FALLACY OF “THE CABAL”

OTL Africa Downstream (Nigeria) aligns with the majority of Nigerian people, who expect nothing short of good governance from the country’s leadership at all levels. The social contract between the people of Nigeria and its leaders incorporates expectation of the highest forms of accountability, transparency and value in governance. This includes zero tolerance for corruption, leadership by example, purposeful spending, value for money in project implementation and sensibility to the pains of the people. These are irreducible minimums which the leadership must at all times put in perspective.

The recent removal of subsidy on petrol has been met with significant protests across the country. The protests have incorporated a continuing reference to a “cabal”, which is said to constitute the “beneficiaries” of the subsidy. Obviously, this reference draws from government’s expressed helplessness in managing the petroleum subsidy regime, which it suggested had been compromised by the “cabal”. Specifically, the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke recently said that the existence of the subsidy has tied its hands in the fight against the “cabal”. Early in December, the Senate released a list of names which was purported to contain “beneficiaries” of the petroleum subsidy.

Public and online commentaries continue to incite the public against the so-called “cabal”. Wild calls have been made in some quarters for the subsidy money to be returned, and for the so-called “beneficiaries” to be “jailed” or even “shot”. The fact is that the “cabal” campaign is driven by a wrong understanding of the subsidy regime, deliberate mischief and outright falsehood sponsored to deflect the real issues.

In the last six years, OTL Africa Downstream has striven to promote business, investment and value-creation in downstream markets across the continent, particularly in Nigeria. This has seen a robust increase in the profile of the industry and relationship building across continents. Our stakeholders cut across the downstream petroleum value chain, including oil traders, refiners, major and independent marketers, financial services, shipping, storage, logistics and government. From our vantage position, we are aware that a good number of companies listed as “beneficiaries” by the senate are indeed hard-working, professionally-run, value-adding entities creating worth in the economy through vast employment and investment in physical infrastructure.

Without fear of equivocation, we assert that there is no such “cabal”. It is also wrong to list individual companies and categorise them as “beneficiaries” of petroleum subsidy. Before I go into some of the more detailed issues, I must first concede that the original intention of the petroleum subsidy regime as envisaged under the Petroleum Support Fund Act which set up the PPPRA has long been thwarted. I have not investigated and therefore have no physical evidence (that’s the job of EFCC), but I strongly suspect that there’s a syndicate of fraud that has succeeded in compromising the subsidy payment process. However, that is not enough basis to lump a whole group of organisations together, including those legitimately and painstakingly adding value to the economy at great costs and paint all with one dirty tar brush.

The lie of “the Cabal” is founded on some fundamental fallacies, viz.: FALLACY NO 1: OIL TRADING AND MARKETING COMPANIES ARE “BENEFICIARIES” OF SUBSIDY MONEY.

This is not true. The primary beneficiary of petrol subsidy is every person who drives into the petrol station and pays N65 for petrol which is actually imported at a market rate and total cost that is much higher. The subsidy is simply a refund of the difference in price between the government decreed price cap and the international market price at which the products are imported. It incorporates the logistics costs of shipping the products to Nigeria and getting it into the storage tanks. The refunds are paid only after an elaborate audit process involving the Nigerian Ports Authority, the PPPRA, the Ministry of Finance, the Central Bank and the Debt Management Office, with attendant delays that accrue banking charges, eating up most of the little margins available. Many oil traders and marketers are trading with excruciatingly low margins, and are indeed better served by the removal of the subsidy regime.

FALLACY NO. 2: MANY MARKETERS ARE BRIEFCASE COMPANIES WITH LITTLE INVESTMENT IN INFRASTRUCTURE

Most oil marketers have invested billions of naira in physical infrastructure across the country, ranging through shipping, ports, storage and logistics. These investments are operated and maintained by a corps of skilled and regularly trained professionals. A new generation of young, internationally competitive manpower, readily deployable across economic sectors has been developed by the efforts of many legitimate oil trading and marketing companies. A standard requirement for allocation of refundable gasoline import quota is ownership of physical infrastructure, which many legitimate marketers and traders own and operate. These have indeed served the government and people of Nigeria crucially at times when government’s storage and holding capacity for petroleum products is almost non-existent. Investments in shipping have virtually ensured that Nigeria has a viable tanker shipping market.

FALLACY NO.3: INDEBTEDNESS OF DOWNSTREAM OPERATORS IS EVIDENCE OF FRAUD

In 2008 the world witnessed the most drastic ever price fluctuations of oil, rocking associated markets violently. From $147 dollars, the barrel crashed to $40. Overnight, international gasoline prices witnessed same fluctuations. Oil traders and marketers who had locked in orders in some cases at $1,500/ton, could only put same into the market in some cases for as low as $500/ton. The trouble was double in Nigeria. The Central Bank devalued the naira overnight, ensuring that funds borrowed at $118 had to be repaid at $160. With prices fixed, and an inflexible subsidy template, it was only natural that many would be in debt. Yet, despite the challenges, many oil traders and marketers continue in business in these severe conditions, surviving in the main due to refinancing or restructuring of debt. Things are not as rosy as has been made out.

In the midst of the foregoing challenges, the Nigerian public has been misinformed, and downstream operators, vilified and crucified. Most condemnable, has been the deliberate incitement of the public against legitimate business interests. The appropriate agencies of the law should by all means do their job in identifying those who have fraudulently and criminally undermined the system, but those working hard against all odds to provide jobs and create economic value should not be painted in the same tar.

We suggest that the deregulation policy of the government should be fully implemented, starting with an elaborate definition and development of the legal framework to guide it. The original guidelines for the administration of the PSF scheme should be reverted to, where eligibility to receive import allocations and reimbursement is based on actual ownership of physical infrastructure (storage and retail stations) to support the distribution of petrol. Quarterly publication of compliance performance of import allottees should also be reintroduced to be benchmarked against the previous quarter’s allocation, with attachment of assets as immediate sanction for such non-compliance. The PPPRA Board should at all times be made of persons of integrity who are apolitical, as against current practice where the Board has been chaired by a former political party chairman.

Otherwise the huge potentials of the downstream energy market, the vast investments already made by Nigerians and the future economic well-being of the country may inadvertently be compromised.

Emeka Akabogu, Esq. is Chairman, OTL Africa Downstream.