Diezani era saw explosion of rent seekers, cronyism

Nigeria’s outgoing oil Minister, Diezani Alison–Madueke, oversaw an era during her tenure when rent seekers and opportunists mushroomed in Nigeria’s oil and gas sector, resulting in the ballooning of subsidy payments and other shady deals.

In a 2012 report by the Aigboje Aig-Imoukhuede committee on fuel subsidy, it emerged that imports had been running at 59 million litres, while consumption was estimated at 35 million litres.

From less than N500 billion in 2009, subsidy payments totaling N2.6 trillion ($16 billion) were made in 2011 of which N382 billion ($2.4 bn) was made through a fraudulent process.

“We write to clarify that the number of likely fraudulent cases for criminal investigations contained in the Presidential Committee report on Verification and Reconciliation of Fuel Subsidy Payment identified  25 oil-marketing and trading companies (OM&Ts),” Aigboje wrote then.

Many analysts believe that most of the companies were allowed to perpetuate the fraud as a means of dispensing political favours.

The recent audit of the NNPC by PricewaterhouseCoopers (PwC) LLP also determined from information obtained from the Petroleum Products Pricing Regulatory Agency (PPPRA) that $3.38 billion, relating to Dual Purpose Kerosene (DPK) subsidy cost was incurred by the NNPC for the review period (between January 1, 2012 and  July 31, 2013).

Sanusi Lamido Sanus, former Central Bank Governor, called the kerosene subsidy a “racket” used to line the pockets of private kerosene retailers and NNPC staff.

A Presidential directive of June 15, 2009 instructing that subsidy on DPK be stopped was ignored by the NNPC. Furthermore, Kerosene subsidy was not appropriated for in the 2012 and 2013 FGN budget.

Alison-Madueke, testifying at the Senate in February 2014 defended the kerosene subsidy despite its illegality, saying that “the subsidy was kept at N50 per litre for the benefit of the Nigerian masses, even though the landing cost is N150 per litre.”

However evidence, from across most of Nigeria shows that kerosene is not sold at the subsidised rate. The NNPC buys it at N150, sells to oil marketers at N40-N50, who then retail it at between N170-N250.

The ‘leakages’ of cash in Nigeria’s oil industry in the period Alison–Madueke was minister have had negative effects on the Nigerian economy as oil revenues account for about 95 percent of the country’s foreign exchange earnings.

As oil prices fell to half their level due to weak demand and a supply glut from shale producers, Nigeria’s Central Bank devalued the naira, and raised interest rates.

Nigerian foreign exchange reserves are down to around $30 billion, while the balance in the country’s Excess Crude Account has fallen from $9 billion in December 2012 to $2.5 billion today. Meanwhile, a majority of Nigeria’s 36 states is having difficulty paying salaries.

There was also a spike in shady oil barter or ‘swap deals’ under the outgoing oil minister as Nigeria’s four refineries remained comatose. This occurs when importers who bring in refined fuel worth a given amount, receive an “equivalent value” in crude oil.

It is estimated that between 2010 and 2011, traders involved in swap deals, bartered 200,000 barrels of crude a day– worth nearly $20 million for a determined equivalent value in refined products. “It was clear to us that these transactions … were not properly structured, monitored and audited,” Sanusi wrote in a report to the Senate.

Alison–Madueke’s tenure as oil Minister also saw the emergence of briefcase oil traders. London-based think-tank Chatham House, estimated in a report on Nigerian oil, last year, that local traders could make up to 40 cents a barrel, amounting to around $5 million a year on 12 cargoes, just by “flipping” the contract to bigger trading companies.

A 2012 study commissioned by Alison-Madueke and headed by Nuhu Ribadu, former head of the anti-corruption agency, criticised the sales system whereby contracts were given to “briefcase traders with little or no commercial or financial capacity.” Alison-Madueke said at the time that there were no informal contracts and everything was done on official tender, not by any discretionary awards.

Patrick Atuanya