Nigeria’s finance minister orders fuel subsidy slow down

By IndepthAfrica
In News
Jun 15th, 2012
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Ngozi Okonjo-Iweala

Nigeria’s finance minister said on Thursday she had ordered a slow down to fuel subsidy payments to allow verification that they are for genuine deliveries, an effort to combat fraud costing it billions of dollars.

“I decided that we should slow down the payments until we verify … that what we are paying is really being paid for genuine product delivered, to avoid the mistakes we made in the past,” Ngozi Okonjo-Iweala told a news conference.

Fuel shippers say they are facing delays at import terminals while their subsidy payments are scrutinised, and some private firms have halted deliveries, while others are relying on swaps for crude oil to receive payments.

Accountant-General Jonah Otunla, also at the conference, said the government had spent 1.44 trillion Nigerian naira in the first half of 2012, of which 1.036 trillion was on recurrent expenditure, the largest component of that being the fuel subsidy.

A parliamentary probe into the subsidy scheme released last month found it was riddled with fraud that had cost Nigeria $6.8 billion in just three years — equal to a quarter of the national budget. It was one of the biggest corruption scandals in the history of Africa’s top energy producer.

Okonjo-Iweala said she had come to the realisation that the subsidy must be slowed after paying out 451 billion naira — more than half of the 888 billion naira the country budgeted for this year — just on arrears for last year.

“It was at that point in time I decided,” she said. “We will not be stampeded to make payment until we verify that what we are paying is correct … We are taking it very cautiously.”

She added that only 17 billion naira had been released against 2012 fuel deliveries as a result.

FUEL SCAM

Despite leading Africa in oil production, years of corruption and mismanagement have left the continent’s second biggest economy with defunct refineries unable to meet but a fraction of demand, making it dependent on costly imports.

Oil product marketers say Nigeria now faces fuel shortages as a crackdown on fraud and the government’s lack of funds to pay for subsidies reduces supply.

But the parliamentary probe found that the extent of the fraud was so huge that Nigeria was paying for almost twice as much fuel as it was consuming anyway.

Under this scam, huge state handouts were received by companies that either never bought any fuel or sold it to Nigeria’s neighbours where prices are higher.

Okonjo-Iweala said the delays would continue until a committee she had set up to review subsidy payment arrears finishes its work. She gave no time frame.

The corrupt subsidy scheme is by far the biggest drain on the public purse and the main reason why Nigeria seems incapable of saving despite pumping two million barrels of oil a day at record high prices.

It spent 900 times more than budget for on the subsidy last year. Central Bank governor Lamido Sanusi has said provisions for the subsidy will run out well before year end.

Despite being economically ruinous for Nigeria, the fuel subsidy remains popular and no government has succeeded in scrapping it. President Goodluck Jonathan tried in January and faced massive strikes and protests that shut the country down for a week.

He reinstated it, but raised the pump price by 50 percent.Reuters

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