Nigeria's $6.8billion fuel subsidy fraud scandal

A $6.8 billion fuel subsidy fraud scandal is heaping pressure on Nigerian President Goodluck Jonathan to prosecute top officials or face protests, but many of those implicated are allies he is unlikely to go after if wants to keep his power base intact.

A string of investigations, audits and committees were set-up to investigate the fuel subsidy scheme. The first major report was produced by the lower house of parliament and is shortly going to be delivered to Jonathan and his government.

The national oil company, central bank and other government agencies have defended themselves against some accusations.

Here is some of what the report said:

FINDINGS

The subsidy regime between 2009-2011, the period the report covers, was fraught with "endemic corruption and entrenched inefficiency".

Investigators looking into the subsidy found importers were being paid for 59 million liters a day, while the country only consumes 35 million.

Mismanagement and theft by fuel marketers and government officials cost $6.8 billion over three years -- about a quarter of Nigeria's annual budget.

Nigeria spent 2.587 trillion Nigerian naira ($16.46 billion) on the fuel subsidy in 2011, 900 pct more than the 245 billion naira in the budget. The overspend is equivalent to over half of the 2011 federal budget.

The state-owned oil company NNPC is accountable to no one. It owes the government 704 billion naira for various violations of the subsidy scheme and it owes a string of fuel traders, including Trafigura, $3.5 billion -- about the amount in the Excess Crude Account, meaning that Nigeria essentially has no savings.

Oil Minister Diezani Alison-Madueke has a conflict of interest by being both on the board of NNPC - a fuel importer - and the supervisor of the subsidy regulator, the Petroleum Products Pricing and Regulatory Agency (PPPRA).

The number of fuel importers rose from 5 in 2006 to 10 in 2007, 19 in 2008 and 140 in 2011. This decision taken by PPPRA was one of the biggest causes of fraud. Many firms only existed on paper and collected subsidies on fuel that never existed.

In one example of mismanagement, the accountant-general's office made 128 subsidy payment transactions of 999 million naira each in the space of 24 hours between January 12-13 2009 -- equal to about $6.36 million almost every 10 minutes.

RECOMMENDATIONS

President Jonathan should reorganize the oil ministry to make it more effective in carrying out reforms to the sector. The oil minister's role should be divided between two people.

The management and the board of NNPC should be overhauled and those involved in any infractions should be investigated and prosecuted. The company should be unbundled to make it more transparent and efficient.

NNPC should be audited to determine its solvency due to a plethora of claims of indebtedness.

NNPC through local refining, swap arrangements and offshore processing should be able to provide enough fuel for Nigeria. Therefore the government has no reason to grant subsidy import licenses to other companies.

The chairman of PPPRA between 2009-2011 and its entire board during that time should be reprimanded. The executive secretaries of the PPPRA during that period should be investigated and prosecuted by anti-corruption agencies.

PPPRA should conduct a full performance assessment on all companies who import fuel into Nigeria.

All those in the finance ministry, budget office and the accountant general's office involved in the overspend on subsidies between 2009-2011 should be sanctioned.

SOURCE