Why PETROLEUM EQUALIZATION FUND Must Stay
-By Saidu Abubakar
There is a popular saying that, ‘a cow does not know the value of its tail until it is cut-off’. For the consequences it may expose itself to, the ‘cow’ needs to be alerted about the value of its tail in order to prevent it from being cut-off.
The piercing effect of the Coronavirus pandemic on the nation’s economy has attracted media attention, specifically regarding what it represents in possibly destabilizing the nation’s revenue expectations for the 2020 fiscal year.
Part of this attention is the recent report that, Nigeria’s President has set up a panel to consider the implementation of the famous Steve Oronsaye report on public sector rationalization and restructuring which recommended the merging, and in some cases, scrapping of some government agencies in order to save the huge cost of governance in the country.
Government has every justification to embark on this cost-saving mechanism at this crucial moment, considering the fact that most of the government agencies and parastatals that are earmarked for this exercise are mere duplications, only adding little or no value to the country. Almost all of them rely heavily on the monthly subvention from the federal government which greater part of the inflow is spent on payment of salaries and overhead costs.
One amazing revelation is that, it is not all the agencies of the federal government initially marked for rationalization or restructuring that are still a burden on the federal government. One of such agencies is the Petroleum Equalization Fund (Management) Board, PEF (M) B.
The dominant factor in the realities of the existence of the Petroleum Equalization Fund (Management) Board, PEF (M) B is not in its independence on government funding but in its representation of the interest of the generality of Nigerian end-users of fuel, who, collectively, are key components of the economy.
PEF (M) B, as it’s usually referred to, is a statutory agency of the Federal Ministry of Petroleum Resources, established by Decree No. 9 of 1975 [as amended by Decree No. 32 of 1989, mainly to administer uniform prices of petroleum products throughout the country. This is achieved by reimbursing a marketer’s transportation differentials for petroleum products’ movement from depots to their retail outlets filling station in order to ensure that, products are sold at uniform pump price throughout the country.
In a nation with Nigeria’s landmass, equalization is very important in order to keep economic activities alive in all the communities across the country. The impact of any slight variation in fuel price in any location in the country could bring about an unimaginable effect in costs of output.
Equalization is a common practice in South Africa, UK, and California-USA, arguably the largest capitalist economy in the world. It is not an idea that should be surrendered to the forces of demand and supply.
Equalization is a deliberate government policy which is carried out through a systematic absorption of any additional cost of moving products from advantaged areas like depots or coastal locations to less-advantaged areas, including hinterlands. Through such intervention, consumers from both advantaged and disadvantaged areas purchase at the same cost. Hence, the logic that, the cost for those at disadvantaged locations benefit from a subsidy regime for parity with those in advantaged areas, through the fund.
Importantly the source of the PEF funds is not from government treasury, but principally from the net surplus revenue recovered from oil marketing companies. Operating under a well structured and coordinated system, the fund has its operational office in Lagos, five Zonal Offices as well as 22 depot offices located at the 21 NNPC depots and marketers’ storage facilities at Apapa and Ibadan.
Three basic steps are involved in the equalization processes, namely, the National Transportation Average, Inter-District, and Bridging. It operates in such a manner that, the contribution zone is classified within a radius of 50 and 100 kilometers from the source of lifting. However, marketers may forward verifiable claims, if the distance is up to 150 kilometers and beyond, in these areas, with the maximum being 450 kilometers which is nine zones. In other words, based on NNPC depot guidelines, between 150 kilometers and 450 kilometers will attract claims from the accumulated fund.
The next classification is bridging, where a distance range covers 450 kilometers and above, and attracts enhanced claim, as claims go higher commensurate with distance. It is equally significant to note that, the rates paid are not arbitrary but system-driven and immune from manipulation. It is calculated by a committee comprising PPPRA, NNPC, PPMC, NARTO, PEF, IPMAN and the unions. Estimations are comprehensive up to the least decimal of the cost variables, including wear and tear of the vehicles. On this basis, a tabular analysis is evolved, defining the distances and the rate per litre being calculated through Google map.
With a number of depots in Suleja, Minna, Kaduna, Yola, Gusau, and Gombe, yet, far locations such as Dutse to Damaturu and Sokoto to Birnin Kebbi are not linked with pipelines. As such, products need to be transported to those areas by road, including to almost all border towns. For example, from Dutse, Jigawa state to Babban-Mutum, a boundary location between Nigeria and Niger Republic, there is no depot. It is the same with Suleja to New Bussa in Niger state, a journey of about nine hours, with mostly bad roads. This constraints offer a good case for the setting up of PEF, consequently.
Among other things, the fund handles the transportation differentials arising from the inability of the government to link all the 774 local government areas with pipelines. If the agency is removed today, consumers close to the seaports or depot may likely not feel the pain, but people who are far away from the source of loading such as Kamba, Ilaila and Abaden and the rest, will certainly bear the brunt. If this is allowed, then the price of fuel in those far locations may go up to N400 per litre in addition to cost elements and ex-depot price. The consequent hardship is only better imagined.
Let’s take an instance of a location such as New Bussa in Niger State. According to findings, there are about 14 federal establishments located there. If the equalization is removed, the cost of running on energy and fuelling of cars and generators for the federal establishments will multiply at least four-folds. If N50 million is being expended in a year it would become N250 million in a year and that would adversely affect their budget and operations. The overall cost of running businesses will increase, extending to host or linked communities, where small businesses be impacted severely or will likely close down. In addition, transportation of agricultural produce and livestock to the cities will be affected, and this may escalate rural-urban migration.
Petroleum Equalization has come to stay, and should be left in the hands of the agency which, over the years, has mastered the management of this arduous task. Petroleum Marketers should concentrate on how to grow their businesses and offer world-class services to their customers. Today, the country is proud of the noticeable growth of some indigenous downstream companies that are increasing their visibility in all the states of the federation, through setting up of various state-of-the-art retail stations where white products and other auto essential services are being accessed by consumers. The present reality is that, we are living in an era where some few entities that used to dominate downstream activities in the last five decades can no longer dictate to the industry on how things should be run. These key petroleum marketers, some having gone through several transitions and ownership are notably in the lead agitating for this shift. It is clear that, they are calling for the abolishment of government equalization, as part of measures to expand their net for further catch, since government has decided to stop the under-recovery payment; a situation that led to a horrible decrease in cash flow for major players.
This new approach being advanced is to railroad government into adopting means to enable access to Forex at a government-regulated rate, and also allow them to handle what they call internal equalization under the supervision of the nation’s consumer protection body. This calls to question how effective the consumer protection body fared in respect of numerous complaints of transactional shortchange within the nation’s service-oriented sector, prominent of which is the barrage of consumer outrage over poor service delivery in the nation’s telecommunication sector.
As it is today, PEF is the only agency with the capacity of tracking movement of products-laden trucks ferrying petroleum products to scheduled destinations across the country. Agencies such as NNPC, DPR and others rely on technological facilities of PEF for information. PEF’s tracking system is so sophisticated that even if all loaded trucks are being hoarded, it can effectively verify. The agency has the capacity to monitor real-time information about the movement of petroleum products in the country.
A truck loaded in Mosimi heading to Gusau could be monitored by PEF from their head office in Abuja with full details of the truck’s content and movement, with real-time interactive access to the driver, where necessary, including the capacity to know filling stations that hoard products and the estimates of quantity being hoarded.
Reliable and competent inquiry also shows that, PEF commences monitoring right from the birthing of discharging vessels. They also track ships that stop on the high seas to offload, because most of the marketing companies, with exception of one, cannot berth their ships at their dockyards, but will rely on smaller vessels that can convey the products from the high seas. PEF monitors quantity brought as well as the quantity taken out per truck, even if it is by pipeline.
Checks on the expenditure processes at PEF reveal that, the agency does not operate any commercial bank account. Funds are collected on behalf of PEF by NNPC and domiciled in the Central Bank. Thereafter PEF performs its financial obligation using treasury single account as directed by the government. Perhaps the more reason there is prudence in PEF as an organization because its Executive Secretary, who is the agency’s highest accounting officer, cannot approve anything above N2.4 million, while the entire tenders board of PEF cannot approve spending beyond a N50 million limit, because anything above N50 million must be referred to the ministry.
In addition, sources have confirmed that, the fund’s procurement process must go through bidding. Summarily, there are only three ways money can be taken out of PEF – one, through paying marketers, two, payment of salaries to staff and three, contracts; and even that has to be through bidding because the procurement process must be strictly adhered to. PEF pays salary in line with other public oil sector agencies and they operate about over 140 facilities including tank farms and depots in Nigeria, with a combined staff strength of only about 330 altogether.
Indeed, it is evidently acknowledged that, COVID-19 has no doubt wreaked havoc on government’s plans especially as it relates to fiscal responsibility. However, it is important as well for government to understand that the pandemic has also slammed untold hardship on citizens’ incomes and living standards as imposed by a lockdown regime to curtail the spread of the virus. Even before the pandemic, the rate of poverty in Nigeria in the last five years has been alarming and has only been compounded.
Coincidently, states that are on top of the poverty table, such as Sokoto, Zamfara, Katsina, Yobe and Borno are mostly those benefiting from the equalization due to their distance from the source of loading or depots. Scrapping of PEF at this moment will add to the hardship people are going through. Besides, why will the government scrap an autonomously funded agency which imposes no burden on government but relief on the people?
Anybody who is talking about the removal of any sort of palliatives such as the equalization of petroleum products now, is an enemy of President Buhari. Scrapping PEF will definitely have some negative implications on Nigerians. In fact, this is not the time to even think about it.
