Fuel Import: Budget Shortfall Delays Allocation



By , 07.05.2010 


The move by the Federal Government to cut down the 2010 budget by 40 per cent is delaying the release of the third quarter import allocation to major marketers and importers of fuel, including the Nigerian National Petro-leum Corporation (NNPC).It was learnt that the release of the  import allocation for the third quarter was supposed to have been done at least two weeks before the end of the second quarter to enable marketers plan ahead.



But due to the uncertainty created by the government’s plan to cut the budget, the Petroleum Products Pricing and Regulatory Agency (PPPRA) is yet to release the third quarter allocation.This development, coupled with imbalance in the last allocation, has created tension among fuel marketers, THISDAY learnt.Due to the imbalance, which gave few marketers undue advantage over others, majority of the importers have exhausted their second quarter allocation and cannot raise Letters of Credit (LC) from the banks.There was apprehension among the marketers at the weekend that the delay in the release of the approval may lead to another fuel crisis.



Government had earlier taken steps to eliminate the crisis in the sector by issuing Sovereign Debt Notes to avoid delay in payment of subsidies for imported cargoes in the second quarter
With the debt instrument, marketers who are not paid within 45 days stipulated in the Petroleum Support Fund (PSF) guidelines will discount the notes at the banks as cash.Previous delay in payment of subsidy made some top marketers to shun the importation regime and rely on the NNPC for imported fuel, a development that had created persistent fuel crisis in the country.



Some of them also said the delay in the release of the third quarter allocation may signal the beginning of deregulation.THISDAY, however, gathered that to avoid undue delay associated with raising Letters of Credit and arrival of imported cargoes from their port of origin after receipt of import allocation, some of the marketers, who have strong financial capacity have already planned in anticipation of approval.



While some of these marketers have kept cargoes on the high sea, waiting for import allocation from the PPPRA and import permit from the Department of Petroleum Resources (DPR), others are planning to buy on-the-spot cargoes from neighboring countries, as soon as they get the necessary approval.“We try to plan in anticipation, since we know that they cannot deny us approval completely. So, some of us keep cargoes in the high sea, waiting for approval. But this depends on your financial capacity and is not applicable to all players. Others are waiting for approval because the banks will not raise Letters of Credit unless there is allocation.”The law says that you cannot bring in certain quantity because the government wants to restrict the volume of foreign exchange going into subsidy,” said a source.



The Executive Secretary of PPPRA Mr. Abiodun Ibikunle could not be reached at the weekend, but a top official of the agency confirmed that the delay was due to the plan by government to cut the budget. The executive arm of government had said the 2010 Appropriation Act cannot work as passed by the National Assembly because the budget was based on inconsistency in crude oil revenue projections.



Due to faulty projections, government said the 2010 budget estimation has a shortfall of 27 per cent, in spite of the fact that the income earned this year had reached 76 per cent over and above that of 2009. Consequently, President Goodluck Jonathan is seeking to amend the 2010 Appropriation Act and also introduce a supplementary budget of N639.8billion.The PPPRA official said the agency wanted to know the areas that would be affected by the budgetary cut to avoid committing marketers to import fuel, and denying them payment at the end.



“The delay is due to budgetary constraint. The government wants to remove certain things from the budget and we want to be sure what they want to remove before we commit anybody to import fuel. It was the 2009 Supplementary that was used up to March 2010 and the government said they want to cut 2010 budget.”The last subsidy was actually drawn from the 2009 Supplementary. We want to be sure of everything so that we don’t ask somebody to import fuel and tell him later that there is no money in the 2010 budget to pay him. After all, we don’t know what the government wants to cut,” he said.



PPPRA paid a total sum of N680, 635, 434, 605.34 billion on subsidy between 2009 and 2010. A total subsidy paid to all participating marketers in 2009 amounted to about N450, 000,000,000:00.  Out of the amount, the NNPC was credited with N212, 076,306,235:75, while the rest of the marketers got the balance.The sum of N130,635,434,605:34, has so far been paid out in 2010, from which NNPC was credited with N61,004,532,568:49, while other Marketers received N69,630,902,036:85.



THISDAY also reported that controversy trailed the second quarter allocation due to sudden withdrawal and review of the allocation issued to marketers to import 3.7million metric tonnes, six days after the approval was given.The sudden withdrawal and review of the allocation pitched majority of the marketers against the PPPRA  as they alleged that the new allocation favoured only three marketers.Under the new allocation, the number of marketers was reduced from 53 to 25 and the allocation of the marketers that did not make the new list was reallocated to less than five.



In the first quarter of 2010, approval for importation of 3.9million metric tonnes of PMS was granted to the NNPC and 33 other marketers, while the estimated optimum volume requirement in the country in metric tonnes for 120 days was 3,131,991.05 PPPRA said the excess approval was to avoid any hiccup in fuel supply in the country during the period.





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