Nigerian Parliament Probes 'Largest Fraud' in $12.6 Billion Fuel Subsidies
By Maram Mazen – Feb 10, 2012 8:51 AM ET
Nigeria’s parliament is probing whether fraudulent practices by government agencies fueled a fivefold rise in spending on gasoline subsidies in the past three years, said the head of the investigating committee.
The government is probably paying more than 2 trillion naira ($12.6 billion) to fuel importers to cover the difference between market costs and state-regulated prices for last year, said Farouk Lawan, chairman of a House of Representatives committee investigating the discrepancies. That’s up from 384 billion naira in 2009 and represents almost half of last year’s 4.5 trillion budget.
Government agencies that import the fuel were involved in “instances where they either didn’t follow due process, or certain provisions of some laws were abused,” Lawan said in a Feb. 7 interview in Abuja, the capital. Levi Ajuonuma, a spokesman for the petroleum ministry, said the investigation should be completed before making any conclusions.
Nigeria, Africa’s top oil producer, relies on imports to meet about 70 percent of its domestic fuel needs due to a lack of refining capacity. President Goodluck Jonathan’s attempt last month to scrap the subsidies sparked a week-long general strike and prompted the parliamentary investigation.
The strike ended on Jan. 16 after Jonathan agreed to limit gasoline-price increases to 97 naira a liter (0.26 gallon). Prices initially more than doubled from 65 naira a liter.
“This is the single largest fraud that has ever been disclosed in Nigeria’s political history,” Clement Nwankwo, executive director of the Abuja-based Policy and Legal Advocacy Centre, said by phone yesterday.
While the petroleum ministry estimates national fuel consumption of 35 million liters a day, the government paid subsidies on 59 million liters daily last year, said Lawan, a member of Jonathan’s ruling People’s Democratic Party.
Petroleum Minister Diezani Alison-Madueke on Feb. 7 named Nuhu Ribadu, a former chief of theEconomic and Financial Crimes Commission, to head a 20-member task force to monitor revenues and oil production and exports.
Fuel imports are managed by the Nigerian National Petroleum Corp., or NNPC, the Petroleum Products Pricing and Regulatory Agency, Department of Petroleum Resources, and thePipelines and Product Marketing Co., which are under the Ministry of Petroleum Resources.
Nwankwo questioned the ability of the ministry where the alleged corruption took place to investigate itself and said ultimately Jonathan is responsible.
Presidential spokesman Reuben Abati didn’t answer four calls to his cell phone and a text message seeking comment.
“No doubt about that, it happened under his watch,” Lawan said, referring to Jonathan. “But it doesn’t necessarily mean that he knew about what was happening.”
Lawan declined to give details of alleged violations, saying they would be announced when the eight-member committee is scheduled to release its report in two weeks after listening to testimony from officials from the government and fuel importing companies.
The central bank has already paid 1.75 trillion naira for last year, Lawan said, and the full cost of the subsidies hasn’t been fully counted because of outstanding payments.
“From the figures that we are compiling now, I can confidently say the figure for 2011 will be in excess of 2 trillion,” he said.
Fuel imports have been a leading source of demand pressure in Nigeria’s foreign-currency market, according to the Central Bank of Nigeria. Since the beginning of the committee’s investigation, demand for foreign-currency to fund fuel imports has eased, central bank Deputy Governor Tunde Lemo told Lawan’s committee at a public hearing on Feb. 7.
“Perhaps because of the ongoing probe, we have seen a moderation in the demand for foreign exchange especially from the petroleum sector,” Lemo said. Since the start of the investigation, “a lot of order is being brought into the management of the petroleum products.”
The naira, which has gained 2.2 percent this year, advanced 0.2 percent to 158.85 per dollar as of 2:35 p.m. in Lagos, the commercial capital, according to data compiled by Bloomberg.
While the exact figure for domestic fuel consumption isn’t known, the petroleum ministry estimates it rose by 3 million liters a day last year from 32 million liters in 2009.
Average crude prices rose 53 percent to $95.10 a barrel in 2011 from $62.03 a barrel in 2009, according to data compiled by Bloomberg.
Nigeria is the fifth-biggest source of U.S. imports. The country produced about 2.1 million barrels of oil a day in January, unchanged from the previous year, according to data compiled by Bloomberg. About 90 percent of Nigeria’s crude is pumped by Royal Dutch Shell Plc (RDSA),Exxon Mobil Corp. (XOM), Chevron Corp. (CVX), Total SA (FP) and Eni SpA (ENI) in joint ventures with NNPC.
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