Y .Y. Sani is a consultant on metering to the Nigeria Extractive Industry Transparency Initiative? (NEITI)and has years of experience in the oil and gas industry. In this interview with SHUAIB SHUAIB, he says the oil industry is already shrouded in secrecy and passing the present Petroleum Industry Bill? (PIB) would only make matters worse.
In spite of attempts by the government to remove fuel subsidy, there is still a debate on whether the subsidy exists; what do you think?
Well, in every economy, there are products that are political – they cannot be treated on purely economic basis. They become political because of their social and political implications to both the masses and the government. In our own context, petroleum products play a key role, shaping the day-to-day existence of an average Nigerian, and, to a very large extent, the survival of the government itself. To that extent, the issue of subsidy as far as oil is concerned will forever be with this country until we reach a highly geared economic independence where you have an economy that is private sector-driven. We are not there yet. The institutions are very weak in this country.
The quantum of what is available to the average Nigerian, in terms of the standard of living, is still at its lowest ebb. To that extent, government will find it necessary at all times to come up with certain dampers, may be in terms of reducing prices or cushioning the effects of the increase that would come as the result of the economic activities which, most often,? is dictated by international influences. That is because Nigeria is not an island. In fact, as it relates to the oil and gas industry, the infrastructure there is not sufficient. What we have are not properly maintained and, in some cases, it is the result of wilful damage to the infrastructure, sometimes, as a result of selfish interests. So, you are in an economy that is still socially structured.
This is why when you talk about subsidy, whether it should remain or not, it is a question that nobody can really say yes or no. The situation of the oil and gas industry in Nigeria is such that you cannot but have certain government interventions, certain administrative policy decisions that affect price. This is why the question of whether subsidy should be there or not is difficult to answer.
Government set up a structure for the management of the subsidy savings. Only two countries that had fuel subsidy have succeeded in getting them removed That is Indonesia and Iran and both had to offer cash hand -outs to every citizen. Do think the Jonathan government is going about things the wrong way with their idea of palliatives?
When you look at the countries you mentioned and and own case in Nigeria, you will notice that they do not have huge deficits in infrastructure in the industry. They do not have such muddled-up operational arrangements in such sector. To an extent, you have clarity of roles for various agencies of government – all have theirs clearly defined and followed. You have refineries producing for those countries. When you now talk about the issue of subsidy, whatever gains that may come from it is recycled within the same economy; not in our own situation where you take additional advantage, if any, to subsidize another economy because what you are doing in essence is that you are just empowering other economies.
Those who are supplying us these products, we are keeping their workforce active, whereas here there are people without work. What government should have done was to address these very very obvious shortcomings in the system. Like we all know, the refineries are not functioning. We know why the refineries are not functioning. The agencies of government that are supposed to manage the subsidy, like Petrol Products Pricing Regulatory Agency (PPPRA, the way it is structured is wrong. You cannot have an agency of government that will begin a process and end without the intervention of another agency of government to bring about checks and balances that is enshrined in the civil service operations. The case with PPPRA is that it unilaterally issues import licenses to marketers. PPPRA checks what is brought in by these marketers. PPPRA compiles the subsidies, depending on the template, whether you are going to be paid more or paid less.
PPPRA now determines who get what without another agency of government coming in to check these operations. Definitely, you put an endemic regime of corruption in such a process where, in fact, you have a very attractive business where billions of naira are involved, and all you have to do is submit a piece of paper and then you get paid. So, government should have, first of all, looked at the arrangement, correct these infrastructural problems, procedural problems, then we can now see whether or not the level of subsidy we are talking about really exists or not. Now, for these ballooning figures we are getting everyday, there is no amount of money you bring out that can meet such demand. So, first of all,, before you even talk about the palliatives, you have to address the source of the problem.? And we have to accept one thing: In this economy, which is a developing economy, subsidy is an inherent aspect of it. It is part and parcel of this kind of economy – just as you mentioned other economies with this type of subsidy. So, you cannot just wake up one day and say there is no more subsidy.
What happens tomorrow if the price increases? You have said, my price is N140 or whatever you want it to be. If you wake up tomorrow and find that the international price of crude oil has gone up, what do you do? So, subsidy must remain but the government has to get the facilities right. If you go to the terminals, the meters that you are supposed to use to determine the actual amount coming in are not working. You do not have working meters. People just bring in these things, use dip sticks and say this is what we have in the tank. Government pays on that. These are things that government should first of all address. You do not allow one agency of government to perform all the functions in such an attractive sector. Whether the palliatives should be cash, that is not where the problem lies. To solve the problem, government has to look inward and come up with some kind of intervention fund, which is the PPPRA.
This intervention fund, they thought it was going to be a temporary thing. So, it was taken outside the normal government operations. What I am saying is that before you say that you need to give money, give vouchers, buy buses or whatever, first of all, go to the fundamentals. The control in the system, how effective are they? How accurate are the determining factors – like the infrastructure you will use to determine that this person should get so much in return as rebate for bringing in something that government says it should bring in? My concern is the way government is going about the issue of subsidy; they established committees. To listen to the National Assembly probe, you will find that nobody today has been able to hit the nail on the head.
They keep talking about the money that is involved, the cabal. Nature abhors vacuum and the issue is that if you do not put checks and balances in the system, definitely, people will take advantage. So, this cabal, to me, is the government – its inability to do what it is supposed to do. There is nothing you can do about it because these people are in business to make money, and if you leave a loop holes, they will capitalize on it. We should not be chasing shadows; let us address the fundamentals.
For instance, in this country, we have roles assigned to agencies of government; like trade. What we are talking about is trade. Somebody buys something from outside and brings it here -? it is international trade. There is a ministry that is in charge of trade and investment. In another country, that ministry issues the permits; that ministry keeps the data of what is happening. Then the agency that is supposed to talk about the price within the economy, domestic pricing, should now busy itself? with calculating what should accrue to these people after collecting the data. Now, the Ministry of Trade and Investment is not involved in this matter. I have not heard their name mentioned anywhere and the normal thing is that the Ministry of Trade and Investment should issue import permits. If you want to import, you approach the ministry that is in charge.
You go through all the procedures and after you have got your permit, you now import and then the PPPRA can perform the role which it was set up for, whether the price which you use to import is more than the price government says they should sell the product. There is also an agency of government that is in charge of supervising measuring equipment. They call it Weights and Measures. Weights and Measures in other countries is a very powerful agency of government because this is what determines accuracy and legality, and, in fact, fairness of the transaction between two parties. In Nigeria, it absent. You don’t find anybody checking these meters. You don’t find any agency of government checking whether a meter is working or not working.
What you find is that, once in a while, the Department of Petroleum Resources (DPR) goes to a petrol station; they seal off the station. How much is involved in that, when the big things are there? Nobody is doing anything. I feel there are fundamentals that government is supposed to check first, so that is why you cannot even begin to talk about the issue of palliatives. You cannot keep up with it if it is left the way it is, and so long as one agency of government is going to be doing it, that is, PPPRA, and so long as only one ministry is involved, that Petroleum Resources Ministry, then corruption cannot be eliminated. And there is no amount of palliatives that you will bring in that will solve our problem.
It was former president, Olusegun Obasanjo, that decided that NNPC should pay the international price for internally consumed crude oil. That was when they started using the international price and, right now, United States and the Europe are about to impose an oil embargo on Iran. Some people are predicting that oil prices could rise to as high as $150 per barrel. With this, do you think Nigeria can continue to use the price for crude to determine what the price of its consumed products should be?
I think we should. Do you know why? If I ask you how much of it is refined here, it is less than 10%. All the suggestions that it is about 60% are lies. What is being imported is almost 90% of what we consume. If we are buying at international price, then our crude should be sold at international price too, because the refineries are not working. But if the refineries were working, government can give subsidy directly to the refineries, but on the amount produced. Like I said, that additional advantage will circulate within the system, not empowering another economy. So long as these refineries are not working and, even when they begin to work, we should maintain our international price for crude. If there is any subsidy to be given, it should be given directly to the producer of the petroleum products. Now you are subsidizing production, not consumption. At that time, if you now say you have produced, and if you can give evidence that you have produced so much litres of AGO or petrol or whatever, then you get back this as a refiner, not as an importer. I do not mind government subsidizing refineries, because it is okay: it will add value to the economy; it will increase our GDP.
But what we have today is that the NNPC and the refineries have turned to traders instead of producers, and they are burning the country from the two ends of the candle.
They will take our crude, go and sell it, make commission and then go again, the same agency, to buy refined products, make commission, inflate the invoices and bill of laden and things like that. There is no impetus to give concessions in that respect.
There is this opinion that the only way out is for the country is to privatize the refineries. Would you agree?
Certainly, in every economy, government should only be concerned with the macro aspect of the economy, not the micro. I believe that the downstream aspect of the economy is micro, in the sense that government should only be involved in the production of crude oil and gas. Refineries to me belong to the micro aspect of the business, where you invite business people to come and then if you need to give them any incentives, you can now channel it through some programmes that go to increase capacity. In that case, they will be employing more of our people.
There will economic activities and there will be increased value to the economy. Government has no business in the refineries in the first instance. Where government has business – and is already there – is in the production, that is, upstream. If you look at most developed economies, government is not involved in the downstream. It is left to the business people because they are more efficient in that respect. Of course, it like this because we are developing and because we are loose as a nation. If we were not loose, we would have put our feet down. What is wrong with giving the Minister of Petroleum Resources, the GMD of NNPC,? four weeks to do whatever magic they are going to do to make the refineries work: if they want to sell them, go and sell them; if they want to bring somebody into the country, go ahead but they refineries must work.
What is even wrong in us saying that those who come to buy our crude, like the Shells of this world, when they buy our crude, a percentage of what they are buying should be refined in this country: refine it, take away, I do not care, but refine here, 20% of it. Then progressively, from 20% you can go to 30% until you reach a stage where you do not even export crude. There are countries that have that policy. We talk about smuggling; you smuggle because you are not leveraging on the potential in the neighboring countries. What is wrong with setting up a refinery in Sokoto to feed Chad, like Chad is doing to feed us.
We have a basin there; what is wrong with refining enough to flood these markets and the man who you say is smuggling will not have a place to go and sell again because you have already taken over. Kuwait have done it. Kuwait have? petrol stations all over Europe. They went to downstream deliberately, so that they are not selling their crude and then losing the additional value. And here we are complaining that we have people who are smuggling. That is because we have created the situation for smuggling.
While some people have said that Petroleum Minister is part of the problem, she has set up a unit under her office to clean out all the wrongdoing within the ministry. Do you think it is possible for her to investigate her own office.
I am sure you are aware of NEITI reports. That was an independent, internationally carried-out investigation of the industry before we reached this stage. There are certain findings there, mind-boggling findings. What has happened? Nobody has been sanctioned. That is why I even suspect that the Petroleum Industry Bill (PIB) is just some kind of deception. They are deceiving the country. It is difficult for you as the head of the empire to supervise the disintegration of your empire; not even the investigation because investigation is punitive. From the word go, when you say ‘I am investigating’, that is a clear way of saying ‘I am going to punish you’. Look at when they say they are going to improve the efficiency of the industry and its operations; why has it not moved an inch?
It is because you cannot expect the Group Managing Director (GMD) of NNPC to supervise and be the one to make sure that his empire is disintegrated so that he just becomes an ordinary officer and the powers he has would be diluted. How can be be the one in charge of doing this? How will he do it? He would not go anywhere. When you look at the history of the PIB itself, the unfortunate thing that happened is that, at the time Obasanjo wanted to reform the industry, naturally he called on somebody that he believed was well informed, which was Rilwanu Lukeman. They set up what they called OGIC at that time, with Lukman as chairman. But, unfortunately, what happened is that some people have this shortcoming – all of us humans have it;??? instead of doing something that would have the interest of the nation as central to what they were trying to do, these persons now tried to build the industry – they tried to frame the PIB and build it around themselves.
They felt it would happen soon, so? they would become the MD of this and the chief executive of that one. Why am I saying so? When you look at the board of all the agencies that are going to be created by PIB, they say that unless you work in the petroleum industry, you cannot be on the board of those agencies. Who says so? Even private organizations go out of their way to find somebody whose business is different from what they are doing, but because they know he can add value, he can look at it from a different angle. They do not claim to have monopoly of wisdom. They go out to say that somebody who, maybe, is a lecturer should come and be part of the board. And here (PIB), they are suggesting that only people in the industry can be part of the boards, even the legal people. What kind of nonsense is that? And you say you are opening up this industry.
Secondly, the PIB, if you look at it critically, the existing agencies that are not of petroleum industry origin, there are clauses inserted in that PIB to remove those agencies from coming into that industry. The transparency, checks and balances that have been existing, the PIB has now attempted to take away their responsibilities, like the Ministry of Environment, the? Weights and Measures also. The drafters of the PIB put clauses there taking over the functions of those agencies of government. And you say you want to open up the industry – how do you open it up by sending other people away? You can see the deceit in the whole thing. They want want to make it to be more opaque than it has been, and nobody sees what is happening. What is it they are trying to do – to encourage more corruption? That is why I am saying that if the petroleum industry itself is setting up a probe committee, you can imagine what will come out of it; nothing.
Are saying that it is vested interest that is stopping the National Assembly from passing PIB or that they believe that the bill, as it is right now, cannot be passed because it is too flawed?
When you ask anybody about the PIB, nobody knows what you are talking about. Even the international oil companies are confused. That is why the thing has not moved an inch. You do not in one fell swoop change so drastically such an important sector of the economy. Who are you competing with for God’s sake? If you are competing with America or Europe or whatever, it has taken them so may years to get to where they are. I am not saying that we should not move, but we should move based on the pace that will add value to what we are doing, that will recognize our peculiarities. That PIB, to me, is a disservice to this country as it is today. That is why the National Assembly is best seeking advice from not only people in the petroleum industry,? even if it means getting a consultant to really advise them on how to go about the PIB. The drafters of the PIB are people who have entrenched interest; it is not Nigeria’s interest. If it is Nigeria’s interest, things I have told you now would not happen. You would not try to shut everybody from the industry so that only those working in it will remain.
Getting the PIB passed regardless of how it is, whether it is flawed or serving the interest of a few has proven to be a problem. Do you think it would be wise for the National Assembly to pass the PIB as it is right now as a first step and maybe make corrections in the future?
No. I think the question should be why should Nigeria be in such a hurry to rush over such an important legislation which will determine the fortunes of this country. It touches on the foundation of the existence of this country. Oil is not something you can just wish away. I believe that it is not too much for us to spend more time. Go out of the petroleum industry and ask any other agency. Go to the Federal Ministry of Finance, go to any other agency of government, nobody can tell you that he understands what they are talking about. In fact, all attempts are to remove all other ministries from the petroleum industry. Where has that ever been done? To say they want to take the Federal Ministry of Finance out of the industry and all agencies of government that are supposed to perform one function or the other. How can you? know it all. So from that perspective, it was not done with the genuine interest of this country. That is why they are raising lobby groups. They go and pack former senators so that they can lobby the Assembly. Any legislation that is pushed by lobbyist is not for genuine interest..