The Minister of Petroleum Resources, Mrs Diezani Alison-Madueke, recently fielded questions from a select group of editors to clarify a number of issues in the oil and gas sector ranging from the controversial kerosene subsidy and alleged subsidy scam to the allegation of $10bn expenditure on jet private hire as well as the PwC audit report. Excerpts.
On Kerosene Subsidy
There was a Presidential directive to withdraw subsidy on kerosene. It is possible that the Minister of Petroleum at that time must have gone to discuss it with the President and may have been able to convince him on the need to stay action on the directive. I assume that that may have been what happened, that he had a discussion with the President but he overlooked regularizing in terms of getting him to rescind the order.
So, if anybody flouted the Presidential order then it must have been the Minister of Petroleum at that time. But since the directive was not gazetted and was not announced it was not a law; it was mainly a directive on paper because there are procedures that a directive must follow to become a law and become implementable. I don’t know why people keep referring to this. But anyway, another president came and appointed his own cabinet and moved on.
Now, because of the confusion created by this situation, marketers who, prior to that time, were bringing in kerosene pulled back. The reason was that if they brought in kerosene at the international landing cost and sold at our subsidized rate and didn’t get paid the difference, they would go bankrupt.
So, there was immense confusion and I think it was at that time that the NNPC had to step in and started supplying. That was before I became Minister of Petroleum.
This was where the problem of deduction of subsidy claims at source started. The issue of deduction at source has also been severally argued as to whether NNPC has the right or not to cover all those particular expenses from crude oil sales proceeds.
That was the situation with subsidy at that time. When we came out in January 2012 to try to regularize the system by removing subsidy on petroleum products, of course we all knew what happened.
Efforts to Rid the Subsidy System of Corruption
So, based on all that, subsidy on petroleum products continued up to this point. It is a sore point because, in all honesty, just like PMS, it is a very difficult issue to handle. It becomes even more difficult when revenues are falling because of the price of the barrel.
It is very difficult to pay vast amounts on subsidy which we don’t believe is getting to the actual users, the bottom line users of the PMS, but which is instead making middlemen fat. But we wanted to remove the subsidy. We wanted to deregulate too because we discovered that there was corruption in the subsidy system which had gone so bad that we were not able to move products seamlessly from one point to another.
There was arbitrary price increase in some areas and products were selling above the regulated price thereby making nonsense of the subsidy scheme.
Then there was round tripping, terrible incidence of round tripping. It got to the point that I even had to get the permission of Mr. President to invite the EFCC to come and look at the books and help us figure out what was happening because the level of PMS import we were getting clearly showed that something was wrong.
That was in 2011. At some point the round tripping was extended to kerosene which was being diverted and sold as aviation fuel. Marketers would take their allotment of kerosene and sell it as aviation fuel which is more expensive. You know the kerosene that is imported into Nigeria is of the same specification as aviation fuel.
That is why it is called Dual Purpose Kerosene (DPK). It was not profitable to import what is really the base level of normal Household Kerosene (HHK). These were some of the problems we had. As I said earlier, we had written to the EFCC and didn’t get any response, that meant no solution. In November 2011, even before we tried deregulating, I removed 92 marketers with one stroke of the pen from the PPPRA books, these were throughput marketers who didn’t have tank farms, who didn’t have any real investment in the sector.
We took this action because the level of investment into tank farm is so huge that if you can do it you won’t want to get involved in any shady deal. Besides, such investment entitles you to carry out throughput for other marketers and they will pay you to do that. By the law that is acceptable. That law wasn’t made in our time, it was there before we came in. So it was clear to us that the problem of round tripping was coming from those who didn’t have hard investments in the sector. And there were 92 of them in our books which we flushed out.
That was when I brought in Reginald Stanley to head the PPPRA. The fellow I brought in before didn’t seem to have helped in sorting out the issue at all because it looked like it was getting worse. I asked Stanley to try and reform the petrol importation and subsidy system to bring the subsidy bill down.
I told him that after stabilizing things we could bring some of the throughput marketers back, those who pass certain expectations, because it is in our laws, it is not as if throughput marketing in itself is illegal. So I signed them off, 92 marketers in one day. It was after I dropped them that the level of subsidy dropped significantly.
Strides in Local Content
We have been able to domicile some of the jobs in the sector that used to be carried out overseas within the country thereby creating jobs for many Nigeria youth. Manufacturing of small parts for the oil and gas sector is now being done in-country which was not the case before now. It is not just the manufacturing but the quality of the goods is such that we now have prospects of producing for other multinationals outside the country.
This has helped to create a lot of direct jobs over this period of time and hundreds of thousands of indirect jobs. It was a thing of joy for me when I visited places like the burnt down Okrika Jetty a couple of years ago to commission the products loading arm that was rebuilt only to discover that companies like Lee Engineering which did the construction of the project from A to Z was 100% Nigerian, all the engineers are Nigerians.
We are very proud that this sort of thing could be happening at this point in time. Now, these are major steps in the oil and gas sector because it is highly capital intensive, highly technological. We have been able to achieve this because we understand that until you get the industry down so that it can touch what I consider the real economy, until you begin to commercialize it, oil & gas always seem to be up there, a sort of mysterious sector for the very wealthy, extremely wealthy.
The multinationals have access to billions and billions of dollars, but we are beginning to pull it down so that ordinary people who can gather together the financial wherewithal can also be players in the sector. Like I said, not all of these are highly capital intensive, there are many other areas that are quiet minor in terms of capital outlay. Many people are coming in now. And this was the intent from the onset: to demystify this sector. On the Nigerian content side, I think we have done very well and we will continue to try to do even better.
Gas Infrastructure Development
During this period too, we started looking at what we could do to develop our gas resources. We have to pull out gas issues from the PIB and specific gas projects from the Gas Master Plan to implement to fast track gas to power, gas to industry and of course to ensure that value is added to the economy.
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