CBN admits fraud in subsidy scheme, warns of pressure on foreign reserve

THE Central Bank of Nigeria (CBN) declared yesterday that the total amount of money withdrawn and spent by the Federal Government on petroleum products subsidy was N1.763 trillion.

The Ministry of Finance had earlier said that N1.38 trillion was spent on subsidy from January to October last year.

The CBN Deputy Governor, Dr. Kingsley Morghalu, who represented the Governor of the apex bank, Sanusi Lamido Sanusi, disclosed at the House of Representatives public hearing on subsidy fund management that the huge expenditure on subsidy put too much pressure on the country’s foreign reserve.

He, however, stated that the CBN was putting measures in place to ensure that the foreign reserve did not go below $30 billion.

Also, Petroleum Resources Minister, Mrs. Diezani Alison-Madueke, at the hearing, noted that the Governance and Control Task Force Team set up by in the ministry would deal with fundamental issues from the audit report, when formally transmitted to her.

The minister, who lamented the spate of “sharp practices” in the industry, however noted that Federal Government had started “sweeping reforms” in the oil and gas industry aimed at tackling the menace of corruption, smuggling and manipulations in the subsidy regime.

Alison-Madueke who condemned the lapses and rot in the system, however stressed the need for PPPRA to clarify some issues on payment of certificates for subsidy “before we come to grasp on the actual problem on ground.”

While reacting to the report on the sale of oil blocs, Alison-Madueke disclosed that, “no oil bloc has been sold since I came into the office. What we did was to build NPDC so as   to transfer NNPC interest in certain blocs to NPDC.”

The CBN boss openly declared that there were sharp practices in the importation of refined petroleum products and the subsidy regime.

“We had in the past raised questions and expressed concerns about indications of manipulations in the subsidy regime. The concerns arose mainly as a result of our perception of the implications of possible manipulations of the subsidy regime on the stability of the country’s exchange rate, our external reserves and the banking system. As we all know, non-performing bank loans to petroleum product marketing companies and for stock market transactions were a major contributing factor in the distress suffered by some Nigerian banks in 2008/2009 leading the CBN to undertake extensive reforms in the banking sector,” he said.

Morghalu, however, told the committee that the CBN was helpless in the matter because “the CBN was not a law enforcement agency and our role in the subsidy regime is limited,   based solely on the mandate of the CBN. The subsidy regime lies primarily within the remit of the fiscal authority.”

He also informed the committee that only N6 billion was left in the Petroleum Support Fund (PSF), which had N673 billion in 2001.

“Our understanding is that the PSF is a pool of fund budgeted for by government to stabilise the domestic prices of petroleum products against some volatility in international crude and petroleum prices. The PSF Account that is domiciled in the CBN is operated by the PPPRA (Petroleum Products Pricing Regulatory Agency). That account was opened with the CBN on the December 15, 2006. As at January 17, 2012 the total credits in that account amounts to N673.85 billion. The total withdrawals from the account has been N667.593 billion. The balance in the PFS account as at January 17, is N6.257 billion,”
he said.

On what is left in the Excess Crude Account, he said: “Regarding the Domestic Excess Crude Account that is domiciled in the CBN, it is operated by the office of the Accountant General of the Federation (AGF). This account was opened on September 25, 2007, and as at January 17, 2012 the total credits that have gone into the account stood at N2,562,780,947,586.71. Total withdrawal from the account N2,543,519,324,379.33. The balance in the account as at 17 January 2012 is N19,261,623,207.38.”

On the role of the CBN in the importation of petroleum products and payments on subsidy by the Federal Government, the CBN boss said: “It is pertinent for me to note that the CBN is not involved in the importation or distribution of petroleum products. Rather, the role of the CBN is limited to four areas: first the payment role as the banker to the Federal Government, second, an exchange rate role, third, an import documentation role, and four, an advisory role based on our mandate as an economic and financial advisor to the government of Nigeria.
The accounts maintained for all the Ministries, Departments and Agencies (MDAs) as it relates to the petroleum subsidy regime includes the PPPRAs PSF and the Domestic Excess Crude Account. Payments take place in two ways: one, deductions by the NNPC at source before FAAC; and two, through the issuance of Sovereign Debt Notes issued by the Debt Management Office (DMO) to independent oil marketers.
Regarding deductions at source by the NNPC, these deductions are made by the NNPC at source before payments into the Federation’s Account, and then the FAAC committee distributes the remainder to the three tiers of government. These deductions started in October 2009.”
Also yesterday, the Trade Union Congress (TUC) President, Peter Esele, faulted claims on subsidy removal and deregulation, pointing out that until the inefficiency and acute corruption in the system were removed, the system would continue to grapple with these  problems.

Expressing hope that the interventions of the National Assembly would work, Esele described the PPPRA template as deficient and called for the overhaul of the regulatory agencies.

Besides, the Federal Government has assured Nigerians of its resolve to implement the independent audit report conducted by KPMG into the activities of the oil and gas downstream sector as part of efforts towards ensuring transparency and accountability in the sector.

The assurance came on the heel of the alarm raised by the CBN over the effect of high demand for dollars on the foreign reserve and the economy at large.

But as the Senate entered day two of its 2012 budget defence, the Committee on Gas Resources yesterday took a swipe at Alison-Madueke, over her failure to appear for budget defence. Her absence was apparently due to the fact that she was at the House of Representatives.

The Chairman, Economic and Financial Crimes Commission, (EFCC), Ibrahim Lamorde, has revealed that the current budget estimates for the commission has zero provision for legal fees.

While defending his budget with the Senate Committee on Drugs, Narcotics, Financial Crimes and Anti-Corruption, Lamorde stated that multiple appeals arising from prevoius cases, which were being handled by external lawyers had increased tremendously.

The chairperson of the Committee, Nkechi Nwaogu, noted that Alison-Madueke had earlier sent a letter to the committee stressing that she would be in Switzerland at the time of the meeting.

Meanwhile, the CBN has extended the uniform accounting regime already adopted for money deposit banks in the country to other financial institutions, comprising Primary Mortgage Institutions (PMIs); Microfinance Banks (MFBs) and finance companies.

In a circular yesterday by its Director in charge of Financial Policy and Regulations Department, Chris O. Chukwu, the apex bank explained that the action was to avoid regulatory arbitrage and provide a level playing field for all operators in the sector.

Accordingly, he advised directors of the affected institutions to as a first step, pass a resolution to that effect and thereafter inform the relevant agencies in line with Section 334(4) of the Companies and Allied Matters Act (CAMA) 1990 as amended.

SOURCE: Gaurdian Newspaper, 25 January 2012. http://ngrguardiannews.com