Nigeria couldn’t have survived with another fuel subsidy- Kyari, GMD, NNPCL

Group Managing Director (GMD) of the Nigerian National Petroleum Corporation Limited (NNPCL), Mr Mele Kyari, says the removal of the fuel subsidy is the best thing that could have happened to the country. In this interview with journalists after visiting the leadership of the All Progressives Congress (APC) at its national secretariat in Abuja, Kyari explains that subsidy is shrouded in fraud, among other sundry issues. David Lawani was there

Now that subsidy has been removed, when are we going to have other players in the downstream sector that will be importing fuel?

There is a gradual process now of making a flexible and single-effect regime. Everyone will be able to have access to foreign exchange and there is a transition going on now. And NNPCL cannot continue to be the sole importer. We know that this is going to vanish and the market will stabilise this.

When are we going to have the four refineries working at full capacity?

There is an ongoing process of rehabilitating the refineries. One of them will come on stream this year. The second will come on stream next year and the third will come the 2025.

Are you insisting that subsidy is truly gone?

Of course, we can no longer afford it. Subsidy bills have piled up. The country is not able to settle NNPC for the money we are spending on the subsidy. Therefore, pricing these petroleum products at the market is the right thing to do at this time. We believe that this will benefit the overall country in the long term.

What are the palliative to cushion the biting effect of the removal?

I am aware that Mr President has directed some engagement and some palliative will be put in place, and I am very sure this will happen.

Why was there no provision in the 2023 budget for subsidy as of June, was it a deliberate ploy by the former administration of Muhammadu Buhari to put the new President Bola Tinubu on its toes?

There was a subsidy in 2022, but in 2023 not a single naira was provided to finance the subsidy. Ultimately, while we held back our fiscal obligations, we still have a net balance of over N2.8trn that the federation should have given back to the NNPCL. For any company, when you have negative N2.8trn, no company in the whole of Africa will lend to you because you cannot have receivables. The provision of subsidy is there, but there is no funding for it. It means it is only on paper. So, it doesn’t exist. The conversation today is not really about when you are taking off subsidy you can do roads, build hospitals, education, etc. It is very true because you don’t have it now. You cannot give what you don’t have. I gave a simple explanation to a family this morning that you cannot go on hungry. No breakfast, lunch, or dinner. But a lot of families go through this but it happens because you don’t have. If you don’t have you cannot give. This is exactly where we are today. So, we no longer can bear it because it leads us into liquidity. If we continue, we will run into defaults and the defaults of NNPC is the default of Nigeria. Once NNPCL goes into defaults and liquidity, it affects every borrowing done by the country. Even the sub-nationals. Your lenders will come back to you and say your country can no longer pay.

Why did you say stopping fuel subsidies is the only way out of the current situation?

The only way you can stop this conversation around subsidy is when Mr President announced that the subsidy is gone. In 24 hours the bond market appreciated. It is nothing else other than the statement around subsidy and balancing of the apex market. These two elements are major concerns that every investor all over the world, and every partner that we have is worried about what your apex regime is and how you deal with your subsidy. They know that this subsidy constitutes a huge amount of money and this country may not be able to survive and pay its debts. Everybody understands this. Before today, the average subsidy level was N400bn every month. That means every month you can do one major capital project from money that you do have that you are not paying on subsidy anymore- this is really what it means. There is nothing anybody can do about it. There is this common argument that the masses will suffer. We are going to have problems with them. I agree that once you increase prices of this proportion, as it has happened, it will have an impact on inflation. There is no doubt about it. It is very typical also. It goes up and down. The market determines what happens next. Even inflation in very many countries goes up when you have the economic indices become difficult. In many countries, many factors can make inflation go up. When it does, prices go up. We have to deal with it and live with it. You have to increase your production and consumption, and you have to change that balance. You have to change the conversation around GDP growth and so on. Mr President’s target is to have a seven per cent growth of GDP. You cannot have this if you have this distortion in your demands and consumption pattern. Very many of us here have at least two cars in our houses including myself. All of us, including me in the elite class, are the ones with two, three, or four SUVs, and even our families too. When you buy fuel of 100 litres in an SUV, you are subsidising three litres with N100 for all of us. Just imagine what happens when you can preserve that. Even the consumption itself is skewed in locations and states where the level of economic activities is higher than the others. It is very understandable, and that is why people can afford Abuja, Lagos, Port Harcourt, and Kano. So, over 38 per cent of the total fuel distributed in this country ends up in these places. All the other parts of the country suffer from it, and you can see the relativity. Imagine the per capita basis.

How have you been able to detect this fraud in the subsidy because despite the audits there has been no action?

Look at the population of Abuja against Lagos, and you are doing 150 trucks to this town. But in per capita, look at Borno and Rivers states. In some of them, once you do 30 trucks, you are done, you don’t even have any problem. This town Abuja is just housing a few of us, you will need to do 150 trucks before you can have sanity in this town. That means it is very clear that it is those who can pay that are being subsidised. The highest number of consumption that we have in reality is coming from states where economic activities are higher. That means it is those who have that are being subsidised in reality. When we say elites that doesn’t mean there are no poor people in Abuja. They exist, but I can say we are subsidising those of us who can afford it. The collateral challenge is that no infrastructure, no hospital, and everything you can imagine. Ultimately, we are in a different situation, we cannot afford it anymore. It is important to fight it to realise that changing the consumption pattern of individuals including myself is key. I believe that anyone who has got a fuel station today will appear three times more than what it used to do. But I am sure your car will not go back to the same situation again. Then you will be careful where you go, it is human nature. This is that you are going to preserve your money. Even if you are going to dash people, you will have money so that people can benefit from it. Or you can now invest in something else. In every country, once you have a price increase, or change in your consumption pattern resources become available, and then end up using those resources for something else. Even at the level of individuals, people won’t need to come out of their houses if they don’t need to and nothing will happen. Many things will come as a result of this change. But more importantly, it solves the problems of the distortion that we have. It helps with the consumption of the Premium Motor Spirit (PMS), and all these are very bold and courageous actions taken by the government. No doubt it will come with its challenges, interventions will come, though you have a N100 challenge.

What do you have to say about parties who campaigned for the removal of the subsidy?

It is not just only for APC, but all the presidential candidates during the last election campaigned that they will take out fuel subsidies, and everybody said it is fraud and there is something wrong with it. And I have said it over and over. Whenever you have arbitrariness you cannot stop it. You cannot stop fraud around subsidies. When you take a PMS of 60,000 litres from Lagos to Maiduguri legitimately. What you make is about N300,000. Just imagine that you are expected to service your station and pay your workers. We all know that it is impossible to meet this. When you take the same fuel across the border, you are making between N12m and N17m as value. I don’t see how anyone can stop this. It is impossible because we have 4, 000 or 5, 000 kilometres of border distance. Without mincing words, we all know that anywhere you have a border state, Gibia, Ilaro, etc, and everywhere that you can think of is a perfect example of disconnect. In Ilaro, you have 300 fuel stations within 100 kilometres. But you know they don’t need more than two fuel stations. In Gibia, you have 120 fuel stations in Katsina State and I don’t think you need more than 10 fuel stations. In my state with all the Boko Haram, and the challenges that we have some of the towns are no longer existing. Yet you will see that filling stations are existing because it is arbitrated environment, and this is true in all the places. When we talk about fraud, with what we did with forensic audits, we discover that audits don’t do anything, and they can’t stop anything. For instance, when you bring in a cargo of PMS, and you can pay your way through everybody that means over 13 agencies of government and other people you can think of NNPCL, the regulator, and everyone in the value chain. They bring it back and sell it to NNPCL under a subsidy regime that makes at least $10m, I don’t know how anyone can contain this. How you will not compromise everybody with an average gain of $10m. No legislation will stop the round-tripping. The only thing that can stop it is to take it off and when you do you will not be talking about fraud. But as long as we have the structure, fraud will continue to be there, and I can always speak about myself. I don’t participate, but that is not leadership. It means you have a problem and it must be solved. Technology is not engagement or control. It is that we must do the ultimate solution which is that remove the subsidy. And that is why we have to budget for it over and over until we get to where we are today when we can no longer afford it. I know this is a conversation of over 40 years, but I am aware that the military has to think about it. The same market situation we are facing today is what every government has faced. But they were never faced with the situation that we have found ourselves today, and we cannot afford it. It is impossible to proceed with it. And it is impossible to continue to do this. And if you don’t take this out, you will have dislocation in our economic system. And of course, you can see a lot of people talking out there. I agree with everyone.

Why do you think politicians are taking advantage of the oil sector against the nation?

I am a technocrat but I have relationships with politicians. I know what happens as an insider. With all respect, I cannot even come out to say I am not a politician. What is politics? Engagement and dealing with others. And I do deeply know that some of the protests and conversations you are seeing, many of them are sponsored. We will fight it. It is not a matter of option. You cannot give what you don’t have. The key reality is that we have supplied today. There is no panic about it, but it is very understandable that when you make such an announcement you should expect that people will take advantage of it. The market is not an advantage, but a debt recovery. If you don’t allow them to sell all the new stock at the new price, they will not be able to go back to the market. They cannot buy it again. But for consumers, it is a short time thing. It was typical because we have seen this over and over. There is no queue this morning because it will go away. It is already ending out across the country. But I can tell you in another day or two, it will completely vanish and we will have sanity in the country. We need your help. This is your mandate and for our countrymen to understand that this serves their best interest because you cannot give what you don’t have. If we dominate this fuel subsidy regime, there will be no fuel in the filling stations. There is this assumption that fuel is going to be cheap within the country. No. The only thing domestic refining does for you is that it brings the products close to you. Availability and security of supply. It does create employment and taxes. The only difference is the price. It takes away the price because it is priced in the international market. It is not possible to call Dangote to reduce your price. It is not possible. Every borrowing around the oil and gas business including Dangote is based on international price. You must confirm to them that you will be able to sell at the international market before they can load. It is not even a matter of negotiation. It is not possible.

How difficult is it that we cannot refine fuel locally?

Local refining is good. It adds value significantly, but not a profound change. It doesn’t and it won’t. We cannot turn back. In the past, we turned back because we had the resources. But we can’t now. There is supply in the country. Once there is an alignment with the apex regime, which is what the President has promised. We have had several engagements with labour in the last few days it is obvious that we are going to have a single market, and once that happens, it will be very natural like you have in the AGO NNPC only contribute about 30 per cent of the AGO. The market starts filing because they can price it. At the parallel market rate because they can price it. They sell and recover their money then go to zone four to recover their money at the apex. That is the reality we are dealing with.