FAQ ON SUBSIDY

1. Why did Nigeria have to import petrol?

90% of petrol consumed in Nigeria is imported due to inadequate and limited local
production. With the four refineries in the country operating at less than their installed
capacity, their daily production is grossly inadequate to meet the current market
demand, hence the urgent need to bridge the supply deficit with importation of the
product.
2. Who is responsible fuel importation in Nigeria?

The importation of petrol is carried out by Nigerian National Petroleum Corporation

(NNPC), Major Oil Marketers Association of Nigeria (MOMAN), Depot and Petroleum
Products Marketers Association (DAPPMA), and other independent marketers under
permits issued by Petroleum Products Pricing Regulatory Agency (PPPRA).
3. What is fuel subsidy?

This the difference between the higher cost of importing PMS and the lower regulated
pump price of N65 per litre (pre January 1, 2012 pump price) borne by the Federal
Government. As at 6th December, 2011, total cost of imported product as stipulated in
PPPRA template is N141.38/ litre and the regulated pump price of PMS for same period
is N65/ litre. The difference is N76.38, which is the subsidy.
4. How does the subsidy scheme work?

A pricing template as established by the PPPRA Board is used to calculate on a daily

basis the landed price of regulated products. This formed the basis of subsidy claims
made by participants under the Petroleum Support Fund (PSF). The Fund expects that
there would be under-recovery, which is when the landing cost is higher than the pump
price and the government takes the responsibility to pay the difference as subsidy.
Conversely, when there is over-recovery, that is, when the landing cost is less than the
pump price, the marketer pays back to the government. For example, during the
YarAdua administration, when the petrol price was N65 and the crude oil price
dropped to $50 per barrel, Oando paid back N1.6billion back to the Federal
Government.
The PSF is funded by the Federation of Nigeria, administered by the PPPRA and
supervised by the Ministry of Finance.
5. When did Oando start participating in the PSF?

Oando was an inaugural member in 2006, amongst two other majors, who got involved
in discussing with the government on how to better bridge the supply gap for petrol in
Nigeria. They aggressively canvassed for the creation of a scheme that the private
sector could access in which the players will finance the import of products and then
claim the differential. Since then Oando has maintained a 100% delivery on all supply
contracts, a position that has supported the company in becoming Nigerias largest
independent and privately owned oil trading company.
6. How does PPPRA function?

The PPPRA has a 26 member Board which inter alia includes the Central Bank of
Nigeria (CBN), Federal Ministry of Finance (FMF), Nigeria Employers Consultative

Association (NECA), Nigeria Labour Congress (NLC), Trade Union Congress (TUC),
Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), National
Union of Petroleum and National Gas Workers (NUPENG), National Association of Road
Transport Owners (NARTO), National Union of Road Transport Workers (NURTW),
Nigerian Guild of Editors, National Association of Chambers of Commerce, Industry,
Mines and Agriculture (NACCIMA), MOMAN, DAPPMA, Independent Petroleum
Marketers Association of Nigeria (IPMAN), amongst others.
7. Oando is said to be a beneficiary of the subsidy. Is this true?

It is a bit of misnomer to use the expression benefitted from the PSF scheme,
unfortunately, it is been used repeatedly in the press. It is pertinent to state
categorically that Oando does not benefit from the scheme; it is the Nigeria public that
benefits. The marketers spend an average of $30million to import a 30,000metric
tonnes cargo of petrol but sell the products at the pumps at an equivalent of $15million,
while the balance is paid as subsidy by the government pursuant to an existing law.
8. If Oando is the largest privately owned oil trading company, why the market share drop

from 53% in 2006 to 11% in 2011?

The market share is without prejudice to the fact that our volumes has since
substantially improved. We have moved from N9.4 billion (confirm this amount) in 2006
to approximately 1 billion litres in October 2011 and by the end of the year we would be
approximately N1.5 billion litres. The market share reduction was as a result of the
number of companies that were being introduced into the scheme who legitimately do
not qualify to be there.
9. Is Oando a member of any Cabal/Cartel as widely speculated?

Oando does not belong to any Cabal or Cartel in any guise and categorically refuse
to be so tagged. The company is a responsible corporate organisation, which does not
partake in any illegal acts. Its dual listing on JSE Limited in South Africa is a testament
of our business integrity and ethics. Oando is also signatories to the Convention of
Business Integrity, World Economic Forums Pact Against Corruption Initiative (PACI),
United Nation Global Compact amongst others, to publicly demonstrate our
commitment to the fight against unethical and unwholesome business practices.
10. So who is the beneficiary of subsidy?

Any member of the public who bought petrol or used petrol bought at N65 per litre (now
N97 per litre benefitted from the PSF and was a beneficiary of subsidy.
11. But Marketers margin has been built into the PSF?

Regarding margins, PPPRA under the act is suppose to ensure that the different
stakeholders get a reasonable return on their investments but PPPRA has failed
Marketers by refusing to look into the issue of the marketers margins. We have not had
margin increase for the past 4 years, the exchange rate has gone from $100 to $155
and we pay to NUPENG, PENGASSAN also members of the body in the collective
bargaining agreement have received over 80% usual average, we pay 20% salary
increase every 2 years, in fact we have four different negations. Interest rate has gone
up substantially; the bulk of our cost for the distributive trade comes from foreign
exchange so we are not adequately compensated. Our net gain on all this volume of
cash that keeps moving in and out of our account is 2%. Net 2% is the return we make

and quite honestly as far as we are concerned, in the downstream we work for the
banks. The banks make two times as much, the transporters make 3 times as much as
the fuel distributors does, so the margins are not adequate.
12. Why is Oando said to be the largest claimant under the subsidy fund on imported fuel?

Oando Supply and Trading Limited, a subsidiary of Oando PLC is Africas largest
independent privately owned oil trading company. Similarly, Oando Marketing PLC is a
company with over 550 retail outlets across Nigeria, 8 strategically located Terminals
(combined capacity of over 150,000 million litres), access to 13 Government Depots
across the country, over 1,980 trucks through partnership and invariably responsible for
fuelling 1 in every 5 cars on Nigerian roads, it no mystery that Oando is one of the
largest claimant under the subsidy scheme. This does not in any way make the
company a Cabal or Cartel or a beneficiary of the subsidy scheme.
13. Has Oando been involved in any overpayment?

No, Oando has never being involved in over payment, the company is audited locally
and internationally. The company is listed on two exchanges and at the end of the day if
there are any falsehood in the account you will see it right there in our financials. We
published our accounts in the International Financial Reporting Standard (IFRS), and
the Nigerian Accounting Standards Board (NASB) and have never been involved in
any over payment of any sort, if you look at the list of companies who contributed, paid
back to the Nigeria governments, you will see very few company names there and our
name is there and those are the people who are genuinely involved and really serious in
participating in the scheme.
14. Is the scheme free of any irregularities?

Unfortunately, the scheme was not without irregularities. Over the years Oando has
submitted several letters to the PPPRA management as to the way and manner the
guidelines in our opinion were abused. Companies that were registered in 24 hours will
get allocations and companies that have no assets are allowed to be involved in the
scheme.
For instance a case in point is a change in the guidelines of the PSF; in particular Part
V, in 2007, which allowed companies with nothing more than a throughput agreement to
operate under the PSF as against the ownership of storage facilities and distribution
capacity. Oando has been a leading advocate for the removal of subsidy owing to it its
burden on our resources which should have been used to improve our critical
infrastructure.