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With the nation evidently on tenterhooks, the House of Representatives convened an emergency session on Sunday, the 8th of January 2012, and decided among other things, to probe the management of the fuel subsidy scheme so as to unearth the factors responsible for the rot and find out how to tackle the structural and procedural deficiencies that have contributed to our woes as a nation. At that same session, the House also appealed to President Goodluck Jonathan to suspend the fuel price hike until a more fortuitous time.
While those interested in muckraking will find enough materials with which to peddle their trade from the testimonies of all the principal stakeholders, serious minded people will find sufficient proof (in the report) of the waste and corruption that are inherent in an unbridled regime of subsidy that is beyond reforming.
Perhaps with that, we can begin an honest conversation about whether it is indeed in the interest of our country to continue with the regime of fuel subsidy that has made emergency billionaires of some rent-seekers in the private sector and their collaborators in government while making nonsense of our oil and gas sector.
FUEL SUBSIDY: THE DAY OF RAGE
Nigerians woke up on January 1st, 2012 to learn that the price of premium motor
spirit (PMS), commonly called petrol, had more than doubled. The impact of the
development came with unprecedented force. Almost immediately, transport fares
doubled and many people who had travelled home for the Christmas holidays were
stranded. Predictably, there was resentment against the Federal Government as
Nigerians began to vent their frustrations on any media outlets available to them.
Even when there were (and still are) compelling arguments that Nigeria is a victim
of its oil resources, critical stakeholders (including organised labour unions and the
civil society groups), responded withanger and condemnationwhile vowing that they
would challenge the Federal Government by calling for a strike.
To be sure, there has been so much inefficiency about the management of the oil
sector and sometimes defending its excesses against even the most temperate of
its critics is not an easy thing to do. Despite being a major producer of crude oil,
Nigeria has not invested in the infrastructure needed to refine enough to meet
national need, thus making it mandatory to import much of the petrol for domestic
use. In January 2012, it was hard not to be aware of the inherent irony. And indeed,
it was one of the extraordinary times in our history.
With the nation evidently on tenterhooks, the House of Representatives convened
an emergency session on Sunday, the 8th of January 2012, and decided among
other things, to probe the management of the fuel subsidy scheme so as to unearth
the factors responsible for the rot and find out how to tackle the structural and
procedural deficiencies that have contributed to our woes as a nation. At that same
session, the House also appealed to President Goodluck Jonathan to suspend the
fuel price hike until a more fortuitous time.
To achieve its objectives, the House set up two ad-hoc committees. The first one,
headed by Hon. Patrick Ikhariale, was to interface with the executive and organised
labour with a view to finding a common ground on what had a become a serious
national crisis. Other members of this committee were: Hon. Ajibola Muraina, Hon.
El-Badawy Hassan, Hon. Onawo Mohammed, Hon. Aminu Sulaiman, Hon. Peter
Akpatason, Hon. Ogbuefi Ozomgbachi and Hon. Khadija Bukar Abba Ibrahim and
Hon. Essien Ayi. The second ad-hoc committee, headed by Hon Farouk Lawan, was
to verify and determine the actual subsidy requirement and monitor the subsidy
regime. It had seven other members. They were: Hon. John Enoh, Hon. James
Faleke, Hon. Abbas Tajudeen, Hon. Abubakar Sade, Hon. Ali Ahmed, Hon. Gerald
Irona and Hon. Eucharia Azodo.
In a nationalbroadcast in the evening of 7th January 2012, President Jonathan told
Nigerians that the subsidy regime was unsustainable and that the government would
not back down on its removal. Pleading for understanding, the president said he
shared “the anguish of all persons who had travelled out of their stations, who had
to pay more on the return leg of their journeys.”
After highlighting why the subsidy regime was detrimental to national economy, the
president added: “If I were not here to lead the process of national renewal, if I were
in your shoes at this moment, I probably would have reacted in the same manner as
some of our compatriots, or hold the same critical views about government. But
tough choices have to be made to safeguard the economy and our collective survival
as a nation…the truth is that we are all faced with two basic choices with regard to
the management of the downstream petroleum sector: either we deregulate and
survive economically, or we continue with a subsidy regime that will continue to
undermine our economy and potential for growth, and face serious consequences.”
In response to the broadcast, the Nigeria Labour Congress (TUC) and the Trade
Union Congress (TUC) in collaboration with the civil society groups vowed to shut
down the nation. When the national strike started as planned, civil society groups
organized rallies and protests, particularly in Lagos, Abuja, Kano, Kaduna and
Ibadan. Encouraged perhaps by events in North Africa (dubbed ‘Arab Spring’),
where coordinated protests uprooted some dictatorial regimes, protesters poured
into major streets across the country and disrupted the daily routine of life and the
Many businesses, shops, offices, schools and petrol stations were shut down on the
first day of the strike on 9th January 2012. In Lagos, thousands marched on the
streets. In some parts of the city, police and the demonstrators clashed, leading to
some fatalities. In Kano, Nigeria's second-largest city, at least 30 people were
injured as police used tear gas and fired in the air to disperse protesters. Two
demonstrators later died. In the federal capital, Abuja, trade unions and civil society
groups organised a march and protesters closed the Dr. Nnamdi Azikiwe Airport.
However, on 15th January 2012, after six straight days of persistent strikes, and
following series of negotiations, the labour unions suspended the protests. By then,
the President had agreed to slash the price of fuel from N145 to N97 per litre. But
the cost of the strikes was enormous. To compound the situation, it is evident that
we have merely postponed the resolution of the problem.
Without any doubt, the fuel subsidy regime has been a major source of multiple-level
scams that have short-changed Nigerians and enriched very few people over the
years. And revelations from the House committee confirmed the fears of most
Nigerians. Incidentally, the scope of the committee was limited to cover only three
years, from 2009 to 2011; while the Terms of Reference (TOR) was simply “to verify
and determine the actual subsidy requirements and monitor the implementation of
the subsidy regime in Nigeria.”
The Lawan Committee conducted its sessions in public (beamed live on television),
and received memoranda from Nigerians from all walks of life. The committee also
invited major stakeholders in the oil industry to testify before it. From the federal
government side, some of the principal testimonies were taken from the
Coordinating Minister for the Economy, Dr Ngozi Okonjo-Iweala; Minister of
Petroleum Resources, Mrs Diezani Alison-Madueke; Attorney General of the
Federation, Mr. Mohammed Bello Adoke, SAN; two Central Bank of Nigeria (CBN)
Deputy Governors (Dr Kingsley Moghalu and Mr Tunde Lemo); Chair of the Federal
Inland Revenue Service (FIRS), Mrs Ifueko Omougui-Okauru; Director General,
Budget Office of the Federation, Dr Bright Okogu; Chairman of the Revenue
Mobilisation Allocation and Fiscal Commission, Mr Elias Nban; and the Group
Managing Director of the Nigeria National Petroleum Commission (NNPC), Mr
Austin Oniwon. Some other officials who testified included heads of relevant
institutions (like NPA, Customs, PPPRA, PPMC, PEF etc.) that had something to do
with subsidy. From the private sector were former Finance Minister, Dr Kalu Idika
Kalu; legal practitioners, Mr. Femi Falana, SAN and Mr. Olisa Agbakoba, SAN and
Other stakeholders invited to the hearing (and who testified) included 93 oil
marketers and importers, senior officials from the Nigerian Navy, the auditors
appointed by the Ministry of Finance to verify subsidy claims, members of the
professional bodies in the downstream oil sector, foreign oil traders, officials of the
Nigerian Labour Congress and Trade Union Congress as well as the managing
directors of the Port Harcourt, Warri and Kaduna refineries.
At the end, the committee took testimonies from 130 witnesses and received in
evidence 3,000 volumes of documents between 16th January and 9th February,
before submitting its report to the House on 19th April, after sitting for three months.
The House adopted the report on 24th April 2012.
In response to the House report, the presidency said it would seek further
investigation before prosecuting the alleged offenders. The Attorney General and
Minister of Justice, Mr Bello Adoke, SAN, said that there was need for such exercise
to ensure that there were no misplaced or wrong prosecutions. There was nothing
patently wrong with this position. It made sense for government to ensure that those
accused of wrong-doing were not improperly charged. Essentially, that was what the
plethora of committees eventually set up by the executive was to do: verify the
propriety of the House probe report. But to date, nobody has been brought to justice
on account of the report.
However, the report was good enough to earn the immediate termination of the two
accounting firms that were engaged by the federal ministry of finance to verify and
re-compute the claims submitted by independent marketing companies on the
Petroleum Subsidy Funds. The report also led to the establishment by the executive
of several other committees to verify and reconcile all fuel subsidy claims and
payments made between 2009 and 2011. And the reports of those committees have
more or less confirmed the findings of the House of Representatives ad-hoc
committee as it nailed a number of fuel marketers for abuse of the fuel subsidy funds.
From the Aigboje Aig-Imoukhuede Ministerial Verification Committee which
metamorphosed into a presidential committee to the Dotun Suleiman Committee on
Governance and Control Task Force to the Petroleum Revenue Special Task Force
headed by Nuhu Ribadu, the conclusions were that all is not well with both the
upstream and downstream operations of our oil and gas sector.
However, shortly after the House investigation sessions were completed, Mr Femi
Otedola, chairman of Zenon Oil, publicly confessed to bribing Hon. Lawan, chairman
of the ad-hoc committee to the tune of $620, 000 in what he described as a “sting
operation” in collaborationwith the State Security Services (SSS). The House, which
was on a brief recess, had to call another emergency plenary session on 15th June
2012. The House promptly suspended Hon Lawan and asked the committee on
Ethics and Privileges to investigate the veracity of the bribery allegations while Hon.
John Enoh was appointed as the new chairman of the probe committee to complete
Given the controversy that trailed the Ad-hoc committee report, the credibility of its
findings is now questionable. But the verbatimreport of what transpired in the course
of the sessions which lasted 12 working days should help in providing insight into
the nature of our oil industry and the danger the subsidy regime poses to the
economy. That precisely is the essence of this effort.
I must, however, put it on record that this has not been an easy task to undertake.
For several months between 2012 and 2013, I liaised with the secretariat of the
committee headed by Mr Boniface Emenalo, who would later also be charged to
court along with Hon Lawan (for allegedly collecting bribe from Mr Femi Otedola).
He was assisted by Mr Ezennia Nwanekezie. With the authority of the House
leadership, Emenalo was kind enough to avail me all the reports, the audio tapes
and the raw transcripts from the committee secretariat and was ever willing to
provide clarifications when needed.
I must therefore express my special appreciation to the Speaker of the House of
Representatives, Hon Aminu Waziri Tambuwal, his deputy, Hon Emeka Ihedioha,
as well as Hon Lawan without whose cooperation this work would have been
While those interested in muckraking will find enough materials with which to peddle
their trade from the testimonies of all the principal stakeholders, serious minded
people will find sufficient proof (in the report) of the waste and corruption that are
inherent in an unbridled regime of subsidy that is beyond reforming.
Perhaps with that, we can begin an honest conversation about whether it is indeed
in the interest of our country to continue with the regime of fuel subsidy that has
made emergency billionaires of some rent-seekers in the private sector and their
collaborators in government while making nonsense of our oil and gas sector.
Day One: 16th January 2012
HON. FAROUK LAWAN (Chairman): My Hon. Colleagues, let me, on your behalf,
formally welcome the Hon. Minister of Finance; the Director-General, Budget;
Chairman, Revenue Mobilization, Allocation and Fiscal Commission; the former
Chairman, Revenue Mobilization, Allocation and Fiscal Commission, as well as the
Managing Director of Conoil for responding to our invite to this Public Hearing this
morning. You are aware that the House of Representatives, at its emergency sitting
of 8th January, 2012 resolved, among other things, to set up an Ad Hoc Committee
to verify and determine actualsubsidy requirements and monitor the implementation
of the subsidy regime. The 8-man Committee, since then, has been working
tirelessly to establish some framework; identify key stakeholders and design a
mandate to ensure that the recommendations of the committee is objective, fair and
further promote good governance. The House of Representatives, being aware of
the growing concerns among Nigerians on the issue of subsidy that has become the
most tedious topics of the moment, set up this committee to guide the decision of
the House on this matter. There are separate issues begging for answers among
- What is the volume of daily consumption of petrol in Nigeria?
- How much is the cost of importation per litre of the product?
- What should be the retail price of a litre of petrol in the market?
- Is there any subsidy paid by government and if there is, how much is
- What is the process of this payment, and whether due process is
- Is the bidding process of importation contract open and transparent?
- Is there a cabal, as we have come to hear over the last couple of
weeks, associated with the importation and marketing of the refined
- And if indeed there is a cabal, who are the members of this cabal and
why has government failed to tackle the corruption associated with
- How much was paid as subsidy in 2011?
- Who authorized the payment and how much of such funds were paid
in the 2011 Appropriation Act passed by the National Assembly?
- What is the state of our refinery and how much is their output
- Are the products distributed and marketed efficiently?
- The 445,000 barrels per day which the government gives out as
condescend, what happens to it?
These are the issues we hope to unravel with the cooperation of those involved and
other patriotic Nigerians who have been calling and sending e-mails since the
publication by the committee in some dailies. The Committee is fully aware of the
expectations of Nigerians and the likely challenges ahead. It is also committed to
delivering results in an open and transparent manner. We are glad that even the
decision taken by the President this morning still makes the work of this committee
very relevant. From the executive decision, it presupposes that the phases of
subsidy will continue and Nigerians will continue to demand whether the process of
this payment is accountable, transparent and open, giving value to the Nigerian
people. That is why we, in the discharge of this work, will try to be fair and objective
and we will not shy away from asking any relevant question that will ultimately lead
to fair and correct assessment of the real issues associated with subsidy. Apart from
those already invited, the Committee welcomes any company, organization or
individual omitted but who may have any information that will assist in the work of
this Committee. While soliciting for the cooperation of all Nigerians, especially those
in the oil industry, it is my pleasure to welcome all of you to this opening ceremony
and the commencement of submissions aimed at verifying and monitoring the
implementation of the subsidy regime by the Federal Government. Today’s session
is one of severalthat we willbe having in the next two weeks. Tomorrow, the Minister
of Petroleum will be here and other stakeholders. NNPC and some other
stakeholders will be here on Wednesday. The Central Bank governor will also be
here and several other invited guests. We have also invited major marketers to
come and equally explain their positions. The key is that Nigerians demand certain
answers and this Committee is desirous of ensuring that Nigerians get answers on
this matter. I welcome all of you and assure you that we will have a very frank and
open discussion which we hope will add value to our quest for good governance in
this country. I want to mention that the testimonies we are going to take will be on
Oath so that whoever is going to speak will be on Oath. I also will like to tell those
who will be making presentations to please properly introduce themselves for the
purpose of official reporters. We have verbatim reporters who will be taking the
report of the submissions made by those we have invited. I hereby invite the Hon.
Minister of Finance to make her presentation.
DR (MRS.) NGOZI OKONJO-IWEALA (Finance Minister): I would like to note that
the invitation asking us to appear before this Committee was dated 12th January,
2012 and we received it on the 13th of January, 2012 at 6.00 p.m. The invitation
requested quite a number of pieces of information and data that are relevant to the
Committee’s work. This is the kind of information that we are working on. For
example, how much was spent on subsidy this year? We had an estimate before
and this is the end of the year, we are trying to put the figures together and to
reconcile those figures and the balance. Some of these vital pieces of information
are being put together. Between Friday and now we need adequate time to do that
and get additional information from NNPC and PPPRA on some of the questions
you have asked. Basically, you asked us to make a detailed submission and
presentation on the activities of our organizations with regard to importation,
distribution and consumption of petroleumproducts and payment of subsidy. This is
quite a piece of work and we would request that the Committee allow us a little bit
of time to put together the information requested because we have not been able to
put it together since we got the invitation on Friday. So, I will crave your indulgence
to request that we reappear with this information.
HON LAWAN: First of all, let me know how much time you require.
DR OKONJO-IWEALA: I think that we do not need much time because we have
already started work. We did not wait, but as you know we have also been working
on topical issues on the discussions that we have been having over the weekend
with labour on the negotiations. I think we will need just a couple of days to be able
to put it together in a format that will be accepted.
HON LAWAN: How many days?
DR OKONJO-IWEALA: I think two days will be all right.
HON LAWAN: Just two days?
DR OKONJO-IWEALA: When I said two days I have just been reminded that the
Federal Executive meeting is on Wednesday. I think by Thursday we will be ready
to do this.
HON LAWAN: The Hon. Minister of Finance was in the forefront for creating
awareness and sensitization of Nigerians on this issue. I believe that all the
information are on your finger tips; and that is why we expect that there is no point
in giving much time, but if you cannot make it tomorrow since Wednesday will be
Federal Executive Council we will give you up till Thursday to come and make your
presentation. Let me say, however, that we really expect comprehensive
presentation on Thursday. I will also expect you to give us an idea which I do not
think you need to work on, on the role of the Ministry of Finance on this subsidy
issue. On that, at least, you do not necessarily have to go and seek for information
from either NNPC or PPPRA. If you have some information on NNPC or PPPRA,
that will be all right but we will expect them to come and speak for themselves. We
will grant you up to Thursday to come and do your presentation on these issues but
before you leave, I will expect an overview of the role of the Minister of Finance on
the whole issue of subsidy.
DR OKONJO-IWEALA: I just want to say to you and your Committee that many of
the figures that we have been giving have been estimates. You will recall at a
previous hearing with the Senate Committee, we gave a figure up to October that
we had actually consumed about N1.3 trillion and we gave an estimate to the end of
the year. Now the reconciliation is to be able to get a figure that is based on what
has happened so that we can come to you having talked to our colleagues in the
NNPC and the PPPRA to get those numbers together. That is what we are trying to
do at the moment and that is what the work is about. With regard to the issue of the
process itself, payment of subsidy to beneficiaries, Ithink the general and broad role
of the Ministry is to verify the volume that has been imported and consumed through
independent auditors. The auditors again verify that the amount are correct and then
make payments to the marketers on those audited figures. That is the broad role of
the Ministry of Finance in the payment system. Of course, this involves a whole set
of procedures. In the case of NNPC, it usually deducts its portion of subsidy that is
payable to it at source. In other words, instead of disbursing money to the treasury,
NNPC receives a certain amount of crude that is allocated to it which if it does not
refine and gets money, it is supposed to use that money to pay for imported
petroleumproducts that are consumed in the country. What typically happens is that
NNPC deducts its portion of the subsidy at source. For the marketers, there is a
procedure for the payment of subsidy to beneficiaries. First of all, there is this
petroleum team that manages these chains of activities. An oil marketer has to
register to participate in the scheme; he has to get an approval to import products
that is typically given by PPPRA. The product importation then takes place by the
marketers. There is witnessing and confirmation of discharge of the imported
products by PPPRA operatives, the Department of Petroleum Resources and
Auditors which is Akintola Williams Deloitte and we have also added Olusola
Adekanola & Co., Independent surveyors are also there, they are appointed by the
marketers to confirm the quantity of the imported products. The Nigerian Navy is
also at the gate. There is the verification of the import document by PPPRA and
DPR. There is compilation, completion and analysis of import document and
determination of under recovery by PPPRA. There is a forwarding of the verified
document and subsidy claim by PPPRA to the ministry and the budget office of the
federation. There is the forwarding of the import document to the budget office then
to the appointed auditor. There is submission of the audited claims by the
independent auditors to the Federal Ministry of Finance and the Budget office of the
federation. There is approval of funds and forwarding of the audited claims to the
Accountant Generalof the Federation by the Hon. Minister of Finance. Typically, this
process is expected to be completed within 45 days because beyond that, the
marketers begin to charge a rate of interest. This is roughly the procedures that are
followed in terms of payment of the subsidy to the independent marketers and the
role of the Ministry of Finance in all of these.
HON LAWAN: From the briefing you have given, let me ask for one or two
clarifications. I think you mentioned that NNPC deducts its payment from source.
Who authorized NNPC to do that because you and I know that even the cash calls
that are associated with the lifting of crude oil are normally provided for in the
Appropriation Act? When we decided to provide for a cost of collection for both
Federal Inland Services and Nigerian Customs, those ones were also provided for
through the Appropriation Act. So, if NNPC is deducting directly from source, who
DR OKONJO-IWEALA: What I am saying is that for NNPC, their own understanding
is that they need to get money to continue to fuel the importation of these products.
In order to support their liquidity position they need to be able to deduct this money
to pay those who are also working with them to supply them. I think it will be
appropriate to ask them since they are coming before you. You can ask them this
HON LAWAN: Hon. Minister, since you are coming back on Thursday, I hope that
some of these answers will be provided, for instance, on the question I raised. Yes,
NNPC should be able to explain but the control of the Finances does not lie with
NNPC, it lies with the Hon. Minister of Finance. So anybody that is taking money
from any source, from funds that are rather available to the Federation Account or
is available to the Consolidated Revenue Fund of the Federal Government, then
there must be an authorization from the Ministry of Finance. If NNPC is deducting
money directly without authorization, it is doing that illegally. I will assume it is illegal
because due process was not followed. But we will allow you to go and come back
HON ALI AHMED: I just want to ask a general question that borders on good
governance. The information is out now that your ministry ordered an investigation
by KPMG. Is it correct to audit and look at the process that you have just spoken to
us about now?
DR OKONJO-IWEALA: Yes, it is correct.
HON JOHN ENOH: Mr. Chairman, although we follow this from the beginning that
the Minister should come back on Thursday, my attitude to this issue is that there
has been subsidy for severalyears now but in 2011 subsidy appears to have thrown
up quite a lot of issues. I know that in the beginning year of democracy, the issue of
subsidy and provision for subsidy and all that were never part of the National Budget.
But from 2007, it became an element of the budget to the National Assembly to the
extent that for 2011 budget we have a figure of N245 billion. Is it that there is
something wrong with the year in which you have a provision in the budget of about
N245 billion and by September or October, the government audit brought up the fact
that there was about N1.3 trillion already being spent on subsidy? That means by
the time figures and records are all put together by December 31, 2011, that figure
is going to be much higher. Is it that something is wrong with that situation for 2011?
That is my question.
HON JAMES ABIODUN FALEKE: My question is just a follow up to the question
raised by my honourable colleague. Hon. Minister, can you tell this Committee how
much is in the 2012 budget for the payment of arrears on subsidy for 2011?
HON UMAR ABUBAKAR: Honourable Minister, during your short brief, you
mentioned some procedures of control. In 2007 and 2008 companies that did not
qualify or pass the pre-qualification were awarded contracts to buy from this country
some crude oil. These companies are Covalent Trading, Petrobas, Desire and the
rest. How did we get into that with all the agencies put in place?
HON LAWAN: Honourable Minister, I think without prejudice to the fact that you are
coming back on Thursday for a detailed presentation, let me join my colleagues in
following up on the issues raised on budgetary allocation. My colleagues have
requested to know what went wrong that N245 billion was appropriated in 2011 and
the amount we have been hearing as having been spent is N1.3 trillion. We also
know that N155 billion was also appropriated in 2012 for the payment of arrears.
Now, in appropriating N245 billion in 2011, why was it N245 billion instead of N1.3
trillion? Was it short sightedness or was there any decision that was anticipated that
recommended the figures to be N245 billion rather than N1.3 trillion?
HON ABBAS TAJJUDEEN: Honourable Minister, I know you by reputation, being
a very sound professionalaccountant and an economist. I just want to ask a simple
question: do you think it is transparent for an organization that benefits fromsubsidy
to be the one to approve money for itself? You are the consumer and at the same