The removal of fuel subsidy has upped the ante on the raging, brewing and rising levels of unimaginable corruption in Nigeria. Just when you thought you have heard the worst, another humongous and incomprehensible level of corruption stares you in the face.
In my article published on 3/6/23 and titled ‘Fuel Subsidy’s Double Whammy: Cash Payments and Crude Oil Swap All at The Same Time, i highlighted the grand corruption involved in the fuel subsidy double whammy where the NNPCL uses crude oil to swap for petrol a.k.a premium motor spirit (PMS) through the former direct sales direct purchase (DSDP) arrangement and at the same time, collects an average of N6 trillion annually from the federal government to pay for the same PMS it has already used crude oil to swap for. This puzzling level of corruption is unimaginable more so when juxtaposed with the nation’s lean resources.
The Tinubu administration deserves commendation for putting a stop to the ‘Double Whammy’ fuel subsidy scam. However, the followimg measures are critical to the success of the fuel subsidy removal:
1. Adequate palliatives should be put in place by the government at all levels to cushion the devastating effect of the fuel subsidy removal.
2. The federal government through the regulator- the Nigerian midstream downstream petroleum regulatory authority (NMDPRA) should apply proper enforcement to ensure that oil marketers do not take advantage of the situation to extort Nigerians through arbitrary and over-the-top price increases. Marketers are ready to push the price of petrol to N1,000 per litre if the laws are not enforced to stop such illegal increases.
The big question though is ‘How will Nigeria retrieve the moneys cornered by individuals through the fuel subsidy scam?
The answer is not far-fetched. There is the need to initiate a FORENSIC AUDIT of the ‘Double Whammy’ grand fuel subsidy scam so as to get to the bottom of the monumental fleecing of N59.3 trillion in 7 years and bring all culprits to book and more importantly, recover the money lost through the fuel subsidy scam.
The world bank reports that additional 7.1 million Nigerians will be overwhelmed by multidimensional poverty (MDP) this year for no fault of theirs owing to the removal of fuel subsidy. It becomes expedient that all those who covertly or overtly participated in the fuel subsidy scam should be brought to book and made to face the law.
A roll call of the grand fuel subsidy will reveal that Nigeria lost N59.3 trillion between 2017-2023 through the moneys committed by the NNPCL in the name of fuel subsidy while at the same time, crude oil is used to swap for PMS.
The breakdown below gives an insight into how Nigeria lost N59.3 trillion through a fraudulent cash payment for fuel subsidy while the crude-oil-swap (DSDP) was in place at the same time.
2017 – 2023
The federal government spends an average of N6 Trillion annually on fuel subsidy payments which amounts to N42 Trillion in 7 years. In 2023, the federal government spent N3.36 trillion on fuel subsidy under the medium term expenditure framework (MTEF) which brings down the total to:
N42 trillion – N3.36 trillion = N38.64 trillion
Before the removal of subsidy, the federal government pays N283.2 to subsidise every litre of petrol. In this regard, the government spent N18.4 billion daily on fuel subsidy.
The N18.4 billion daily subsidy commitment is obtained from the estimated daily PMS consumption rate of 65 million litres.
65,000,000 * 283.3 = N18,408,000,000
THE CRUDE OIL SWAP CONTRACT- DSDP
The NNPCL used 445,000 barrels of crude oil daily under the former DSDP contract to swap for petrol through third party oil marketers (consortium).
The scrapped DSDP arrangement was based on the swap of 445,000 barrels of crude oil daily for N65 million litres of PMS (excluding Dual Purpose Kerosene DPK and Aitomotive Gas Oil AGO, which are part of the DSDP contract). It should be noted that the 65 million litres daily consumption is not realistic as 25%-30% of Nigeria’s petrol is smuggled across the borders to neighbouring countries. With the removal of fuel subsidy, the daily petrol consumption has dropped to 41 million litres because the price of Nigeria’s petrol has now become expensive to our neighbours. Under fuel subsidy, Nigeria was subsidising everybody in West Africa unsolicited.
Based on the prevailing average crude oil prices 2017-2023, the total amount consumed by the DSDP in form of crude oil is as follows:
Average crude oil prices per barrel 2017-2023:
2023 $74.94
2022 $94.53
2021 $68.17
2020 $39.68
2019 $56.99
2018 $65.23
2017 $50.80
Average crude oil prices 2017-2023= $64.33
The amount the DSDP consumed per year = $64.33*445,000*365
=$10,448,800,250
This means that the federal government spends about $10.5 billion annually as cost of crude oil it uses to swap for petrol under the crude oil-for-PMS DSDP swap arrangement.
At an average official exchange rate USD to NGN, the Naira equivalent of the cost of crude oil under the DSDP can be determined as follows:
2017 – $1 = N333
2018 – $1 = N361
2019 – $1 = N360
2020 – $1 = N380
2021 – $1 = N403.5
2022 – $1 = N423.7
2023- $1 = N754.5 (after the harmonisation of the dual exchange rate regime)
Based on the above figures, the average exchange rate USD to NGN 2017 – 2023 is $1 = N430.8
This means that the Naira equivalent of the cost of crude oil the NNPCL uses annually to swap for petrol/PMS is: $10,448,800,250* N430.8 = N4,501,343,200,000
From the above, Nigeria commits N4.5 Trillion as cost of crude oil under the DSDP contract to swap crude oil for petrol (PMS).
If Nigeria is to sell the crude oil it uses for the DSDP in the international market, the nation would have earned N4.5 trillion annually from the 445,000 barrels it commits to the DSDP.
In monetary terms, the federal government spends N6.7 Trillion annually to fund fuel subsidy and
at the same time, the federal government commits N4.5 Trillion worth of crude oil to service the DSDP contract.
N6.7 Trillion + N4.5 Trillion = N11.2 Trillion. This figure N11.2 trillion is 51.3% of the national budget for 2023 (N21.83 trillion) and is more than the budgetary allocation for health, education and security in the 2023 budget.
Health sector = N1.17 trillion
Education = N1.79 trillion
Defence and Security = N2.98 trillion
It should be noted that not all of crude oil under the DSDP vanishes through corruption because some volume of PMS/DPK/AGO has been supplied to the NNPCL by the marketers. However, from experience based on the Nigerian factor of connivance between third parties and government officials to shortchange the nation, it is fair to say that only about 50% of petrol under the DSDP could have been supplied. The rest of the crude oil would have been diverted by the marketers in connivance with government officials.
This means that 50% of the N4.5 trillion Nigeria commits in form of crude oil in the DSDP contract would have been lost through corruption.
50% of N4.5 trillion = N2.25 trillion
N6.7 trillion (annual subsidy cash payments) + N2.25 trillion = N8.95 trillion
N8.95 trillion * 7 years (2017-2023) = N62.65 trillion
N62.65 trillion- N3.35 trillion (under the MTEF 2023) = N59.3 trillion
Nigeria is estimated to have lost N59.3 trillion through the fuel subsidy scam in just 7 years 2017-2023.
This is outrageous especially when juxtaposed with Nigeria’s dwindling resources amid global economic downturn.
NEXT STEPS
It is important that the federal government initiates a FORENSIC AUDIT of the fuel subsidy scam to get to the bottom of the alleged loss of N59.3 trillion through fuel subsidy from 2017-2023.
Stopping fuel subsidy is the first step but the Tinubu administration should go further to audit the fuel subsidy scam with a view to retrieving as much money from the scam as possible and bringing to justice, all perpetrators and their collaborators.
