According to the Federal Government, between 2005 and 2021, N13 trillion was spent on petrol subsidies. From 2009 to 2020, however, N16.3 trillion was lost to oil theft, the government added.
At a policy dialogue on oil swap that was co-hosted by the Nigeria Extractive Industries Transparency Initiative and Policy Alert, an indigenous civil society organization, with assistance from the Opening Extractives, it was revealed in Abuja.
Orji Ogbonnaya-Orji, the executive secretary of NEITI, stated in a presentation that was made available to our reporter that a decision about the campaign to end gasoline subsidies must be taken immediately.
He emphasized that the discussion around oil swaps would be completely put to rest if the petroleum sector was fully deregulated. He also noted that the most recent NEITI results revealed the enormous sums of money the government spends on fuel subsidies.
“NEITI’s latest policy brief titled, ‘The cost of fuel subsidy: A case for policy review,’ revealed that Nigeria spent over N13tn ($74bn) on fuel subsidies between 2005 and 2021.
“The figure in relative terms is equivalent to Nigeria’s entire budget for health, education, agriculture, and defense in the last five years, and almost the capital expenditure for 10 years between 2011 2020. It is also important to note other economic opportunity costs of fuel subsidy which include slashing allocations for the health, education, and technology infrastructure sectors.
“Others include the deterioration of the downstream sector with the declining performance of Nigeria’s refineries and recording zero production in 2020; disincentive private sector investment in the down and midstream petroleum sector; low employment generation since the refining process is done outside the shores of Nigeria; worsening national debt; declining balance of payment, forex pressures and depreciation of the naira and of course product losses, inefficient supply arrangements, scarcity and its attendant queues, etc,” Orji stated.
Regarding crude oil theft, he stated that statistics from industry reports of the oil and gas sector and the NEITI policy brief “showed that Nigeria lost 619.7 million barrels of crude oil between 2009 and 2020 (12-year period), valued at $46.16bn or N16.25tn.”
In addition, between 2009 and 2018, Nigeria lost 4.2 billion liters of petroleum products from refineries worth $1.84 billion, according to Orji, who said that the level of crude oil losses constituted a loss of more than 140,000 barrels per day.
“These findings and recommendations on tackling crude oil theft have been submitted to the President through the Presidential Committee on Crude Oil Theft, in which NEITI also served as a member.
“The committee has concluded its work and submitted its report to the President. The committee did an excellent job with far reaching recommendations. I will like to commend the Office of the NSA (National Security Adviser) that coordinated that panel’s work,” the NEITI boss stated.
Progress on PIA implementation unknown
The Petroleum Industry Act’s implementation status was also discussed in the presentation, with a focus on the fact that its development had not been made public.
Recall that the PIA included numerous provisions for the liberalization of the petroleum industry’s downstream sector. To oversee the Act’s implementation, a Presidential Steering Committee on the PIA was established in 2021.
“Not much is in the public domain on the progress of the committee’s work. Civil society should step up advocacies for the conclusion of the committee’s work and submission of its report to the President before the expiration of this administration with clear recommendations to the next administration on what has been done and outstanding work,” Orji stated.
Flaws around oil swaps
Regarding oil swaps, the NEITI helmsman stated that they go back to the time when the Federal Government gave the Nigerian National Petroleum Corporation a daily crude allocation of 445,000 barrels to refine for domestic use.
“The near-total collapse of the country’s four refineries meant that the NNPC could not refine the 445,000 bpd domestic crude allocation. Instead, NNPC exported most of the crude and then depended on the Pipeline Products Marketing Company Limited or private oil marketers to import refined products for local consumption.
“This led the country into huge debts and did not guarantee sustained imports of refined products to meet domestic demand. The debts got so heavy, and refined products were scarce with long queues at petrol stations nationwide.
“The government had to find innovative and less expensive ways of making refined petroleum products available for the citizens. Thus, in 2010, the NNPC introduced oil-for-product swaps as a solution to this problem,” Orji explained.
On the other hand, he emphasized that oil-for-product swaps were intricate barter exchanges in which the NNPC and private traders traded crude oil for refined petroleum products as opposed to cash.
He claimed that two types of swaps, including the Offshore Processing Agreement, had to be adopted by the NNPC. Under this agreement, a refiner or trading firm agreed to lift a specific amount of crude (with clear terms describing the expected product yields), refine it abroad, and then return the refined products to the NNPC.
In this scenario, the refining business can also pay NNPC cash for any product that Nigeria doesn’t require.
The second, according to Orji, was the Crude-oil-for-Refined-Product Exchange Agreement, in which a trader was given a certain amount of crude and was then charged with importing refined goods to equal that amount, less any agreed-upon fees and charges.
“However, these swap deals were not sustained as there were major operational changes within the NNPC on the management of domestic crude allocation in 2016.
“The Direct Sale Direct Purchase replaced offshore Processing Arrangement with effect from January 2016 and a functional unit was created within the Crude Oil Marketing Division to manage the DSDP,” he stated.
Therefore, according to Orji in the presentation, the purpose of the oil swap policy discussion was to create a forum for the exchange of information and analytical insights on Nigeria’s crude swaps, the identification of gaps and weaknesses in the swap agreements, and the identification of potential corruption hotspots.
Initiating inter-agency collaboration on the use of beneficial ownership data, he claimed, would be the goal of the conversation between anti-corruption authorities and regulators.
“We also want to use this dialogue to extract a commitment from state actors, especially anti-corruption agencies to follow-up investigations on the crude swaps, strengthen partnerships with specific agencies for follow-on action and generate interest around the subject of crude swap deals among key stakeholders.”
