they say, to base the cost of one particular product on the cost of crude as many by-products and not one, are sourced from crude oil.
By-products from crude oil include petrol, diesel, kerosene and many petrochemicals, all of which are money spinners.
Government has refused to heed calls to make public the names of all those licensed to import fuel, where they import from and prices of their cargoes. This information, it is argued, would guide in calculating correctly what pump prices in Nigeria should be and disabuse the minds of critics of the president who insist that he, members of his family and his friends benefit unduly from fuel imports.
President Obasanjo would rather take the knocks than pad his image on transparency and accountability.
More central to government's fraud on fuel price is its criminal neglect of Nigeria's four refineries at Port Harcourt, Warri and Kaduna. The mind-boggling fraud that has attended the unending repair of the refineries, and government's apparent mania for refined oil imports and its unwillingness to refine oil at home would make excellent case studies for anti-corruption, non-governmental organisations like Transparency International. There are allegations that fuel cargoes come in from countries like Liberia, Brazil, Cote D'Ivoire and Sierra Leone where Nigerian former heads of state, their cronies and serving leaders are believed to have huge stakes in refineries. If true, the selfish interest explains the aversion of those who hold Nigeria by the jugular to make Nigerian refineries work or truly encourage new ones to be built.
Obasanjo admitted that his administration has spent about $700 (about N90 billion) million on turning around the refineries. The Port Harcourt refinery, commissioned in 1985 to produce 150,000 barrels of refined oil per day, hardly does 15 per cent currently. An older one in the same city built to be producing 60,000 bpd, has not been functioning since 2000. The 24-year old Kaduna refinery with a capacity of 110,000 bpd cannot produce up to 20 per cent of the figure. Five months ago, government made a big show of restarting the 125,000 bpd Warri refinery built in 1978. The refinery was test-run, but it was all a charade.
It promptly packed up. Officials said it was fed with a quality of oil not suitable for its operations. Critics considered the excuse as sheer balderdash. How engineers of the contractors who worked on the refinery's turn around maintenance and government officials who supervised it could not determine the proper quality of oil for it can only be answered by the Obasanjo administration. And what happened to the money wasted on the unproductive TAM? It went the way of other monies thrown away on other unproductive TAMs. Usman Bugaje, a member of the House of Representatives Committee on Finance, in July this year, challenged Obasanjo to tell Nigerians what happened to the whole money injected into the comatose refineries. Bugaje narrated to TheNEWS how his friends in the European Umon told him that there is large-scale corruption in government's administration of the Nigerian oil industry.
"The oil industry is shrouded in secrecy. And nobody seems to be interested in an independent investigation into the activities of the NNPC and the numerous allegations against it, its officials, contractors and some businessmen. The sad thing is that the president is the oil minister. Do we have any reason to trust him?" Bugaje declared.
Obasanjo's taciturnity on the call to him to disclose identities of fuel importers as well as other vital details of price, quality of imported fuel and sources of imports answers Bugaje's question on trust. Former head of state and presidential aspirant of the All Nigeria People's Party, Alhaji Muhammed Buhari, told this magazine that Obasanjo "is unwilling to divulge the identities of those involved in importation of oil products because their wives and children are being given contracts to import petroleum products." So as leaders, government's officials, their wives and children as well as their cronies fall over themselves to reap million of dollars and naira from importation of refined fuel, local refining takes a back seat and Nigerians are further impoverished by the treachery. Of all the oil producing countries in the Organisation of Petroleum Exporting Countries, OPEC, only Nigeria suffers from a poverty of a functional refining capacity and, at the larger level, abject poverty of its people. Other members, half of them with less crude and gas reserves, have sound, functional refineries scattered all over their lands.
Iran has nine refineries, does not imports a drop of refined fuel, and, in fact, export oil products. It has a refinery capacity of 1.47 million barrels per day.Venezuela owns about 15 refineries and boasts of a refinery capacity of over a million barrels per day.
Indonesia, too, with a refinery capacity of over a million barrels per day, has about 10 refineries. Saudi Arabia, the world's largest oil producer, now exports refinery technology even to the United States of America; its oil companies have been deep in talks with some American firms on building refineries in the USA.
Nigeria is the sixth largest producer of oil in the world, yet it could barely produce enough barrels of refined oil to sustain the social and economic life of the poorest state in the country. It has been made deliberately so.
Analysts maintain that the $700 million the Obasanjo administration squandered on TAM could have been spread on building five new medium-sized refineries, each costing about $120 million, with a production capacity of about 30,000-60,000 barrels per day.
Even countries that are not major oil producers in Africa put Nigeria to shame. South Africa has four complex refineries. Shell and BP have joint ownership of the 8250 kilo tonnes per annum (165 tonnes per day) Sparet refinery in Durban. Sasol and Total are also joint owners of the Natref refinery in Sasolburg, with a capacity of 4520 kilo tonnes per annum (85 tonnes per day. In Nigeria, government would rather encourage major oil producers and marketers to import refined oil rather than armtwist them to build refineries locally. An economist, Dr Chidi Nwafor, expressed anger that "major marketers in the country have been reaping bountifully from the Nigerian economy without any meaningful plough-back." Efforts to build private refineries have come only from local investors and state governments like Akwa Ibom.
Naturally, the efforts have been hampered by lack of funds.
Meanwhile, government, in its own folly, pumps millions of dollars that could go into assisting the local investors, even if in form of loans, to actualise their refinery dreams, into foreign exchange handouts to importers of fuel. There is a further twist of unpatriotism and treachery to this practice: the oil importers have been accused of diverting or round tripping the hard currencies they bought from government into other causes. Even when a confirmation came from the Minister of Finance, Dr. Ngozi Okonjo-Iweala, government refused to mention names and it has been business as usual.
Besides South Africa, Egypt, another non-OPEC country in Africa, has eight functional refineries and a 100,000 barrels per day facility under construction. At a smaller level, Cote D' Ivoire owns one refinery which works well producing 3,550 kilo tonnes per annum while Kenya's Mombassa refinery produces 3,300 kilo tonnes per annum.
Some Nigerian importers of refined fuel are believed to be buying their cargoes from these African markets. One energy analyst, John Bamidele, described it as "a big shame to Nigerian leaders and Nigerians generally." The maladministration of the oil industry and the entire economy by Obasanjo and his predecessors puts Nigeria conspicuously on the poverty scale. Nigeria is ranked among the 15 poorest countries in the world. Brazen theft of Nigerians' oil money by their leaders have reduced Nigerians to walking corpses. These days, it is not uncommon to see commuters who cannot afford the high transport fares occasioned by prohibitive fuel prices trekking long distances to their destinations.
Of the oil producers, Nigeria places the highest cost on pump prices of fuel. In Indonesia, Venezuela, Kuwait, Bahrain, Saudi Arabia and Egypt, motorists pay less than a dollar per gallon of petrol. A gallon actually sells for 28 cents in Venezuela, 74 cents in Indonesia, 77 cents in Kuwait and 75 cents in Egypt, which is not even an OPEC member. A gallon consists of about four and a half litres.
In naira terms, a litre of fuel sells for only between N12 and N30 in fellow oil producing countries.
Nigeria's cumulative revenues from oil over a 35-year period amount to over $350 billion. But such huge earnings have only bred widespread poverty. In 1965, gross national product, GDP, per capita was $245. Thirty nine years later, the figure barely exceeds $250. It is pertinent to compare the figure with those showcased by its fellow OPEC travellers. Qatar's GDP per capita is $32, 945; Algeria $1,766; Iraq $789; Iran $2,010; Saudi Arabia $9,327; Libya $4,064; Indonesia 4,960; Kuwait $17,942 and the United Arab Emirate $24,244.
About 80 per cent of Nigeria's estimated 124 million people have been confirmed to be living below the poverty level of roughly $1 per day.
While government, since Obasanjo's first arrival as military dictator, has been calling on the people to do some belt-tightening as sacrifice for government's reforms, the much-promised results have been elusive. Babangida promised that revenues from removal of subsidy would go into upgrading infrastructure and vital sectors as health, education and housing. By 1993 when he left, the entire social and economic life of Nigeria was in shambles. Only Babangida could explain how he spent the gains of its subsidy removal programme. Worse still, only Babangida could explain how $12 billion the nation earned from excess price of crude oil while he was military president disappeared. A report prepared by renowned economist, Dr.
Pius Okigbo, clearly indicted Babangida over the missing money. At a time, the Okigbo report was quoted in nearly all Nigerian newspapers and magazine. Surprisingly, as calls raged for the prosecution of Babangida over the missing money, Obasanjo, his fellow ex-military dictator, declared the report missing and said he has never seen it.
This is incredible. But then, Obasanjo's own expenditure pattern and reform implementation are being fashioned in the same mould. It has been all gas of deregulation, reforms and subsidy, with the sacrifice so unidirectional.
While the people are forced to starve in the name of Obasanjo's reforms, no reward comes from government. The economy shows no sign of any positive response to the reforms, and the people vegetate from the multiplier effects of increasing oil prices. Begging has been elevated to a national culture and scavenging now extends to food as hungry households turn to refuse bins and party leftovers for succour..
Last year, government collected a total of N2.5 trillion in revenue with a chunk of it made from oil. As during Babangida's regime, Obasanjo's administration is reaping billions of dollars from excess price of crude oil. The nation has so far made over N350 billion this year as excess from oil earnings. The states have been hollering that the federal government share the proceed to them as the constitution demands. But Obasanjo demurs with an excuse that government would rather save the money for a rainy day. This reason would have been tenable if government was sincere. But it is not. It has since been let out that Obasanjo has been dipping his fingers into this national cake. At the last count, he was reported to have surreptitiously spent over N100 billion of the money to fund his budgetary imprudence.
Obasanjo has been talking tough on the new fuel prices. So are Adams Oshiomhole, the NLC president and civil rights groups who have been mobilising for what the NLC chief has described as the "mother of all strikes." The Academic Staff Union of Universities had indicated intention to be fully part of the strike if it takes off.
Last week, the campaigners got support from the House of Representatives who told Obasanjo to back down on the fuel prices. The House rejected the prices as "unacceptable." The stance of the Senate's was not clear by last Wednesday. Observers of the development were, however, sceptical of a sincere support from the upper house. The president had successfully used the legislators in his attempt to break the ranks of labour in the build-up to the latest price hike. The senate effortlessly passed a bill sent to it to amend the Labour Act.The amendment was aimed at neutralising the power of the NLC president to mobilise unions to embark on strike. The attempt was followed up with a court verdict that declared Oshiomhole's office as illegal. The verdict was given by Justice Roseline Ukeje of the Abuja High Court.
These moves have not weakened Labour and Oshiomhole.
Instead, they have been strengthened. Last Wednesday, labour leaders held talks with government officials and representatives of the National Assembly on how to resolve the impasse. Labour did not consider the federal government as serious though. Oshiomhole rejected the delegation sent by government to negotiate at the meeting. The delegation was led by the permanent secretary in the Ministry of Labour, Mrs.Timiebi Korimapa-Agary. A angry Oshiomhole snapped: 'If I am going to make contributions, the intention is try to persuade someone else...that person cannot be the permanent secretary of the Federal Ministry of Labour." Fawehinmi described Obasanjo as possessing a pathological hatred for the poor. If Obasanjo's handling of fuel prices since his days as military dictator and his administration of the economy in the last five years are enough indications, the Senior Advocate of Nigeria could just be right.
Venezuela Has 15 refineries, sells fuel at 28 cents per gallon, GDP per capita of $3,463
Iran Has nine refineries, exports refined products, refines 1.47 million bpd, GDP per capita $2010.
Indonesia Has about 10 refineries, refines over a million bpd, GDP per capita $4,960, sells a gallon for 74 cents.
Saudi Arabia Exports refinery technology, GDP per capita $9,327 sells a gallon for less than a dollar.
South Africa Non-OPEC member, not a major producer of oil. Owns four big functional refineries.
Egypt Non-OPEC member, owns eight refineries, with another under construction.
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