FG burns N191bn on dollar subsidy for companies in 2017 crude swap deals - BUSINESSDAY

FEBRUARY 05, 2018


Nigeria’s unsustainable subsidy for the consumption of petrol has the economy bleeding from both ends as the Federal Government burnt N191 billion subsidising foreign exchange for companies in its Direct Sales-Direct Purchase agreement who exchange crude oil for refined products, and N746.79billion on petrol subsidy since February 2017.

The DSDP arrangement is a model introduced last year to replace the controversial crude swap arrangement and is carried out through direct sales of crude oil to refiners or consultants, who then supply the Nigerian National Petroleum Corporation (NNPC) with equivalent worth of products.

According to the national oil company’s financial and operations report for November, between January and November 2017, companies in the deal lifted 65.2million litres of crude oil at an average price of $52.8 per barrel which translates to $3.4billion. But NNPC gifted these companies crude oil at an exchange rate of N304 rather than N360 it goes for in the market driven investors and exporters (I&E) FX window denying Nigeria revenue amounting to N191bn.

While the I&E investment window commenced in April 2017, NNPC ignored the rates and maintained N304 exchange rate throughout the year. In the DSDP arrangement, the NNPC signed agreements with ten companies to exchange around 300,000 barrels per day of crude for imported petrol and diesel in a deal worth about $6billion if oil prices remained in the $44/45 per barrel band.
The arrangement saw international oil marketing companies paired with local partners who won NNPC crude term contracts. NNPC did not publish the list of companies in the DSDP programme but a Daily Trust newspaper report last year cited a source in the NNPC who revealed that the list includes Vitol-Varo Energy, Cepsa-Oando, Petrocam Trading-Rainoil Ltd., Trafigura-A.A. Rano Nigeria and Totsa-Total Nigeria.
Others are Socar Trading which signed its contract with Hyde Energy as local partner; Mocoh-Heyden Petroleum, Mercuria-Matrix Energy and MRS Oil/Gas-Litasco while Ivory Coast’s SIR refinery was paired with Sahara Energy Resource Ltd.
Since December last year, the NNPC says it has been importing 55 million litres of fuel a day to meet consumption in Nigeria. With landing cost put at N171 per litre, this means that the corporation in January incurred a subsidy of N37 on each litre of fuel at a depot price of N133.80, leading to a daily subsidy of N2.046billion. In 30 days, this puts petrol subsidy at N63billion. The landing cost of petrol has been higher than N145 after crude oil prices jumped $45 per barrel in January, this puts total subsidy spend since February 2017 to date at circa N746.79billion according to calculations by analysts at SBM Intelligence.
This figure is higher than budgetary allocation for the ministry of Power, Works and Housing (N555.88bn), transportation (N263.1bn), Agriculture and Rural development (N118.98), Universal Basic education (N109.6bn) and combined capital expenditures for defence (N145bn), health (N71.11bn) and education (N61.7bn) according to analysis by SBM Intelligence.
“The issues of subsidy have been a major problem for NNPC since they are the only importer, so when they sell their crude they also buy products which they sell at loss at the open market, this is why the inefficiency of NNPC is very high,” says Adeola Adenikiju, director, Centre for Petroleum and Energy, University of Ibadan.
While critical sectors lie comatose, Nigeria continues to spend billions subsidising the consumption of petrol. In recent times, the National Assembly announced plans to probe the fuel subsidy largesse.
On Tuesday, the Senate Committee on public accounts, has concluded arrangements to probe NNPC’s payment of fuel subsidy despite non provisions in 2016 and 2017 appropriations. Other agencies that will answer questions on the sources of funds used for subsidy payment includes the Central Bank of Nigeria (CBN), Federal Ministry of Finance, Office of the Accountant General for the federation and the Auditor General for the federation according to Mathew Urhoghide the committee chairman.




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