CHRIS PAUL OTAIGBE
The issue of Fuel Subsidy and Fuel Pricing has been a recurring decimal on the national conversation of Nigeria. Many cannot understand why, with four Refineries, the Africa’s largest Oil Producer cannot refine its own Petroleum Products. To reduce the heat of the resulting tension and crisis in the polity, NNPC, the state-owned Oil corporation, opted to import PMS and Kerosene. Less than a a year, the Mohammadu Buhari government took over the helm, the price of the product was increased from N86 to N145.
The failure of the arrangement of importing a larger percentage of the products through Private firms prompted NNPC to take up the responsibility of becoming the SOLE importer of the Products. This was meant to ensure uninterrupted importation and supply of the Product and also to keep the Price pegged at the N145/litre mark. The government had promised at the time to remove fuel subsidy and explained that the rationale behind the increase in the price of PMS at the time was more of just a RISE in price through liberalization.
Later, the subsidy would come in through the backdoor as the Landing Cost of the Product in Nigeria was put at N171/liter, which meant that the government out of fear of increasing the current price by even a kobo (to avoid any uprising by the masses) had to bear the cost of the differentials.
That in a nutshell, is the story that has brought the country to this state of affairs in the Downstream aspect of her Oil and Gas management.
Many Nigerians, including those who know and the ordinary Layman, believe Nigerians should not be paying as much as they are paying for PMS (Fuel) today. Are they right? Well, the opaque nature of NNPC operations and Book Keeping tend to validate the position of the masses of Nigerians.
To get to the bottom of this matter, we would begin a series which begins with this layman audit of the NNPC Report on its arrangement to keep the Fuel flowing largely, through importation.
In order not to quote the corporation out of context, I have placed aspects of the report side by side with my personal Take on the reports. Please go through it and draw your own conclusions on the argument advanced against the backdrop of the figures and explanation presented in the report.
The Nigerian National Petroleum Corporation, NNPC, spent N151.43 billion for the purchase of crude oil for the country’s refineries over a 12-month period, between July 2015 and June 2016.
How many liters of Fuel did we get from these arrangements?
According to data obtained from the NNPC, 17.46 million barrels of crude oil valued at $772.66 million, an equivalent of N151.43 billion was delivered to the refineries in the period under review. The crude oil delivered to the refineries was for processing for local consumption
Since this crude came from the country’s Reserve and it is processed and distributed, solely, by the NNPC, Nigeria’s State-owned Oil company should this arrangement not entitle Nigerians to a cheaper Price at the Pump? How many derivatives were refined as non-PMS Products? What happened to them? Where were they sold and to whom? How much did government realize from the sale? Is domestic kerosene not part of this derivatives? Should it not have translated into cheaper Kerosene for the tens of millions of poor Nigerians who depend on the product for cooking?
While the remaining quantities that could not be processed by the refineries were either processed offshore or were used for the recently introduced Direct Sales-Direct Purchase (DSDP) arrangement.
Proceeds paid by the NNPC for crude oil deliveries to the refineries and other arrangements were transferred to the Federation Account, after other deductions would have been made by the NNPC.
How much was transferred to the Federation Account? What were these deductions and how much?
Specifically, the report noted that in July 2015, 3.35 million barrels of crude oil was supplied to the refineries, for which the NNPC paid N34.19 billion ($174.48 million); In August 2015, the NNPC paid N21.11 billion ($107.73 million) for 2.4 million barrels of crude oil; while NNPC paid N18.83 billion ($96.09 million) for 2.05 million barrels of crude oil delivered to the refineries in September 2015.
For the months of October, November and December, there were no crude oil supplies to the refineries,
This means that NNPC did not supply any Crude to the Refineries in the last quarter of 2015. Yet daily Product consumption by Nigerians at the Pump did not change neither, perhaps, did it reduce nor was there any reported increase. But then Nigerians were buying Fuel and Kerosene every day. In this report, NNPC did not state what happened in this interim.
So the question is who or by what by what arrangement did NNPC fund the Products consumed in this period? Did NNPC purchased, in raw cash (hard currency)? If so, from where, which department and under which directive was the Crude supply/Product procurement, captured and how much was expended?
It should be noted that in July 2015, alone, 3.35 million barrels of crude oil was supplied to the refineries, for which the NNPC paid N34.19 billion ($174.48 million). While it supplied In August 2015, 2.4 million barrels of crude oil and paid N21.11 billion ($107.73 million). For the month of September, it paid N18.83 billion ($96.09 million) for 2.05 million barrels of crude oil delivered to the refineries in September 2015.
In other words, in the third quarter of 2015, NNPC supplied a total of 7.8 million of Crude to Refineries Offshore. We can, therefore, deduce that an average of two million barrels of crude monthly and 5-7 million barrels of Crude per quarter, is supposed to be supplied to Refineries to generate Products for consumption. However, not a DROP was supplied the last quarter of 2015. So, how do we RECONCILE or EXPLAIN this DISPARITY?
But in the first quarter of 2016, the figures given for the crude supplied according to NNPC data, is a bit confusing.
While from January to March 2016, 0.502 million barrels, 1.88 million barrels and 1.89 million barrels of crude oil was supplied to the refineries, costing the NNPC N2.76 billion ($13.91 million), N12.3 billion ($62.75 million) and N14.54 billion ($74.19 million) respectively.
Is 0.502 million half a billion barrels of Crude or half a million barrels supplied for the months of January to March 2016? The breakdown of the figures further adds to the confusion in figures. At 1.88 million barrels and 1.89 million barrels of crude oil that was supplied to the refineries, for the first two of the three months in the first quarter (although only sum spent, N14.54 billion ($74.19 million) in March 2016 was disclosed), we would have so much left out of half a billion barrels and of course it would be impossible to supply over three million barrels in a ‘sub total sum’ of half a million. It is arithmetically illogical. The omission of the figure of the volume of crude supplied in March may be ascribed to an error in the collation of the report.
It should also be noted that within the period of the first quarter of 2016, an average of less than two million barrels were supplied as against the two million supplied in the third quarter of 2015. Yet, neither an increase nor a decrease in consumption within these quarters combined was recorded or reported.
Similar disparity in figures is pronounced in the figures reported for the months of April, May and June 2016 as 2.605 million barrels, 1.4 million barrels and 1.39 million barrels of crude oil in April, May and June 2016 respectively were supplied to the Refineries (according to NNPC Data).
Furthermore, N21.95 billion ($111.97 million), N12.87 billion ($65.67 million) and N12.91 billion (65.86 million) was expended by the NNPC on 2.605 million barrels, 1.4 million barrels and 1.39 million barrels of crude oil in April, May and June 2016 respectively.
In addition to the amount expended on crude oil deliveries to the refineries, the NNPC report also stated that the corporation purchased 33.38 million barrels of crude oil which it exported in the 12-month period, and which was valued at $1.39 billion, an equivalent of N272.6 billion.
In other words, an extra 33.38 million barrels of Crude oil was exported between 2015 and 2016 besides the volume it supplied to the Refineries. The question, here is, is this extra volume exported for sale? This line of questioning is neutralized by the fact that the company says it spent $1.39 billion, an equivalent of N272.6 billion supplying it, obviously in the order of its existing crude supply concept to Refineries.
However, 51.5 million barrels of crude oil was purchased by the NNPC for offshore processing arrangements, valued at N424 billion ($2.16 billion), while Direct Sales-Direct Purchase arrangement cost the NNPC N358.32 billion ($1.83 billion) with 43.07 million barrels of crude oil involved.
Although it did not state the volume of Crude the corporation supplied in the months of July, but it was gracious enough to report the amount of PMS and Kerosene this arrangement generated between June and July 2016.
Its Report states: “In July 2016, 798.33 million litres of white products was supplied into the country through the DSDP arrangements while 1.184 billion litres was supplied in the month of June 2016; only PMS supplied through DSDP in the months of June and July 2016. “The petroleum products, Premium Motor Spirit, PMS, and Dual-Purpose Kerosene, DPK, production by the domestic refineries in July 2016 amounted to 66.70 million litres compared to 331.15 million litres in June 2016.”
My Final Take
Since we do not know the amount of Crude Oil supplied in July to generate the amount of refined Products supplied for the period, we would use the month of June to measure an average amount of Petroleum Product expected to be imported from the ‘Barter’ arrangement.
A total of 1.39 million barrels of crude oil was supplied in June 2016 which produced 1.184 billion litres of PMS only. So, we can, then say, an average of 500 million to one billion litres of PMS is generated monthly when we supply an average of one million plus Crude Oil to Refineries.
Since our consumption of PMS stands at an average of 43 million liters per day, let us attempt some calculations:
First, let us attempt to explain why no drop of crude was supplied to the Refineries.
July 2015, 3.35 million barrels of crude oil was supplied to the refineries, In August 2015, 2.4 million barrels of crude oil; while, 2.05 million barrels of crude oil delivered to the refineries in September 2015. A total of 7.8 million barrels of Crude was supplied in the third quarter of 2015.
If A total of 1.39 million barrels of crude oil was supplied in June 2016 which produced 1.184 billion liters of PMS only, let us find, first, out how many days would a monthly Refinery Supply of Crude last: 1.184 divided by 48 million per day nationwide fuel consumption= 24.7 days.
So, we can estimate that the Crude-Refinery supply arrangement can only produce PMS import that will last an average of 27 (less than 30) days of consumption.
The question, here is how come the nation survived the last quarter of 2015 without a drop of crude supplied to the Refineries to generate the production of PMS for those three months, especially since the entire can be shutdown without a day of PMS at the Pump on the street?
The corporation may want to excuse the line of questioning with some surplus for months before or after. However, the glaring gap between the monthly supply of crude to the refineries for the Production and eventual daily distribution of the PMS to the fuel pumps is so wide that the figures and the process do not connect with the commonsensical logic of demand and supply.
In conclusion, it would be noted from the Report it sent out to the Public through the Media, did not capture the arrangements of Crude to Refineries from July to December 2016, even though it reported the cost of supply in July. Perhaps, one could assume that all the extra figures reported took care of the unreported months. Also, the disparity in the different figures in crude supplied and the cost incurred doing so could be attributed to the unstable Price of Crude Oil Price in the global market. But then, the layman’s and commonsensical argument against that explanation would be that since Nigeria owns the Crude and considering the usual 450kpd allocated for Domestic consumption (which is supposed to be free), it is expected that it should have a great influence in reviewing, significantly downwards, the price Nigerians buy PMS. Could this be one of the indices Prof. Tam David West, a former GMD of NNPC INSISTED and PROMISED Nigerians would buy Fuel at less than N50 per liter under the Mohammadu Buhari administration during the 2015 Presidential campaign? Just wondering.
If we check 450k x 30 days= 13,500,000 barrels per month.
With this, NNPC has lots of explaining to do, since the corporation has been running a maximum of three million barrels per month of supply to the Refineries for the generation of refined Products i.e. PMS.
So, what happened to over 10 million barrels monthly allocation to the country for her domestic consumption? At a minimum average of $40/barrel, Nigeria should be making $400m monthly. Within the period of 2015 and 2016, a total of $4.8 billion (N17.28 trillion) is yet to be accounted for in the Crude-Refineries arrangement adopted by the NNPC since 2015.
This is the beginning of the series of look into the Fuel Subsidy arrangements made by the NNPC. In days and weeks to come, we would be unraveling the popularly perceived mysteries shrouding the transparent process and principle powering the PMS pricing. Do not forget that the goal of all this is to establish the fact that from the point of view of commonsense and logic, Nigerians should NEVER be paying as high as they are made to do under whatever guise or arrangement, technical or financial.
The breakdown of the figures and explanations given above to clear the hazy look of the report, show that within the precinct of the many unanswered questions as thrown up in the report, lies, perhaps the VALIDATION of the POSITION of this exalted Platform on the issue.