SPECIAL REPORT: How Nigerian National Petroleum Commission Frustrated Revenue Generation By Oversupplying PMS Market

The Nigeria National Petroleum Corporation (NNPC) over-supplied gasoline to storage tanks across the country by 3.50bn liters between July 2018 when it extended its Direct Sale Direct Purchase contract and February 2020 when it stopped reporting the extension. 

The corporation had between the period imported 34.68bn liters of Premium Motor Spirit (PMS) and distributed 31.17bn liters of the product to marketers.

NNPC

At an average monthly importation and refining of 1.73bn liters, the corporation accumulated over 60 days of petrol in reserves, depriving the three organs of government of essential revenue. 

Besides accruing excess petrol within these 20 months, the corporation also claimed ‘under recovery’ on the imported products and not on the much lower distribution.

The different channels of revenue withholding enforced by the NNPC has contributed to the Central Banks policy of plugging the cash shortage by illegally advancing the executive arm of government more than five per cent of its budgeted earnings. 

Recently, different officials have tripped over themselves to deny that the Central Bank printed N60bn for sharing at the monthly payment of salaries to the three tiers of government.

This spate of denials and admission could have been avoided if the NNPC and its many subsidiaries were allowed to run profitably, observers say.

Surprisingly, the corporation does not appear to have a definitive policy on how much petrol reserves it should hold. Disputing claims that the state owned oil company was withholding $10.80bn from the federal government, Omar Farouk Ibrahim, its spokesperson as at December 31 2013, said the corporation was mandated to keep 32 days’ worth of petrol in reserve for unforeseen circumstances. Seven years later, that mandate has almost doubled without any justifiable reason.

Prior to August 2018 when it announced that it had from the previous month expanded its DSDP contract, the corporation imported or refined just slightly more petrol than it had distributed. Between February 2017 and July 2018, which reports data for January  to June of that period, the firm indicates that it imported 24.86bn liters and distributed 24.40bn liters.

This left the corporation with a slight excess of 460.77m liters, a little above 10 days supply. The firm’s daily importation/refining averaged for this period was 45.54m liters and its distribution averaged 44.69m liters, living the corporation with a daily average of just 843,898 liters.

There were some outstanding months where the NNPC imported more than the daily average for this period. In February 2018, the corporation imported and refined an average of 70.89m litres. It topped up this volume the next month, importing 80.26m litres. Both months recorded data for January and February of that year, when the firm was struggling to banish queues across filling stations in the country.

It is on the premise of wanting more petrol reserves that the corporation most likely sought and received permission from the government to extend its DSDP contract.

“DSDP – Direct Sale Direct Purchase has been adjusted to include daily crude allocation from Federation (Domestic), FIRS-PPT – Federal Inland Revenue Service – Petroleum Profit Tax Crude & Extended DSDP.” 

 This extension, and the losses attached to selling the petrol purchased at a subsidised rate, were charged to the National Fuel Support Fund (NFSF). This fund was capitalized with $1.05bn (Over n383bn at the time) from dividend remitted to the Federation account by Nigeria Liquefied Natural gas (NLNG).

The corporation had by the receipt of that permission started claiming under recovery from two sources. It was already charging losses it recorded from selling the petrol it sourced from its domestic crude to the federation account. The NNPC in its March 2020 financial overview said that it had stopped claiming money from the NFSF, it did not say if it had stopped lifting FIRS’s crude as well.

How DSDP Works

The NNPC sources the oil it exchanges for subsidised fuel for Nigerians from the daily crude allocation of 445,000 barrels it ought to be refining in its four inactive refineries. The corporation, through PPMC, buys the daily allocation and exchanges it for refined fuel through contractual arrangements called Direct Sale Direct Purchase (DSDP). By taking on the crude oil it should sell to remit Petroleum Profit Tax (PPT) into the contract, it means that the corporation should lift more than 445,000 barrels a day.

Before 2017, when the PPMC and oil marketers were responsible for supplying petroleum products, it was the duty of the Petroleum Products Pricing Regulatory agency (PPPRA) to prepare an order of quantity for the importers to fill up. 

At the dawn of the new year, the NNPC took sole charge of importation. As the price of oil soared, the cost of importing petrol rose with it and as the Federal government was not inclined to burden Nigerians, the oil marketers were priced out. From then on, the NNPC answered to no one, importing as much as it saw necessary.

Although the corporation has no defining policy on petrol reserves, the Farouq Lawan report of 2012, which made a study of the country’s daily consumption patterns, advised the PPPRA to import a daily extra of 1.5m liters of petrol. If the corporation followed this directive, it may have saved money and remitted higher revenue to the federal government.

While experts debunk the corporation’s daily distribution figures, the firm has attributed the rise of average consumption from 35m to 50m liters to smuggling. In March 2018, the Group Managing Director of the NNPC, Mikanti Baru, said there was a strong correlation between the increase of daily consumption from 35m liters to 50m liters. 

“The NNPC is concerned that continued cross-border smuggling of petrol will deny Nigerians the benefit of the Federal Government’s benevolence of keeping a fix retail price of N145 per liter despite the increase in PMS open market price above N171 per liter,” he said in a month where the corporation said it imported over 80m liters of petrol.

In the same year, BusinessDay, a news publication, noted that the corporations under recovery had increased by 600 percent from November 2017 to June 2018. Several voices note that the government’s weakness to stop the payment of subsidies on PMS has created the present situation, where the corporation says it cannot remit any monies to the Federation account allocation Committee.

This story was produced under the NAREP oil and gas 2021 fellowship of the Premium Times Centre for Investigative Journalism.

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