Audit-Report-on-NNPC

Investigative Forensic audit of crude oil revenues and remittances by NNPC (January 2012 – July 2013)
4.4. PMS & DPK Subsidy
4.4.1. Introduction
Petroleum products subsidies in Nigeria are a form of government intervention designed to
alleviate the effect of possible high retail prices of finished petroleum products (PMS & DPK)
produced in Nigerian refineries or imported from other countries.
Unlike Other marketers that use cash or source for funds from financial institutions to import
finished petroleum products (PMS & DPK) into Nigeria, NNPC uses crude oil as its main
medium of exchange for the finished petroleum products from other countries.
The various activities involved in the movement of the crude oil and the ultimate importation
of finished petroleum products into Nigeria is undertaken by PPMC, a subsidiary of NNPC.
The exchange of the crude oil for the finished petroleum products is done under any of the
following arrangements:
1. Off-shore Processing Arrangements (OPAs) with foreign refineries and
2. Swaps of crude oil for finished petroleum products (PMS & DPK).
At the time of the arrival of the finished petroleum products (PMS & DPK), the sum of the
international market price of the finished petroleum products (Platt Prices) and the additional
costs involved in moving the products into the shore tanks of NNPC or the dealers, is referred
to as the Landing Cost. The Landing Cost is usually higher than the price that the Federal
Government of Nigeria has required that the finished petroleum products be sold to the
retailers/dealers at the Depot (Ex-Depot Price).
The difference between the Landing Cost and the Ex-Depot Price is the subsidy due.
Apparently, for NNPC, subsidies are therefore inherent in the process of converting domestic
crude to PMS and DPK which must be sold at the prices regulated by the Federal Government
of Nigeria.
At the time of importation of the finished petroleum products into Nigeria, PPPRA is required
to verify the quantity delivered in the Shore Tanks, examine the import documents required
for petroleum products importation per the Petroleum Support Fund (PSF) Guidelines 41 , and
thereafter issue a Payment Advice to NNPC on the amount deductible as subsidy.
Unlike PMS that is received and stored in the storage tanks owned or leased by NNPC/PPMC,
DPK is usually sold on arrival to interested marketers at prices determined and managed by
the Inland Sales Department of PPMC. After the sales of DPK to interested marketers, the
marketers usually engage the services of different vessels (i.e. Shuttle Vessels) other than the
Mother Vessel to move the DPK purchased from PPMC to their own storage locations or
jetties.
Vanguardngr
PPPRA’s Import Verification process for NNPC’s Imports
The diagram below illustrates the processes/activities involved in the verification of petroleum
products importation into Nigeria.
41
PSF Guidelines – Framework and procedures for the administration of the petroleum products subsidy scheme in Nigeria
Confidential information for the sole benefit and use of the <strong>Audit</strong>or-General for the Federation.
PwC 64