Nigeria investigates massive fuel subsidy fraud

Thu Jan 19, 2012 10:07am EST

Related Topics

* Big gap between fuel imported and consumed

* Lawmaker says this amounts to subsidy overpayment

* Fuel marketers group says "briefcase" firms to blame

By James Jukwey

LAGOS, Jan 19 (Reuters) - Nigeria has discovered a huge discrepancy in the amount of the motor fuel it subsidises and what people actually consume, a legislative committee said, supporting the idea that a government scheme to make petrol cheaper is wasteful and corrupt.

President Goodluck Jonathan's government abruptly removed the subsidy on Jan. 1 but strikes and protests by trade unions and civil society forced him to reinstate some of it, although the pump price was increased by 50 percent.

"What we have here is that 59 million litres were discharged by vessels, but the daily consumption locally was 35 million litres," Farouk Lawan, chairman of a House of Representatives committee probing subsidies, told an Abuja sitting late on Wednesday, in comments broadcast on independent station Channels TV on Thursday.

The comments are likely to further stoke the debate over the fuel subsidy, which economists say benefits wealthy fuel importers and smugglers more than ordinary Nigerians.

"There is a gap of 24 million litres per day being funded by Nigerians as subsidy that was not utilised by them. This of course amounts to overpayment; or in other words, sharp practices," the legislator said.

Critics of the subsidy say fuel importers overcharge for fuel in corrupt accounting procedures and that much of the fuel bought for local consumption is anyway shipped over the border to Cameroon and Benin, where it can be sold for a huge profit by smugglers. Both views seem to be supported by Lawan's findings.

"Smuggling has been encouraged by the system ... if local consumption is 35 million litres per day and we are paying for 59 ... we're making available 24 million litres a day for importers to smuggle out," Lawan said.

Lawan's committee is one of several investigations now in place on Nigeria's energy sector that were spurred by the fuel subsidy row, including a Senate probe into subsidies, a probe by the corruption watchdog into the state oil company and price regulator, and an audit of the entire Oil Ministry.

BLAME GAME

Nigeria imports most of the fuel it consumes because its four refineries are decrepit, producing at only a quarter of their installed capacity. The government buys the fuel then sells it to the public at cheap, subsidised prices.

The committee heard the subsidy paid for 24 million litres per day imported by marketers but not consumed by Nigerians amounted to 669 billion naira ($4.14 billion).

Economists say the fuel subsidy encouraged corruption and the wasteful use of fuel. The government had estimated it would save 1 trillion naira ($6.2 billion) in 2012 by eliminating it.

But Nigerians have always fought against its removal because they consider cheap petrol their sole benefit from living in a major crude oil producer which loses billions of dollars to corruption.

Its removal had doubled petrol pump prices to around 150 naira ($0.93) per litre from 65 naira, but Jonathan on Monday partially reinstated the subsidy, pegging the price at 97 naira.

"Subsidy was paid based on what was discharged; that was the practice I met on the ground," Reginald Stanley, head of the Petroleum Products Pricing Regulatory Agency, which is in charge of fuel imports, told the committee.

Stanley, who took charge of the agency in 2011, said he had changed the system and from Jan. 1, subsidy would be paid only for fuel actually trucked out of the port for consumption.

Stung by accusations of fraud, Nigeria's fuel marketers took out newspaper advertisements on Thursday, saying changes brought into the Petroleum Support Fund scheme in 2007 were to blame for allowing firms without pump stations to claim the subsidy.

"This saw the emergence of 'briefcase' companies (with no asset base nor accountability) in the PSF scheme," the Major Oil Marketers Association of Nigeria said. ($1 = 161.4300 naira) (Editing by Tim Cocks)

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