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HomeNewsThe 2021 Direct Sale Direct Purchase (DSDP) Program and Spurious Subsidy Claims

The 2021 Direct Sale Direct Purchase (DSDP) Program and Spurious Subsidy Claims

Figure don’t lie. But Liars do figure – Mark Twain

The Nigeria Extractive Industries Transparency Initiative (NEITI) released its 2021 oil and gas report in September 2023. The report published the monthly volumes of domestic allocated crude oil exported and PMS received under the NNPC Direct Sales Direct Purchase (DSDP) program in 2021. Domestic crude allocations are deliveries earmarked for downstream operations by NNPC. Under the DSDP program, NNPC delivered monthly crude oil lifting on Free on Board (FOB) basis to suppliers (consortia companies) who in return, delivered petroleum products of Nigerian standard specification to NNPC on Delivered at Place (DAP) basis, at designated safe port(s) in Nigeria. The petroleum products delivered was equivalent in value to the crude oil received from NNPC subject to the general terms and conditions as advised to suppliers (consortia companies) subsequently via Term Sheet (TS). 

There were 16 suppliers (consortia companies) or DSDP partners during the 2021-2023 period. The consortia companies were (1) Totsa – Total Nigeria, (2) Oando – Cepsa, (3) AY Maikifi – Britannia – U – Emadeb – Hyde, (4) Trafigura – AA Rano, (5) Litasco – PV Oil – Overbrook – Northwest, (6) MRS Oil, (7) Sahara Energy, (8) Bono – Century – Amazon – Cordero, (9) Eyrie – Levene – Bovas – DK Global, (10) Mercuria – Barbedos – Rainoil – Petrogas, (11) Asian – Masters – Casiva – Cimaron, (12) Duke Oil (NNPC subsidiary), (13) Prudent – UTM – Matrix – Petra Atlantic, (14) BP – AYM Shafa, (15) Mocoh – Panero – Stopgap – Mainland, and (16) Vitol. The DSDP partners delivered petroleum products (PMS and Diesel) of Nigerian standard specification to NNPCL on Delivered at Place (DAP) basis, at designated safe port(s) in Nigeria. The DSDP partners made their profit from the sale of the excess petroleum products (LPG. Heating Oil, Kerosene, Jet fuel, Coke, Asphalt, Lubricants, Bottoms etc) that were not supplied to NNPC. The NNPC did not pay them any money, but recovered the cost of the crude oil by selling the delivered petroleum products to Nigerian distributors/marketers (off-taker companies) who then sold the petroleum products to consumers in Nigeria. 

 

NNPC sold the petroleum products to distributors/marketers at government fixed domestic PMS prices. An additional expense of about $6.34/bbl was incurred as distribution margins by the distributors/marketers. NNPC can only claim fuel subsidy when there is a loss or under-recovery. NNPC defined under-recovery as the difference between the total cost (landing cost + distribution margins) and the government regulated PMS price at the pump. Actually, under the DSDP program, under recovery is more accurately the difference between the value of the domestic crude oil exported and the revenue obtained from the sale of the imported PMS of equivalent value in Nigeria. If the revenue from the sale of the imported PMS is equal or greater than the value of the exported domestic crude oil, then NNPC has broken even or made a profit and there is no under recovery. No fuel subsidy claims can be made under this conditions. We will proceed to show that NNPC made a profit of $2.063 billion from the DSDP program in 2021. Despite this, spurious subsidy claims of $2.898 billion were made for the year. 

 

The total domestic allocation in 2021 was 94.224million barrels of crude oil. All the crude volume (94.224 million barrels) was lifted by consortia companies or DSDP partners. The cost of the exported crude oil was $6.787 billion. The table below shows DSDP data for 2021. The total PMS import volume received by NNPCL was 16.413 MT with a reported false value of $11.605 billion. NNPCL wants us to believe that profit seeking private companies supplied $11.605 billion worth of PMS in 2021 when the DSDP contracts only required them to supply $6.787 billion worth of PMS. The $11.605 billion value of PMS was $4.819 billion higher than the expected contract PMS value of $6.787. NNPC could not give a reason for this variance. This is most likely because it erroneously used estimated FOB monthly prices per MT of gasoline in the North Western Europe market to multiply the monthly PMS import volume in order to get a mythical value of $11.605 billion for the $6.787 value of PMS supplied by its DSDP partners as per the requirement of the DSDP contracts. This is a good example of “Figure don’t lie. But Liars do figure”. It is corruption under the cover of “under recovery” or “fuel subsidy”.  

 

Fortunately, the National Bureau Statistics has published the average monthly PMS prices per litre in 2021. The sum of the products of the monthly volumes and prices will give us the annual revenue generated from the sales of the imported DSDP PMS in the Nigerian market. Therefore, we can examine the DSDP program in 2021 to determine if there was any subsidy.

 

The 16.413 MT or 22.010 billion litres of PMS imported in 2021 was sold in the Nigerian market for $8.849 billion. This gives a profit of $2.063 billion for the DSDP program in 2021. There was no subsidy. Yet, NNPC collected N1,159,183,273,072 Naira ($2.898 billion) as fuel subsidy for 2021. A total of N1.78 trillion Naira was actually approved by the Federation Accounts Allocation Committee (FAAC), but only N1.159 trillion was deducted at FAAC. Who deducted this money? Who was this money paid to? What did the Federal government and EFCC do about these spurious subsidy claims? These are basic questions which the Tinubu administration must answer before it asks Nigerian citizens to make sacrifices while NASS members buy more petrol guzzling Prado jeeps.

 

On May 29, 2023, President Tinubu turned away from the prompter during his inaugural speech and declared that ‘fuel subsidy is gone”. Petrol prices rose immediately by 200%. Thus, President Tinubu, on the spur of the moment, imposed this infamous IMF policy on the nation without any well thought out plan of handling the consequences of the policy on the Nigerian economy and people. The presidential spin doctors claimed Tinubu was courageous and had killed fuel subsidy and cremated it in one stroke. Since then, the percentage of Nigerians living under $2/day has increased to 70%. Inflation, unemployment, poverty and underdevelopment have also increased. Yet, the Tinubu administration remains in denial. It has no empathy for the suffering of the Nigerian masses. It argues that the suffering is temporary and market forces will adjust to equilibrium prices in the future ushering in a glorious period of growth and plenty for the poor Nigerian masses. Meanwhile, each Nigerian family should survive on a cup of rice palliatives.

 

Speaking in a press interview in Abuja, The Minister of Information and National Orientation, Alhaji Mohammed Idris said , “Fuel subsidy removal is like the pregnant woman due for delivery and in labour; when she is in labour pains, she will feel and prefer she never had the opportunity to bear a child. However, after the child is delivered, then the woman will hold her baby, smile and become the happiest woman in the world. So, the pains will be temporary, but at the end, we will be better for it; that is what President Bola Tinubu believes in, and that is what he is preaching”. If that is what the President believes in and preaches, then he is preaching a fake hope. This pregnant woman has an “abiku” child; a child destined to die and be reborn over and over again. The woman’s happiness will be short lived and full of bitterness because the “abiku” child will be gone before the next harvest. The woman’s pains and sorrows will remain permanent until the needful is done. Like the infamous IMF Structural Adjustment Policy, the IMF energy subsidy removal (fuel price increase) policy only generates a permanent state of increasing suffering, poverty, inflation and underdevelopment. Already, the petrol marketers are shouting that fuel subsidy is back, like a mythical phoenix bird rising from its cremation ashes. As usual, the government and NNPCL are in denial.

 

Critics of petrol price increases have always argued that “fuel subsidy” is organized criminal theft of public funds. Therefore, increasing fuel prices will not solve the organized theft called fuel subsidy. One cannot prevent thieves from robbing the cash register by increasing the prices of the goods in the store. If fuel prices are increased without eliminating the inefficiency and corruption in the domestic oil sector, the multiplier effect in all the sectors of the Nigerian economy will be immediate. The theft of public funds in the downstream sector under the guise of fuel subsidy needs to be stopped by punishing and jailing all those found guilty of participating in fuel subsidy theft. New refineries need to be built to meet future demands and our 4 old refineries put back into production. The critics are right as the reality of the current economic recession induced by the ill fated petrol price increase have shown. Despite the realities of increased suffering of the poor, the Tinubu administration is determined to impose all IMF recommended anti-people policies. The poor masses of Nigerian workers, youths, women, students and farmers must fight back to protect their own interests and force the Tinubu administration to provide low PMS and energy prices. This is the only way to ensure that the administration is held accountable to delivering development oriented dividends of democracy to the labouring classes.

 

Izielen Agbon

izielenagbon@yahoo.com

Twitter:@izielenagbon

October 20, 2023.

 

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