Spending of $10.8bn by NNPC illegal – Experts

Lawyers and energy experts have carpeted the
Nigerian National Petroleum Corporation for
spending the $10.8bn meant for the Federation
Account.

The Governor, Central Bank of Nigeria, Mr. Lamido
Sanusi, had late last year alleged that the
corporation failed to remit $49.8bn to the Federation
Account between January 2012 and July 2013.
Of this sum, $30bn had been reconciled by the
government agencies involved, while $10.8bn is
still outstanding.
But the General Manager, Media Relations, Group
Public Affairs Department, NNPC, Mr. Omar Farouk,
said in a statement that the yet-to-be-reconciled $
10.8bn was spent on behalf of the Federal
Government on kerosene subsidy and other
expenses since 2007.
But this issue has continued to engage experts, who
explained that it was unconstitutional for the NNPC
to spend the money.
“I do not believe that the NNPC can constitutionally
spend funds meant for the Federation Account as it
is not a tier of government and does not have a first
line charge over such funds,” a policy expert and
energy lawyer with Banwo & Ighodalo, Mr. Ayodele
Oni, said in an interview with our correspondent.
He explained that there was previously a system
where the Federal Government allocated funds
directly to the NNPC from the Federation Account;
but since a Supreme Court’s decision stated that as
illegal, that had stopped.
However, the NNPC still gets periodic subventions
from the Federal Government’s share of funds
disbursed from the Federation Account, for cash
calls and other obligations; which the NNPC always
sees as insufficient.
“It would, therefore, be illegal for the NNPC to spend
funds meant to be paid into the federation account
under any guise in contravention of the constitution.
“The NNPC Act and the NNPC (Projects) Act also
specify the means of raising revenue by the
corporation and those means do not include
retaining funds meant for the Federation Account,”
he said.
According to the Director, Centre for Petroleum,
Energy Economics and Law, University of Ibadan
and President, Nigerian Association for Energy
Economics, Prof. Adeola Adenikinju, the NNPC has
been quite uncontrollable in the way it operates the
subsidy on petroleum products, in particular
kerosene, and to some extent, gasoline.
This, he said, had posed a challenge in transparent
management of the subsidy scheme.
“For a long time, both the PPPRA and NNPC operate
the subsidy regime almost in a parallel with the
former being unable to bring the NNPC under its
regulation with respect to importation of products
and by implication, the management of official
subsidy,” he said.
The university teacher, however, said NNPC must
have been exploiting the loopholes in the kerosene
subsidy scheme.
He said, “I am not a lawyer and may not be able to
provide a legal answer to this question. However, I
think there must have been a loophole in the
existing arrangement that the NNPC is taking
advantage of.
“Hence, while it may not be appropriate for the
NNPC to carry out self-assessment of the value of
subsidy it incurred, and deduct it directly from
petroleum income it receives on behalf of the nation,
it may not be illegal and the NNPC may not be
breaking any law. This is one of the major reasons
in my view why the passage of the Petroleum
Industry Bill is imperative to ensure that all exiting
loopholes and leakages in the system are
effectively blocked.”
Farouk, the NNPC spokesman, had said, “The yet-
to-be-reconciled $10.8bn can be located in the
expenses on some of the responsibilities, which the
corporation carries out on behalf of the Federal
Government with respect to domestic crude oil
utilisation.
“One of such issues is the unpaid subsidies on
kerosene and Premium Motor Spirit. It will be
recalled that Dr. Okonjo-Iweala (finance minister)
was earlier in 2013 reported to have stated that she
had not paid any subsidy on kerosene since she
assumed office.
“The truth of the matter is that since 2007 when the
late President Umaru Yar’Adua reviewed the prices
of petroleum products following the general strike in
protest against the price hike by his predecessor,
the issue of subsidy payment on kerosene was left
hanging and the NNPC was mandated to continue to
sell the product at a subsidised rate of N50 per
litre.”
Farouk said since then, not a dime had been paid to
the corporation as subsidy on the product.
But Adenikinju described the kerosene market as a
good illustration of the mismanagement of
petroleum subsidy, which exposed the hypocrisy of
the elite.
He said, “The case of kerosene is particularly
interesting and the current practice is a revision of
a presidential directive under the late Yar’Adua that
asked the NNPC to stop its subsidy on kerosene,
since it was obvious that the subsidy was not
reaching its target.
“However, the NNPC claimed it never received this
presidential directive and has continued this policy
that has benefitted itself, its appointed middlemen,
petrol stations’ owners and hawkers.”
He recalled that a study done in 2013 showed a
huge margin in kerosene prices at filling stations
across the country and the ‘official price’ claimed
by the NNPC.
On the average nationally, Adenikinju said the
national pump price of kerosene deviated from the
official price by about N64.38.
He said, “The deviation was most significant in
Abuja with a margin of over N100 per litre. Three
states, Enugu, Kogi and Cross River, recorded
excess margins of N90 per litre.
“Corresponding margins for Bauchi was N85 per
litre, Taraba, Lagos and Kano, N80. However, the
margins were much lower in Benue, Kaduna and
Ekiti.”
The professor said the analysis of variations
between official price and hawkers’ market was
even more dramatic, ranging from N30 per litre in
Ekiti to N150 per litre in Bauchi.
He said, “The NNPC cannot claim ignorance of this
sharp practice. Some would even argue that it
contributed significantly to the emergence of this
thriving unofficial market. These unofficial channels
are not self-sufficient and they depend to a very
large extent on supply from the official sources.
“Given the revelation from the probe panel and the
evidence on ground, the average Nigerian does not
benefit from the so-called subsidy on kerosene and
should therefore be stopped.”
Having spent N634bn to subsidise the retail price of
kerosene in three years, the Federal Government
did not make any arrangement for kerosene
subsidy in the 2014 budget.