Nigeria investigates $4 billion fuel subsidy fraud

LAGOS Thu Jan 19, 2012 12:50pm EST

Protesters carry a mattress with the words ''Kill corruption not subsidy'', on the second day of a protest against a removal of fuel subsidies in Lagos January 10, 2012.  REUTERS/Akintunde Akinleye

Protesters carry a mattress with the words ''Kill corruption not subsidy'', on the second day of a protest against a removal of fuel subsidies in Lagos January 10, 2012.

Credit: Reuters/Akintunde Akinleye

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LAGOS (Reuters) - Nigeria has discovered a discrepancy of more than $4 billion a year between the amount of motor fuel it subsidizes and actual consumption, a legislative committee said, supporting the idea of massive corruption in the government subsidy scheme.

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

"What we have here is that 59 million liters were discharged by vessels, but the daily consumption locally was 35 million liters," 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 liters per day being funded by Nigerians as subsidy that was not utilized 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 using corrupt accounting procedures, and that much of the fuel bought for local consumption is shipped over the border to Cameroon and Benin, where smugglers can sell it for a huge profit. Both views seem to be supported by Lawan's findings.

"Smuggling has been encouraged by the system ... if local consumption is 35 million liters per day and we are paying for 59 million ... we're making available 24 million liters 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

In a statement on Thursday, the presidency said Jonathan was still committed to "the total deregulation of the downstream petroleum sector, not removal of subsidy alone," which he said was "in the interest of the future of Nigeria."

Whether he can go through with it, given evident public opposition, remains to be seen. Protesters said they wanted to see the government tackle graft first before slashing welfare.

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, subsidized prices.

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

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 more than doubled petrol pump prices to around 150 naira ($0.93) per liter from 65 naira, but Jonathan on Monday partly 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 January 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 petrol stations to claim the subsidy.

"This saw the emergence of 'briefcase' companies (with no asset base or 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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