Deregulation: FG Ready to Meet Labour’s Conditions

Written by This Day Wednesday, 10 March 2010

The Minister of State for Petroleum Resources, Mr. Odein Ajumogobia, has said the Federal Government has accepted some of the conditions given by organised labour for the implementation of deregulation in the downstream petroleum sector.

In a related development, governors of the 36 states of the federation and the Federal Capital Territory (FCT) have asked the Ministry of Finance to commence investigation into the N1.15 trillion claim made by the Nigeria National Petroleum Corporation (NNPC) as petroleum subsidy from 2005 till date.

Out of the amount, N880 billion accounts for direct subsidy on oil, while the balance is for the cost of crude and products lost owing to pipeline vandalism.
Ajumogobia, who spoke during a working visit to the headquarters of the Petroleum Equalisation Fund Management Board (PEFMB) in Abuja on Monday night, said government was prepared to address all legitimate issues raised by organised labour in an effort to avert labour crisis or any form of social dislocation.

“As for whether we are doing what labour said or not, yes we are taking them on and we are addressing their legitimate concerns that should be addressed. For instance, the Acting President has directed that the Nigerian Ports Authority charges be halved as a way of bringing down the cost of petroleum products. We are going to continue to implement all issues that are legitimate as we prepare to go into deregulation,” he said.

Labour movements have consistently opposed the introduction of deregulation in the downstream sector, saying government should tackle the lapses in fuel supply chain as well as ensure that refineries are restored to functional state to ensure that the policy would not amount to imposing greater hardship on the poor.

Ajumogobia, however, said though the Federal Government had accepted the proposals put forward by members of organised labour and had taken measures to re-operationise the refineries, it is not going to wait till everything is done before implementing deregulation. 

“Warri and Kaduna refineries have come back on stream which is one of the conditions demanded by labour. The 5,000km pipelines infrastructure is being repaired around the country wherever they are damaged and a lot of efforts have begun by NGC (Nigeria Gas Company) to repair gas pipelines. I disagree with those who think that we should do everything before we implement deregulation policy,” he said. 

Commenting on the upsurge in attacks on pipeline infrastructure, Ajumogobia said part of the challenges facing the efforts at securing the facilities is that a lot of young people are without jobs and as such they see tampering with the pipelines as a means of livelihood. 

He said because of the endemic nature of the problem of pipeline vandalism, making its repair a condition for deregulation means that “we will never deregulate”.
Speaking on the fate of PEFMB under a deregulated environment, the minister said there would be no role for equalization in product prices in a deregulated environment; but under a transition period, there might be a need to reserve certain roles for the PEFMB to see how the deregulation policy would unfold.

He said PEFMB could be seen as an organisation in transition as far as the Petroleum Industry Bill is concerned.
Meanwhile, rising from their National Economic Council (NEC) meeting at the Presidential Villa Abuja yesterday, the governors threw their weight behind the Federal Government’s proposal to embark on the deregulation of the downstream sector of the economy.

They also appealed to the organised labour to cooperate with government to ensure early completion of the deregulation exercise.
Governor Emmanuel Uduaghan of Delta State, while briefing State House correspondents on some of the outcomes of the meeting, said the governors expressed concern that part of the revenue from the excess crude account, which ought to have been distributed to the states, is used to settle claims by the NNPC on fuel subsidy.
Said Uduaghan:

 “This is where the states are very concerned… N880 billion has to be paid to the NNPC, it will definitely affect the revenue coming to the state, because the money that is to be paid is supposed to be part of the money that is to be shared by the states. So the states will be short-changed. And that is why states are worried about this issue of paying money to some persons. And the people that get this money are very few in the society, so should we continue to enrich certain persons to the detriment of all of us?”

The governor said the other thing the states were worried about was the Joint Venture Cash Call, in which money is deducted directly by the NNPC to their joint venture funds, noting: “Last year, for 4-5 months NNPC did not make any contribution to the federation account. For 4-5 months there was no money coming from oil revenue to federation account because the money that was gotten by NNPC is directly paid into the joint venture account and that really affects us.

“We have said as economic council that a committee be put in place to look into this arrangement and see to rearrange the funding of the JVCC, to such that the at least the state and federation accounts gets some funds.”
Governor Gbenga Daniel of Ogun State said the governors, while throwing their weight behind the Federal Government on the deregulation of the downstream sector, expressed worry that the greater chunk of the money spent on petroleum subsidy goes into private pockets.

According to him, for each litre of fuel sold to motorists in this country, government pays about N35 as subsidy.
“For practical terms the illustration that one can give is that for each and every litre of fuel, the Federal Government is providing a subsidy of about N35. On the contrary that subsidy is not translated to the people on the streets because people are still buying it at the free market prices.

“The issue, therefore, is where are the subsidies? And if the subsidy is running into billions of naira, then the NEC feels we do have a responsibility to stop this leakage one way or the other?” Daniel said.

Minister of Finance, Dr. Mansur Muhtar, while providing clarifications on some of the outcomes of the meeting, said: “Right now, we have an invoice from the NNPC to the amount of N1.15 trillion for various expenditures incurred on behalf of the Federal Government including cost of crude and products lost owing to pipeline vandalism and losses incurred from supplying petroleum products at regulated prices. So this is the size of the whole thing we are talking about.
“There are outstanding claims from the NNPC to the tune of N880 billion.This dates back to as far back as 2005, there are claims that have not been settled.”

Asked if there is proper auditing of the claims by his ministry before payments are made to NNPC? the minister said: “We have been doing the auditing systematically and for all payments we have an independent auditor that audits whenever the PPRA makes submissions that is why the payment circle takes over 45 days. We submit it to external auditors and they bring it back to us.

“What we wanted to audit was to do a process audit, because a lot of it is based on the details, but we know that there could be flaws or weaknesses in the existing system in terms of the arrangement itself and that relates to issues relating to making sure that cargo that is brought is fully inspected even though we have auditors. Audit relation to the movement of the trucks and supplies to the various depot themselves but these are all part of the general improvement in the system.

“But the key thing is as long as you have a distorted price mechanism it really creates all sorts of inefficiencies and leakages. The audits we are talking about will relate even down to the filling stations and again that is where the BPR has been trying to make sure that this prices are enforced, but when you have only about 440 staff responsible for overseeing 15,000 filling stations there is no way you can succeed in ensuring full compliance. Even the NNPC claims are being subjected to very rigorous audit.”

Meanwhile, the governors and the Federal Government have jointly set up a committee for the celebration of the nation’s 50th independence anniversary, which comes up on October 1, 2010. Governor Uduaghan, who disclosed this yesterday, said the committee is headed by the Secretary to the Government of the Federation, Alhaji Yayale Ahmed.