The Nigerian government is gradually mustering the political will to end petrol subsidy with the scrapping of PEF and Petroleum Products Pricing Regulatory Agency (PPPRA), two major strongholds of the opaque subsidy regime. The decision to scrap agencies such as the Petroleum Equalisation Fund (PEF), an infamous drainpipe unnecessary in a liberalised downstream petroleum sector, could reduce the financial risk facing Africa’s biggest economy, experts told BusinessDay last night.
These two institutions cost the Nigerian economy more than N540 billion yearly trying to maintain equal price for petrol across the country, an amount higher than funds allocated to education, health, defence and agricultural and rural development that would have increased the economic growth and standard of living of its over 200 million people. Mike Osatuyi, national operations controller at Independent Petroleum Marketers Association of Nigeria, says the scrapping of PEF, which is a cesspool of corruption and colossal waste, is a step in the right direction for Nigeria’s downstream sector.
Petroleum Equalisation Fund (PEF)
“The current reform we are witnessing in Nigeria’s downstream sector is a continuous exercise which the minister is pursuing under the newly signed Petroleum Industry Act,” Osatuyi states. Niyi Awodeji, CEO at Subterra Energy Resources Limited, notes that the corruption in PEF has grown into a wild beast that will swallow the country if the government had not signed PIA. “The corruption in PEF operated like a god because the majority of its beneficiaries were close to the government officials,” Awodeji says.
Like other obsolete laws in the sector, PEF is a special intervention put in place by the Nigerian government in 1975 with the mandate of ensuring that petroleum products are sold at equal prices across the country by paying petroleum product marketers for every litre of fuel they sell within 100km to 450km of a depot. This means for every litre of petrol bought across the country, a total of N7.51 that represents ‘bridging fund’ is paid into a fund managed by the PEF’s Management Board to ensure petrol prices are equal nationwide, according to the latest Petroleum Products Pricing Regulatory Agency (PPPRA) pricing template.
The payment feeds into a subsidy mechanism that is supposed to ensure that petrol is sold at regulated equal price across the 774 local governments in Nigeria by reimbursing transportation costs incurred by petrol marketers. In addition to this margin, the Federal Government appropriates public funds to run PEF’s operations and cover its financial shortfalls when equalisation claims exceed PEF’s income from Opportunity cost of PEF wastage
The amount of billions of Naira Nigeria wasted on the weak delusion of keeping the price of petrol is no longer news, but what is more infuriating is the opportunity cost forgone in a dying economy. With government data putting local consumption of petrol at 72 million litres a day, it means PEF gulped N540 billion within a single year.
Primary health centre and education
Based on Freedom of Information requests and analysis by transparency campaign group Public Private Development Centre, it would cost an estimated N28 million to build a primary health care centre and N17 million for three-block classrooms. This means N540 billion is capable of building at least 19,000 primary health centres or at least 30,000 each of three-block classrooms needed across Nigeria’s 774 local governments.