Happening Globally

False Fuel Subsidy Claims Under The Direct Sale Direct Purchase

The NNPCL decided to wind down its Direct Sale Direct Purchase (DSDP) contracts after the recent 300% PMS price increase. All the fuel subsidy claimed from 2020-2023 had originated from PMS imported under DSDP contracts. Last year, the Abdulkadir Sa’ad Abdullahi ad-hoc committee of the House of Representatives investigated the DSDP programme. The NNPCL told the ad-hoc committee that 738,759,194 barrels (bbls) of crude oil was lifted under the DSDP programme during the 2016-2021 period. However, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) claimed it was 733,260,525 bbls while those of the Nigerian Midstream Downstream Petroleum Regulatory Authority (NMDPRA) and the Nigerian Navy (NN) claimed the total crude oil lifted during the period was 732,319,016 bbls and 989,562,195 bbls respectively. These inconsistencies in the DSDP data from different government agencies suggested that all was not well with the programme and the fuel subsidy regime. The fuel subsidy regime has always been controversial. In March 2022, the Minister of State for Petroleum Resources, Timipre Sylva, said, “if anyone is looking at a criminal enterprise, look no further than the fuel subsidy.” Was there any fuel subsidy under the DSDP programme? Was the fuel subsidy regime a criminal enterprise? We will answer these questions in the simplest economic terms. Under the DSDP programme, NNPC delivered monthly crude oil lifting on Free on Board (FOB) basis to suppliers (consortia companies) who shall 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. Each DSDP partner was a consortium of indigenous marketers and a foreign trader/firm. The DSDP partners made their profit from the difference between revenue obtained from the sale of petroleum products in the world market and the cost of the crude oil. The NNPC did not pay the suppliers (consortia companies) any money, but recovered the cost of the crude oil by selling the delivered petroleum products to Nigerian distributors/marketers (offtaker companies) who then sold the petroleum products to consumers in Nigeria. The program began in 2016 and was managed by the Crude Oil marketing Department (COMD) of the NNPC. In 2016, 66.77 million barrels (bbls) of crude oil was exported under DSDP. This increased to 72.83 million bbls, 94.05 million bbls, 104.48 million bbls and 110.46 million bbls in 2017, 2018, 2019 and 2020 respectively. The NNPC claimed N99 bn, N141.6 bn, N720.3 bn and N578.1 bn, and N133.7 bn as fuel subsidy expenditures in 2016, 2017, 2018, 2019, and 2020 respectively. The DSDP program claimed 97.4% of the fuel subsidy expenditures of N508 bn ($1.602 bn) in 2019. It claimed 100% of the fuel subsidy expenditures of N0.134 bn ($0.371 bn), N1430 bn ($3.575 bn), N4390 bn ($10.209 bn), and N3360 bn ($7.29 bn) in 2020, 2021, 2022 and the first half of 2023 respectively. We will begin our analysis of the DSDP program by examining what happened to one barrel (I bbl) of domestic allocated crude oil when it was lifted under the DSDP program just before the no subsidy policy. The world price for 1 bbl of crude was about $76.41. The NNPCL nominated one of is DSDP partners as an off-taker (FOB) who then shipped our bbl of crude oil to be refined in a foreign refinery. When our one barrel (42 gallons) of crude oil is refined, there are 45 gallons of petroleum products. The 45 gallons of petroleum products consist of 4 gallons of LPG, 19.5 gallons of PMS (petrol), 10 gallons of Diesel, 4 gallons of Jet Fuel/Kerosene, and 7.5 gallons of Fuel Oil/Bottoms. One barrel of light Nigerian crude oil has a volume yield of 8.89% of LPG, 43.33% of PMS (petrol), 22.22% of Diesel, 8.89% of Kerosene/Jet fuel, and 16.67% of Fuel oil / Bottoms when it is refined. The Rotterdam Netherlands prices ($/bbl) of LPG, PMS (petrol), Diesel, Jet Fuel/Kerosene and Fuel Oil/Bottoms were $129.58/bbl, $307.80/bbl, $256.45/bbl, $85.50/bbl, and $323.86/bbl respectively during this period. To be continued tomorrow Izielen Agbon wrote via [email protected] Twitter:@izielenagbon

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