FUEL SUBSIDY MALPRACTICE REPORT
INTRODUCTION/BACKGROUND
Fuel subsidy was introduced as a temporary measure in 1988 by the Federal Government of Nigeria as part of its structural Adjustment Program (SAP), to among other things stabilize price of petroleum products and stop gap measure as refineries underwent rehabilitation. Since then, the government started subsidizing the pump price of petroleum products, such as petrol, kerosene and diesel to cushion the effect of poverty and underdevelopment. However, following the global economic downturn in most economies, the amount paid by the government to subsidize goods and services were gradually withdrawn to prevent serious economic failure.
Specifically, on January 1st 2012, the federal government of Nigeria announced the total removal of fuel subsidy from petrol which increased the pump price from N65 per liter to about N141per liter. This announcement did not go down well with many Nigerians as different groups ranging from organized labour, civil society organization, musical artist and indeed general public embanked on strike action and mass protest that crippled economic activities in the country for about two weeks. After weeks of rally and protest across the country, the federal government reduced the price to N97 per liter.
After the January 2012 uprising, the Federal Government acknowledged both institutional and system weaknesses in its management of the oil subsidy and oil industry at large and took certain steps to restore the people’s confidence and as well continued to canvass for the complete removal of oil subsidy. The management of the Nigeria National Petroleum Corporation (NNPC) was dissolved and principal officers sacked. It went ahead to set up five committees to among others: mainstream good governance into the sector; and re-package an executive Petroleum Industry Bill (PIB) for accelerated consideration by the National Assembly. The number of marketers involved in the importation of petroleum products was also reduced drastically. These were in direct response to citizens’ call for probity and accountability. Additionally, no fewer than 26 oil marketers who were involved in fuel subsidy fraud are currently being investigated and some are already being prosecuted by the Economic and Financial Crimes Commission.
REVIEW OF PROBE REPORTS
The outcome of some of the probes panels/committees set up by both the Presidency and National Assembly is presented below;
• House of Representatives Ad Hoc Committee (18 April, 2012) had the following observations;
– Entire Process fraught with endemic corruption and entrenched inefficiency
– Wide accounting discrepancies between PPPRA, CBN and OAGF
– Identified FOREX and Income Tax infringements
– Revenues owed to government agencies including FIRS, Nigerian Customs, Nigerian Ports Authority
– Over ₦232 billion on subsidy paid to marketers for PMS in 2011 was not supplied
– 31 million liters per day was supplied as opposed to marketers claims of 60 million liters.
– Subsidy has become a scheme for mismanagement of revenues
The report recommended that Standing Committees be more proactive in their oversight responsibilities
• Technical Committee (Ministry of Finance, June 2012), recommended a Forensic Review of OM&Ts.
Petroleum Revenue Special Task Force (NNPC/Ribadu Committee, August 2012) report findings;
– NNPC’s deducting subsidy related expenses before payment to Federal Government
– The potential underpayment of amounts payable to the Federation Account by NNPC over the 10- year period is estimated at N86.6 billion.
– Consistently stated in Nigeria Extractive Industries Transparency Initiative (NEITI) audit reports from 1999 onwards
The report recommended an independent review of the use of Oil Trading and Marketing companies and also created a special Oil and Gas Sector Financial Crimes Unit.
• Presidential Committee (November 2012) revealed that 196 transactions were not verified totaling N232 billion involving 50 OM&Ts.
INVESTIGATION AND PROSECUTION: EFCC’s EFFORT
So far, the investigation and prosecution of fuel subsidy corruption cases is being handled by the Federal government through the Ministry of Justice, Special Fraud Unit of the Nigerian Police and the Economic and Financial Crimes Commission. In keeping with the Federal Government’s promise to prosecute those that were alleged to have abused the fuel subsidy scheme, the Economic and Financial Crimes Commission (EFCC) has arraigned oil-marketing firms and their directors at the Lagos and Abuja High Courts. The EFCC has named the suspects to include 9 oil companies and 14 individuals who have indicted during investigations into the management of the fuel subsidy scheme so far. Some of the suspects are scions of chieftains of the Peoples Democratic Party (PDP) and party supporters. The suspects, 9 oil companies are:
Indicted Oil Firms
1. Nasaman Oil Services
2. Eterna Oil and Gas Plc
3. Ontario Oil and Gas Plc
4. Nadabo Energy Limited
5. Pacific Silver Line Limited
6. Axenergy Limited
7. Fago Petroleum & Gas Ltd
8. Integrated Resources Ltd
9. Pinnacle Oil and Gas
Indicted Persons
1. Mamman Nasir Ali,
2. Christian Taylor
3. Mahmud Tukur
4. Ochonogor Alex
5. Walter Wagbatsoma
6. Adaoha Ugo-Ngadi
7. Fakuade B. Ebenezer
8. Ezekiel Olaleye Ejidele
9. Abubakar Ali Peters
10. Jude Agube Abalaka
11. Abdullahi Alao
12. Oluwaseun Ogunbanbo
13. Durosola Omogbenigun and
14. Peter Mba
Mamman Nasir Ali, runs Nasaman Oil Services, is the son of former PDP National Chairman, Col. Ahmadu Ali (rtd), who was also the chairman of the Petroleum Products Pricing and Regulating Agency (PPPRA) board. Mahmud Tukur, who runs Eterna Oil and Gas Plc, is the son of the immediate past PDP National Chairman, Alhaji Bamanga Tukur, while Abdullahi Alao of Axenergy Limited is the son of popular Late Ibadan-based tycoon, Alhaji Abdulazeez Arisekola-Alao. Ugo-Ngadi, on her part, is the Managing Director of Ontario Oil and Gas Plc, where its founder, Wagbatsoma, is the executive vice-chairman. But whilst the individuals were identified as directors of the oil-marketing firms, Ejidele is a director of the accounting firm, Akintola Williams Deloitte, while Ebenezer is a member of staff of PPPRA. Also, some of the suspects such as Alao are alleged to have tried twice conniving with different companies to defraud the government.
According to the EFCC Nasaman Oil Services; Ali and Taylor are to face charges bordering on obtaining N4,460,130,797.94 from the Federal Government under false pretenses. The sum was alleged to have been fraudulently obtained as subsidy payments from the Petroleum Support Fund (PSF) for the purported importation of 30.5 million litres of petrol from SEATAC Petroleum Limited of British Virgin Islands. Also, Alao and Axenergy Limited will be tried for allegedly obtaining by fraud N2,640,141,707.75 from the government, being payments received from the PSF for the purported importation of 33.3million liters of petrol. Others, including Tukur, Alex, Alao and Eterna Oil and Gas Plc, will be arraigned for fraudulently obtaining N1,899,238,946.02 from the PSF for the purported importation of 80.3 million liters of petrol. Also, Nadabo Energy Limited, Peters, Abalaka and Pacific Silver Line Limited are to be prosecuted for allegedly obtaining N1,464,961,978.24, being payments fraudulently received from the PSF for the purported importation of 19.4 million liters of petrol.
Wagbatsoma, Ugo-Ngadi, Ebenezer, Ejidele and Ontario Oil and Gas Nigeria Limited will be arraigned for fraudulently obtaining N1,959,377,542.63 from the PSF for the purported importation of 39.2 million liters of petrol. On their part, Fago Petroleum and Gas Limited and Ogunbanbo are to be arraigned for fraudulently obtaining N979,653,110.20 from the PSF for the purported importation of 33,627,840 liters of petrol. Some of the suspects will appear before justices Habeeb Abiru and Adeniyi Onigbanjo both of the Ikeja Division of the Lagos High Court for trial.
Those arraigned before Onigbanjo on a 9 count charge bordering on conspiracy, obtaining money by false pretense, forgery and use of false documents are Tukur, Alex, Alao and Eterna Oil and Gas Ltd. The company and the individuals were alleged to have on April 28, 2011, in Lagos, fraudulently obtained N676.9 million from the Federal Government purporting same to be payment accruing to Eterna Oil under the PSF. They are also accused of falsifying claims to have purchased 33,288,388 liters of petrol from mercury Energy Trading AD and imported to Nigeria through Ex-MT Fulmer, Ex-MT Emirates Star and Ex-MT Panther. Those to appear before Justice Abiru are Wagbatsoma, Ugo-Ngadi, Ebenezer, Ejide and Ontario Oil and Gas Nig. Ltd.
The second case before Justice Abiru also involves Alao and his Axenergy Oil. Alao, who is also to be charged before Justice Onigbanijo will face another 9 count charge bordering on obtaining by false pretense, forgery and use of false documents before Justice Abiru. He is accused of fraudulently obtaining N2.5 billion in December 2010 from the Federal Government as subsidy payments for supplying 13,364,284 and 20,014,627 litres of petrol from Ex-MT Gavros and Ex-MT Nippon Princess. The accused persons before Justice Abiru are facing a 9 count charge for conspiracy, obtaining money under false pretence, forgery and use of false documents. They are accused of fraudulently obtaining over N1.9 billion from the Federal Government under the PSF from July to December 2010.
All the accused persons were also alleged to have forged bills of lading and other vital documents, which they allegedly used in perpetrating the fraud. The EFCC said their alleged offences contravened Sections 1(13) of the Advance Fee Fraud and Other Fraud Related Offences Act of 2006 and Sections 467 and 468 of the Criminal Code Laws of Lagos State 2003. Part of the charges preferred against Wagbatsoma and his co-accused, includes conspiracy for obtaining N1.9 billion under false pretence, contrary to Section 8, punishable under Section 107 of Advance Fee Fraud and Other Related Offences. They are also accused by the government of altering and forging documents contrary to Section 468 and 467 of the Criminal Code Cap. C17, Vol. 2, Laws of Lagos of State of Nigeria, 2006, respectively.
They were also said to have collected N340,015,198, being “Excess of the value of the actual product (12,070,706 liters) delivered by Mr. Union Brave to Integrated Oil and Gas Ltd on your behalf as against 19,681,731 liters you falsely claimed to have discharged”. The suspects are among over 140 individuals and organisations involved in the ongoing investigations into the subsidy payments by the EFCC.
The EFCC will be arraigning more suspects periodically as the investigation progresses. The EFCC has also filed a separate suit before Justice Samuel Candide-Johnson of the Lagos High Court against Durosola Omogbenigun, Peter Mba, Integrated Resources Limited and Pinnacle Oil and Gas. They were alleged to have conspired to obtain money under false pretences punishable under Section 1 of the Advance Free Fraud and Other Related Offences Act, 2006. They were also alleged to have on February 4, 2011 obtained from the Federal Government N986,154,970.41 purported to be subsidy payable to Integrated Resources Limited for the importation of 19,347,753 liters of petrol which they claimed from NIMEX Petroleum Limited of Gibraltar. They will also, among others, be charged with the intent to defraud the Federal Government, for obtaining N343,182,230.20 on or about September 15, 2011, purporting to be subsidy payable to Integrated Resources Limited for 4,115,951 liters of petrol with they claimed to have purchased from Alcamo Integrated Limited/Vitol SA Geneva and allegedly imported to Nigeria through the mother vessel MT Box and MT Althea Ex MT Sea Power as the daughter vessels.
TYPES OF CORRUPT ACTIVITIES IN THE FUEL SUBSIDY CASES
As review of available reports shows that the fuel subsidy corruption suspects who are currently being investigated and prosecuted are facing trials on some of the following corruption charges.
• Conniving with different companies to defraud the government
• Intent to defraud the Federal Government.
• Conspiracy to obtain money under false pretences
• Forging bills of lading and other vital documents, which they allegedly used in perpetrating the fraud
• Obtaining by false pretense
• Forgery and use of false documents
HIGH COURT PROCESS AND PROCEDURE
Procedure of Criminal Proceedings/Trial
A criminal trial commences up on arraignment and ends with judgment where in an accused person is sentenced or acquitted. Arraignment is the process of bringing an accused person to a competent court and formally accusing them of a crime. This procedure is provided for in Section 215 of the Criminal Procedure Act (CPA) and Sections 161(1) & 187(1) of the Criminal Procedure Code (CPC). A person is arraigned when a charge brought against him is read to him in a language he understands and he enters his plea of ‘Guilty’ or ‘Not Guilty’.
The Stages of an Arraignment are as follows:
1. The accused person shall be placed before the court unfettered; that is without restraint. The accused can only be restrained on the orders of the court.
2. The Charge or Information shall be read over and explained to the accused person to the satisfaction of the court. The court must be satisfied that the accused person understands the Charge. Consequently, it is the practice for the court to first inquire from the accused person whether he understands the English language. Where he does not, the court will provide an interpreter, free of charge. The interpreter must be knowledgeable enough in the language understood by the accused in order to interpret the Charge to him.
3. The Charge must be read over to the accused person by the court Registrar or other officer of the court. This may include the bailiff, court clerk or court Messenger but does not include the police orderly of the Judge who at all times is an officer of the Nigerian Police Force.
4. Thereafter the accused person shall be called upon to plead instantly to the charges read over to him.
5. In the event that the accused is charged with more than one offence, he must plead separately to each charge preferred against him.
6. Immediately a plea is entered for the accused person, the trial has commenced and is part‐heard. An accused person may choose to represent himself or be represented by a legal practitioner but he must plead personally to the charge(s) leveled against him.
7. After an accused person has pleaded not guilty to the charge against him, the prosecution opens the case against the accused person and then adduces evidence in support of the charge.
8. After the prosecution rests its case, the Accused person or counsel representing the accused opens the case of the Defense and addresses the Court either at the commencement or conclusion of his case.
9. In the event that no witnesses are called or document tendered as evidence by the Defense, the prosecution shall not be entitled to address the court a second time unless the Defense introduces a new matter without supporting it with evidence.
Conclusion of Trial
1. When the case for both sides is closed, the court considers its verdict and may adjourn the trial for this purpose.
2. The judgment of the court, points for determination and reasons for its decision must be reduced to writing and signed by the Judge or Magistrate at the time of pronouncing it.
3. Where the court finds the accused not guilty, the accused shall be discharged and an order of acquittal entered.
4. Where an accused is convicted or if he pleads guilty, a duty rest on the Registrar to ask the accused person if he has anything to say as to why he should not be sentenced according to the law or to mitigate his sentence25. Where the accused gives reasons for the court not to sentence him, it is called an Allocutus and the court is not bound by it.
5. The court after the above is concluded, sentences the accused person as prescribed by law. At this point, trial is concluded and the court becomes functus officio, that is, it can no longer adjudicate on this matter and the convicted person may exercise his right of appeal.
RELEVANT BEST PRACTICES FOR FUEL SUBSIDY REGIME
Basically, countries aim at the long run to remove the subsidies through subsidy reforms. The IMF in conducting a research on about 22 countries has identified six key elements for subsidy reform. These are:
I. A comprehensive energy sector reform plan entailing clear long-term objectives, analysis of the impact of reforms, and consultation with stakeholders.
Iran: The 2010 fuel subsidy reform incorporated clear objectives, compensating measures and a timetable for reform.
Philippines and Turkey: Full price liberalization and structural reform of the energy sector, for both fuel and electricity, were articulated as the ultimate goals of reform. This contributed to the eventual success of reform as the public and governments were able to focus on and adhere to long-term goals, with put being distracted by setbacks at intermediate stages.
II. An extensive communications strategy, supported by improvements in transparency, such as the dissemination of information on the magnitude of subsidies and the recording of subsidies in the budget;
Iran: the subsidy reform was widely disseminated by public information and relations campaign, the public information campaign emphasized that the main objective of the reform was to place price subsidies with cash transfers.
III. Appropriately phased price increases, which can be sequenced differently across energy products;
Kenya: Subsidies were eliminated over the course at about 7-8 years through a combination of tariff increases, improvement in collections and reduction in technical loses.
Brazil: The government pursued a gradual approach to the removal of subsidies during the 1990s to 2001 to minimize opposition from the interest groups that had benefited from the policies.
IV. Improving the efficiency of state owned enterprises to reduce prouder subsidies
V. Targeted measures to protect the poor;
Namibia: Even though fuel prices track international prices, cross subsidies in transport and distribution cost equalize fuel prices between cities and rural areas where most poor people live.
Ghana: Fuel price increases in 2005 caused much less social tensions than previous increases thanks to mitigating measures including cross subsidies in favor of kerosene and liquefied natural gas, the fuels consumed most by the poorest income groups; an increase in the daily minimum wage, a price ceiling on public transportation fares; elimination of school fees for primary and secondary education and other measures.
VI. Institutional reforms that depoliticize energy pricing, such as the introduction of automatic pricing mechanisms.
South Africa: prices are adjusted on a monthly bases according to a transparent automatic formula based on international prices, fright, insurance and other cost, as well as exchange rate movements. Price information is regularly published on the Department of Energy website and no political interference is apparent I the parameters of adjustment
Countries that carried out fuel subsidy include; Indonesia, Jordan, Malaysia, Sudan, Yemen and India.
Financing Fuel Subsidies in India
Domestic fuel prices in India have not kept pace with rising international fuel costs, resulting in consumer price subsidies. Reflecting sharp increases in fuel import prices over 2007 and 2008, subsidies peaked at over 2 percent of GDP in Financial Year (FY) 2008/09. As international prices collapsed over the second half of 2008, subsidies also fell sharply to just under 0.9 of a percent of GDP in FY2009/10. However, with the rebound n international prices over the last three years, subsidies again started to escalate, reaching nearly 2 percent of GDP in FY2011/12
Fuel subsidies have been financed through number of channels, including off-budget sources. Subsidies are incurred in the first instance by predominantly state-owned oil marketing companies (OMCs) who sell fuel products to consumers at subsidized prices. These losses incurred by ONCs have been financed in a variety of ways. In FY 2007/08, just less than one-half of the financing was recorded on budget, with the remaining half financed off budget. On budget transfers mainly took the form of so-called government – oil bonds issued to OMCs, while direct budget transfers to OMSs were negligible.
Off-budget financing was split between transfers from state-owned enterprises involved in the upstream production of crude oil and OMCs’ self financing. In effect, the OMCs used part of the profits from the sale of other unregulated fuel products to offset these subsidy losses. By FY 2011/12, all on-budget financing tool the form of direct budget transfers to OMCs, which accounted for around three-fifths of subsidies, with the remainder financed by upstream transfers.
Materials consulted
1 EFCC official reports
2. A paper prepared by Dr. Fatima Waziri Aziz, on Institutional and Legal Arrangement for Fuel Subsidy Regime, used for ANEEJ workshop on Advocacy against impunity in the oil subsidy regime in Nigeria
3. Newspaper and other media reports