FG Suspends Payment on Fuel Subsidy

Barely two weeks after the Debt Management Office (DMO) commenced the release of N17 billion in Sovereign Debt Notes to oil marketers for the payment of 2012 fuel subsidy claims from the Petroleum Support Fund, the Minister of Finance and Coordinating Minister for the Economy, Dr. Ngozi Okonjo-Iweala, has suspended all further payments. No payments will be made until the ongoing investigation and verification into all claims is concluded.

This is coming as crude oil price yesterday tumbled to almost $83 per barrel amid speculations that the Organisation of Petroleum Exporting Countries (OPEC) will leave its production quotas unchanged at its meeting today to avoid hurting an already fragile global economy. The payment of subsidy claims for the import allocations given to the marketers in December 2011, which covers the fuel imported up to the first quarter of 2012, had earlier been suspended after the claims by both the marketers and the Nigerian National Petroleum Commission overshot the budget. Of the N888 billion earmarked for subsidy payments in the 2012 budget, a total of N232 billion was set aside for the payment of the 2011 arrears. However, the Federal Ministry of Finance (FMF) revealed that it had spent N451 billion of the N888 billion on the payment of arrears for 2011.

 The suspension of further payments for fuel imports under the subsidy regime, is to enable the committee set up by the presidency and the Economic Management Team conclude the verification of claims by marketers and NNPC and payments made to them. The committee, which is headed by the Managing Director/Chief Executive Officer of Access Bank Plc, Mr. Aigboje Aig-Imoukhuede, is doing its work in a professional, forensic and non-controversial manner and is set to submit its report any time from now. President Goodluck Jonathan and Okonjo-Iweala, sources added, are determined to get to the root of the fuel subsidy regime to improve the management of the PSF. But the suspension of payments on subsidy claims has created panic in the market, as several importers have suspended importation, claiming that they could no longer raise Letters of Credit for the importation of new cargoes.

 However, our correspondent gathered that the fear over the possibility of a dislocation in the supply regime caused by the suspension of imports maybe unfounded. According to industry sources, there should be no concern about supply in the immediate term, as several imported cargoes belonging to NNPC are on the high sea, waiting to berth and discharge their products. Sources said the volume of products in these cargoes could meet the national demand for the next three months by which time it is hoped that the issue would have been fully resolved to ensure uninterrupted supply in the country. An industry source told US that the current confusion was caused by either the “underestimation of the fuel subsidy allocation in the 2012 budget by the Federal Ministry of Finance or increasing frivolous claims on 2011 arrears by NNPC and marketers.” Sources within the Petroleum Products Pricing and Regulatory Agency (PPPRA) and NNPC had blamed the FMF for “underestimating” the country’s fuel consumption for 2012.

 Former spokesman of NNPC, the late Dr. Levi Ajuonuma, had told US that the FMF had based the 2012 budget for subsidy payments on a daily consumption of 19 million litres, instead of over 33 million litres per day the country currently consumes. However, Okonjo-Iweala, through her Senior Special Assistant, Mr. Paul Nwabuikwu, had said the issue of underestimation did not arise because NNPC and PPPRA which have the responsibility did not provide any basis for consumption estimates. The minister said both agencies gave very different estimates which could not stand scrutiny. The Aig-Imoukhuede report may resolve all these discrepancies. The Associated Press reported yesterday that benchmark oil for July delivery was down 20 cents to $83.12 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose 62 cents to settle at $83.32 in New York on Tuesday, the report noted. In London, Brent crude for July delivery was up 42 cents at $97.56 per barrel on the ICE Futures exchange. The 12-member OPEC cartel is scheduled to hold its quarterly meeting today in Vienna, Austria, against the backdrop of a fall in the price of crude oil by 24 per cent in the last month. Some member countries, such as Iran and Venezuela, the report added, will likely call on the group to cut output in a bid to boost prices.

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