"Have you ever heard how they catch monkeys in Brazil, Julie? Let me tell you. They put a nut in a bottle, and tie the bottle to a tree. The monkey grasps the nut, but the neck of the bottle is too narrow for the monkey to withdraw its paw and the nut. You would think the monkey would let go of the nut and escape, wouldn't you? But it never does. It is so greedy it never releases the nut and is always captured. Remember that story, Julie. Greed is a dangerous thing. If you give way to it, sooner or later you will be caught."

The late British novelist, Rene Brabazon Raymond, who wrote with the pseudonym James Hadley Chase, spoke to the nature of human greed in one of his entertaining offerings, 'The Paw in the Bottle'. It is from the novel that the foregoing quote was taken. For many members of my generation who grew up reading Chase, there is no point repeating the fate that ultimately befell the central character, Julie Holland, who refused to heed the warning of the lenient judge.

That story is rather instructive for me as I follow proceedings of the House of Representatives ad-hoc Committee on Monitoring Subsidy Regime. Chaired by Hon. Farouk Lawan, the committee set up as a result of the fall-out from the last nationwide protest is probing possible malpractices in the management of fuel subsidy. And there have been interesting stories.
For the last five years, I have always held on to this conviction that with the way the subsidy regime, (which has produced several idle billionaires in our country), was going the bubble was going to burst one day. Now it has. Well, not exactly but it may. How far the Farouk Lawan committee will go on this politically dangerous expedition I don't know but even if all it achieves at the end is to restore a measure of sanity in a sector that has become a cesspool of corruption and waste, that will be good enough for the country. If there is indeed anything that vividly depicts the story of Nigeria, it is in the management of the downstream sector of the petroleum industry that is built on nothing but pure rent. But the chicken is finally coming home to roost and whatever happens in the coming weeks, things definitely cannot remain the same in the sector.

While my membership of the Nigeria Extractive Industry Transparency Initiative, NEITI, (to whose governing board I was appointed a member by President Olusegun Obasanjo in 2004) exposed me to some of the dealings in the upstream operations of our oil and gas sector, it was my stint in government that gave me insight into the rot in the downstream operations. Early in the life of his administration, the late President Umaru Musa Yar'Adua had decided he was going to remove fuel subsidy and negotiations had commenced with both the Nigerian Labour Congress and the Trade Union Congress. When by January 2009 the price of crude had fallen to as low as about $40 per barrel in the international market, we felt government needed to show good faith by reducing the price of petrol.

Then Minister of State for Petroleum, Mr Odein Ajumogobia, led negotiations with Labour while the cut of N5 per litre was informed by the fall in the prices of crude and refined petroleum products at the international market. Even though it was a decision taken at the Villa, it was felt that the regulatory agency should announce it. The Petroleum Products Pricing Regulatory Agency (PPPRA), according to the statement released to effect the decision, decided "to substitute the fixed price with a recommended price in order to pass on the benefit of this drop in price to the Nigerian public. All petroleum marketers are enjoined to comply with this price immediately...Based on current market fundamentals, the indicative open market pump price of petrol for the month of January is N65.00k."

In pursuit of the deregulation agenda, the president also set up a small committee in which his Principal Secretary, Mr David Edevbie, an economist, played a critical role. Aside coming up with a simulation of what the pump price of PMS should be at different prices of crude oil, the report also dissected the PPPRA template. Some of the findings were: One, the template was applying a blanket ship-to-ship (STS) cost of N2 for Lagos and N2.50 for Port Harcourt on the total volume discharged directly by the mother vessel after lightering. They also discovered that a trader's margin of $10 per metric ton was always built into the freight cost of imported products yet financing of product subsidy had actually included trader's margin in the template.

Again, the PPPRA template as at 2009 when the review was carried out provided for a repayment cycle of 90 days (30 days interest free period plus 60 days which attracted interest charges). The template also provided a LIBOR benchmarked finance charge and jetty thru-put; the implication being that the importer did not require to commit own capital to the whole import process. Perhaps the most controversial, however, was that Demurrage cost was subsumed under the lightering expenses on the template which meant whether or not it was incurred it would be paid. In contrast, South Africa allows only three days for demurrage in calculating fuel price. There were other findings which revealed suspicious activities in the implementation of the subsidy regime.

On a personal note, I had serious disagreements with the PPPRA management in all our meetings and it got to a point in which I was seen as more or less an enemy of the agency, which was not the case. They subsequently decided that I needed to be engaged and I had sessions with some of their officials. But the more they lectured me on their operations the more convinced I was that Nigerians were being short-changed by the whole subsidy regime even though I also realised most of the problems were beyond the PPPRA, which is a mere subsidiary of the NNPC.

For instance, the information I got from the PPPRA was that in 2006, the entire PMS refined locally was 1.623 billion litres while 7.701 billion litres of PMS were imported by NNPC and other marketers. The implication is that for the entire year we consumed a total of 9.324 billion litres on which N261.1 billion was paid as subsidy. If we divide the volume consumed by 365 days, that would give us an average consumption of about 25.545 million litres per day for the entire country. The next year, 2007 when the refineries were working at their lowest capacity, the quantum of their contribution to local supply had dwindled to 356 million litres of locally refined PMS. With 9.867 billion litres of PMS imported to the country by NNPC and other marketers, the total annual consumption had jumped to 10.223 billion litres at a cost of N278.9 billion in subsidy. That also translated into about 28.008 million litres per day. By 2008, with 1.227 billion litres refined locally and 10.867 billion litres imported, the national annual 'consumption' had become 12.194 billion giving us a daily volume of about 33.408 million litres. We also paid N633.2 billion on subsidy.

One can see the progressive increase in the numbers of average daily consumption which can only be explained by the fact that more and more people were getting involved in what had become a bazaar. I have no record of the 2009 and 2010 consumption but that of 2011 has been supplied by the PPPRA as 59 million litres per day, 24 million of which were mere spoof!
Unfortunately, the issue in the subsidy regime is not limited to the monkey counting of the volume of fuel imported. Going by the PPPRA template, the pricing model for the determination of the domestic prices of petroleum products is based on an Import Parity Principle (IPP). For instance, in the PMS template of the PPPRA for the month of February 2009 which I used in the piece I did for the media in March 2009, product cost was 65 percent while freight accounted for 5.75 percent. Another component called Lightering expenses accounted for 5.13 percent with Storage charge put at 4.18 percent. Other charges were: Jetty-Depot Throughput, 1.12 percent; NPA, 1.62 Percent; Financing, 0.72 percent while margins for distribution accounted for 18.41 percent. In fact, the more one looked into the subsidy regime, the less one actually saw!

While it is important that we tackle some of the issues, it is appropriate for us to await the outcome of the Lawan committee probe. But let us briefly highlight some of the facts that have been brought to light so far. One, the exercise has revealed that whereas subsidy was paid for 59 million litres of petrol on a daily basis in 2011, the country's actual daily consumption was 35 million litres. The leakage we are talking about here in just one year is an amount far in excess of N800 billion which can conveniently give us three brand new refineries!

Two, CBN Deputy Governor, Dr Kingsley Moghalu, revealed that the government spending on subsidy for 2011 was N1.7 trillion. Against the background that N245 billion was actually voted for that purpose in the 2011 Appropriation Act, there are also constitutional issue as to how the almost 600 percent increase was 'appropriated'.

Moghalu said the CBN raised some questions about two years ago over the management of fuel subsidy and the possibilities of some manipulation. "The concern arose mainly as a result of our perception of the implications of possible manipulation of the subsidy regime on the stability of the country's exchange rate, our external reserves and the banking system.Non-performing bank loans to petroleum product marketing companies and for stock market transactions were a major contributory factor in the distress suffered by some Nigerian banks in 2008/2009," said Moghalu.

Three, at the beginning of the subsidy regime, there was an understanding that only companies that had a minimum of 25 petrol stations and 5,000mt storage capacity were allowed to participate, according to the guidelines of the Petroleum Support Fund. Yet companies that had neither retail outlets nor storage facilities were allowed to participate in what became a free-for-all business for those with the right connections in Abuja.

Four, officials of the Nigeria Customs Service (NCS), revealed that most of the fuel imported into the country has "no documentation", with all the attendant implications. "NNPC does not make any documentation to the Customs. Several meetings were held where the NCS was directed not to ask for documents. The Ministry of Finance wrote to NCS, warning them not to ask for documents because this will cause crisis," said the Customs Deputy Comptroller General, Mr Nwankwo.

Aside the loss of revenues, the security challenge posed by ships that could virtually bring in anything is better imagined. While, as I said, we have to wait for the completion of the House probe, it is important for those in authority to begin to draw the right lessons. The Petroleum Minister, Mrs Diezani Alison-Madueke, has promised to cleanse the Augean stable. When the Lawan Committee's job is done, what I would expect is that they turn their report to the Economic and Financial Crimes Commission (EFCC). That way, a more thorough investigation can be done so that those involved in these monumental acts of graft can be brought to book. That will also ensure that the innocent ones are not unnecessarily smeared given what has become a blanket condemnation of what is ordinarily a legitimate business.

Incidentally, it was the former Kwara State Governor, Senator Bukola Saraki, who opened the Pandora Box with his October 2011 motion on the management of petroleum subsidy. It was his efforts that led to the investigation by a Senate committee that is also probing the payments, though it has been overshadowed by the House committee. Now that the two houses of the National Assembly are involved, I hope that they will be thorough as they discharge their oversight responsibility; that they will not provide platforms for witch-hunt or mere entertainment, and that they will have the spine to go the whole hog.

One thing is certain, though: neither President Goodluck Jonathan nor his government is solely responsible for the crisis of the hour and I believe that we shall all come out of this the better if the government maintains its pledged determination to end, once and for all, the rot and graft in the system. One commendable step in this direction is the inauguration, on Tuesday, of the special task force on governance controls in the NNPC and other parastatals under its watch. The Petroleum Minister who is now showing greater commitment to the passage of the Petroleum Industry Bill (PIB) is to be commended for her choice of very credible persons in constituting this committee. It is my hope, and indeed that of many Nigerians, that "the new corporate governance template for ensuring full transparency, good governance and global best practices in the NNPC and its parastatals" will take us to less troubled waters.
• This piece was first published in THISDAY on 2nd February, 2012