Fuel Subsidy Fraud: President Jonathan Unlikely To Risk Oil Graft Crackdown – Reuters

By Nigeria2Day

President Goodluck Jonathan is coming under pressure to prosecute top officials implicated in a $6.8 billion fuel subsidy fraud, but many of the suspects are allies he is unlikely to go after if wants to keep his power base intact. It has been three weeks since parliament produced a report detailing massive corruption in a state subsidized petrol import scheme and Jonathan has yet to indicate how he intends to respond. Inaction on one of the biggest corruption scandals in Nigerian history will hurt Jonathan’s reformist credentials and further alienate his government from a disillusioned population. It could also prompt major public protests.

But some of Jonathan’s closest allies manage the oil industry, which is based in his home region, and the tentacles of the subsidy fraud spread throughout the political elite, making it near impossible to untangle.

“In the past pressure for change has usually prompted the casting aside of a scapegoat,” said Antony Goldman, Nigeria analyst and head of Africa-focused PM Consulting. “Too many people in the ruling elite do not want an end to corruption, they just want their turn. From an external perspective, failure to act may indeed look like weakness; the domestic environment is more complex.” Civil society groups have threatened protests if those they deem responsible for the mess, including Oil Minister Diezani Alison-Madueke, and heads of the state oil firm, aren’t sacked. In January, thousands bought the nation to standstill in protests against an attempted removal of the subsidy. “The president is hoping this will blow away and we believe his own vested interests are holding him back,” said Clement Nwankwo, a political activist with the Abuja-based Policy and Legal Advocacy Centre, one of many that led protests in January. Jonathan already has many opponents and is struggling to contain an Islamist insurgency in the north. In a country where patronage and largesse still determine political success, prosecuting power brokers is risk he is unlikely to take.

The report said Nigeria paid 900 percent more in fuel subsidies last year than it budgeted for, handing out billions of dollars to briefcase companies that had no capacity to import fuel or to firms that sold the petrol to neighboring countries. Criticism focused on fuel importers and government agencies but the report’s evidence pointed to several ministries and the central bank. If Jonathan implements its recommendations he will undermine a large section of the team he chose to run the country. “I don’t think we’re going to see high level officials in jail … that would imply his regime had imploded,” said Patrick Smith, editor of Africa Confidential. “The government didn’t want this to come out. It isn’t hard to track back some of this to the top people in government.” Jonathan this week squashed speculation about a cabinet reshuffle, saying he had confidence in existing ministers, to the dismay of activists who wanted tough action. He has said subsidy fraudsters will be prosecuted, but called for patience.

He built his career in the oil-rich Niger Delta, where much of the fraud took place under the noses of security agents and politicians he has worked closely with for decades. Some of the fuel import firms criticised in the probe have politicians as stakeholders – aviation minister Stella criticized Others are owned by oil industry oligarchs who have helped fund Jonathan’s election campaigns. Femi Otedola, the CEO of Forte Oil, one of Nigeria’s biggest fuel importers which testified at the hearing but was not named in the list of fraudsters, was made a member of Jonathan’s economic management team this year. “If he is going to act, he needs to be very careful … the scam reaches into many powerful crannies,” said Kayode Akindele, partner at Lagos-based financial advisory firm 46 Parallels. Government sources and political analysts see dismissals of mid-level officials and the banning of some fraudulent fuel importers, rather than arrests of senior officials, as a likely compromise. Swiss-based oil firm Nimex Petroleum was suspended this month by Nigeria’s fuel regulator for failing to provide documents for fuel shipments, a sign authorities may target the importers rather than government regulators.

It is unlikely to be enough to appease an angry public. Some government officials said January’s protests were aided and funded by political opponents and they believe Jonathan’s rivals may use the subsidy probe to build momentum against him. Jonathan won an election a year ago that international observers considered one of the fairest in decades, but he has not capitalized on early optimism. An insurgency by Islamist sect Boko Haram has distracted his team and delayed reforms. How he balances public demands for action on corruption with the interests of an entrenched elite feeding off it may determine his ability to implement important reforms such as power privatization. “Lack of action has the potential to further alienate the Goodluck Jonathan government from the general public and reduce support and momentum for other reforms,” Akindele said. “This is a defining moment for the Jonathan government.”

FINDINGS OF PROBE

* 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 litres 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 Jan. 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.

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