Forensic Investigation Into Petroleum Products Consumption, Subsidisation and Fiscal Spending in Nigeria by C. E. Alozie (PhD)

This paper analytically investigated petroleum products procurement, volume of consumption, scal expenditure on consumption subsidies, the utilisation of domestic crude-oil allocations in local rening production in satisfying consumption, discipline in the approved subsidy expenditure budget. Ex-post ‘facto’ materials were employed. Numerical descriptive statistics on volume of locally produced-supplied to imported products volume ratios, budget deviation indexing for scal discipline; simulated ‘produce or import simulation of prior scal expenditures. Results indicate that local rening output of petroleum products were partly the major root cause of insucient source of supply of products procurements which in turn compelled Nigeria to be reliant on importation in satisfying consumption requirements. Domestic crude allocation utilisation for rening production indicates that only about 33 percent of average aggregate expected minimum rened petroleum products yields of average aggregate volume consumption requirements were recorded. Budget discipline is lacking. Gross undersupply of electricity induced constant rise in the consumption of petroleum products. The paper concludes that lack of proper routine maintenance of extant local reneries, production ineciencies as well as grossly mismanagement of the daily domestic crude-oil allocations were primarily responsible for the huge scal subsidies expenditure. Nigeria’s indulgence in fuels importation and negligence of local reneries is tantamount to creating employment in those other rened fuels producing countries and escalating unemployment in Nigeria. T Fiscal spending on subsidies would have funded proper routine TAM and build four new reneries which is nancing option that ought to have guaranteed ‘pareto optimality’ in the economy.


Introduction
1.0 Background information to products procurement, consumption, and subsidies Nigeria is one of the world's major producers of crude oil but the country's local production capacity has remained poor and unsustainable to domestic consumption for many years (AfDB, 2009). Nigeria lacked the capacity to produce up to 50 percent of the average minimum volume of the annual petroleum products consumption with the associated supply -demand gap; the frequency of increase in consumer prices of the petroleum products in the domestic market remained inevitable. The domestic consumption of petroleum products around 1989, that was at the time of initial adoption of petroleum products subsidy was about 15

Statement of the Problems
The main problem of availability of re ned petroleum products hinge on the fact that Nigeria as an oil producing and exporting country has not been able to produce su cient volume re ned products to meet her consumptions. Flowing from this prevailing situation and Nigeria's indulgence on importation, the nation has spent substantial public funds in scal expenditure on fuels consumption subsidies over the years thereby creating employment in other economies and tacitly promotes unemployment at home. The phenomenon of sourcing petroleum products for consumption and possibly export is directly associated with inability of existing domestic re neries to produce the required volumes of re ned petroleum for distribution in the markets.
The existing re neries in Nigeria lacked the capacity to produce up to 50 percent of the average minimum volume of the annual petroleum products consumption with the associated supply -demand gap; the frequency of increase in consumer prices of the petroleum products in the domestic market remained inevitable. Due to the fact that crude oil and re ned petroleum products are procured with international currencies, therefore the movements in exchange rates determines the retailing prices of re ned petroleum products. Apparently, the scal policy makers inadvertently failed to foresee the deep rooted macroeconomic disturbances that have plagued the population in form of continuous in ationary trends. The resources, already committed in funding fuels consumption subsidies ought to have been more prudently channelled to the provision of other critical social infrastructure projects and programmes, if the government had utilised such funds wisely and e ciently. Furthermore, the challenges insu cient availability of re ned petroleum products and consumption subsidy regimes in Nigeria were not merely the retention or withdrawal of petrol and kerosene subsidies but prudence in scal policy formulation in maximising citizens' welfare (pareto optimum). However, available evidence indicate that the successive Nigerian governments have ignored to utilise the country's oil revenue windfall in vertical and horizontal investment in development of the oil and gas subsectors particularly in sustaining existing re neries/ petrochemical industries to ensure self-sustenance and export.

Research Questions:
• To what extent did the local re neries to produce su cient re ned petroleum products to satisfy aggregate demand and consumption?
• To what extent were domestic crude allocation effectively utilised in local re ning production? or to what extent was the domestic crude-oil allocation properly used for local re ning production?
• To what extent does government conduct direct scal expenditure on consumption subsidies in compliance with the established scal regulations and approved budgetary allocations?
• To what extent would Nigeria utilised the aggregate scal expenditures in facilitating either establishment of additional re neries or proper maintenance of the existing one in sustaining normal supply of products?
• To what extent does the consumption of re ned petroleum products have any direct substitutionality effect with electricity power supply and usage in the country?
These research questions may be replicated or restated within the reviewed empirical literature*

Objectives of the Study
The main objective of this study is to carry out forensic investigation on petroleum products consumption subsidies and scal spending in Nigeria. This is with the view to unravel the nature, dimension, causal factor(s), magnitude of this scal spends and other realistic usage of fuels subsidies expenditures in the economy as speci c objectives. The speci c objectives are to: To establish the gaps between aggregate proportions of locally produced petroleum products total consumption and relative ratio of imported proportion to corresponding total consumption volumes. Consider the extent to which the domestic crude allocation utilisation in local re ning production of petroleum products in satisfying domestic demand and consumers; requirements. Determine scal budget deviation between actual annual subsidies expenditure and actual spends in gauge the degree of scal discipline. Examine the extent to which aggregate government annual expenditure on petroleum products subsides could have been invested in re nery infrastructure to promote domestic production and social welfare. Assess the extent to which the consumption of re ned petroleum products might have had direct substitutionality effect with electricity power supply and usage in the economy.

Research Hypotheses.
Hypotheses are formulated to guide data generation and analyses are: Ho 1 : There is no signi cant difference(s) between the aggregate average annual proportions of locally produced re ned petroleum products in comparison to the average aggregate annual volume of the proportion of imported products. Ho 2 : There is no signi cant difference between domestic crude-oil allocation (DCA) utilisation alongside the expected re ning production yield alongside actual quantity of DCA usage and re ned product output. Ho 3 : There is no signi cant difference between the subsidies approved budgetary allocations for and actual direct scal subsidies expenditures. Ho 4 : There is no signi cant difference between public expenditure on aggregates cost estimate of investments in re nery infrastructure (turnaround maintenance and or in building re neries and actual direct scal subsidies expenditure on consumers' social welfare.
Ho 5 : There is no signi cant difference between increases or decreases in average aggregate annual domestic consumption of petroleum product and average aggregate annual electricity supply as in uencing factor size of economic operation; This scope of the paper is restricted to conduct independent forensic investigation on petroleum products procurement, consumption subsidies and scal spending in Nigeria for the period of 32 years based on ex-post 'facto' data analysis from 1989 to 2020.
The remainder of the study after this introduction is arranged into four sections, as follows. Section two presents review of literature and methodology in section three. Analysis of data, results of the research, interpretation and discussion of research results are presented in section four. The Summary of ndings; conclusions and recommendations are contained in section ve 2. LITERATURE REVIEW

Conceptual Framework
Procurement of petroleum products refers to all arrangements followed in making fuels products readily available to consumers within the economy (Almakki, 1987;Adagunodo, 2013;Abudullahi, 2014). The consumption encompasses actual volume all categories of products utilised locally but includes export purchases during from 1989 to 2020 (Abudullahi, 2014). However, domestic consumption relates to the proportion of aggregate consumption by the population, but it inadvertently covers quantities exported to other countries either formally or informally. Local production of the products can be described as the aggregate volume of re ned products produced by existing re neries that were lifted and distributed to marketing enterprises (Almakki, 1987;Adagunodo, 2013). Local productivity of the petroleum products alongside importation is critical in meeting aggregate demand of the consumers. It also in uences the magnitude of government's scal subsidies spending, public revenue, and macro-economic stability and in uence public policies on total removal or continue retention of subsidies regime (Abudullahi, 2014).

Petroleum products consumption, subsidies and
Nigeria's public spending Petroleum products consumption in Nigeria have ever been increasing in line with population growth, increase in size of economic activities and other factors (Abudullahi, 2014). This trend is inadvertently encouraged by the state policy in lower prices of products below the realistic market determined levels as expected in many oil producing and exporting nations with similar economic and social characteristics like Nigeria. The bulk of the fast moving consumer petroleum products are petrol (PMS), diesel (AGO), kerosene (DPK), aviation fuel (ATK) and lique ed petroleum gas (LPG) oil. These products put together account for more than 60 percent of the aggregate petroleum products consumption in Nigeria. The common characteristics of these consumer petroleum products are that: rst, their consumption cut across various sectors of the economy. Therefore, they are widely utilized as energy fuels and the elasticity of substitution of the products varies across sectors; they highly used in transportation, in industry and residential centres. The low elasticity of substitutions in transportation makes the impact of pricing policies in the sector very extensive in reach and quite sensitive. PMS and AGO are the major fuels utilized in the road transportation sector. Similar user-effect applies to the small to medium sized electricity generation plants for power supply in homes and locations detached from PHCN, as well as industries. Petrol is speci cally used in vehicles, small generating plants, drives for compressors while AGO is used largely on heavier engines. Third, the political impact that pricing of petroleum products engender varies.
Petroleum products' subsidies is inevitable in the crude-oil producing and exporting countries due to its supervening effect on economy as well as its impact on cost of living in oil producing and non-oil producing countries. Organisation for Economic Co-operation and Development (OECD, 2005) de nes a subsidy as a result of government action that confers an advantage on consumers or producers, in order to supplement their income or lower their costs. NEITI (2014) further de nes re ned products subsidies as nancial assistance granted to independent petroleum products importers and local re neries by the government to enable them supply their products at a cheaper rate for the good of public users. Petroleum Products Price Regulatory Agency (PPPRA) (2012) de nes subsidy as reimbursement to the marketers-based on landing cost of the products, less its approved ex-depot price. It is a mechanism that is designed to restitute real costs incurred by marketers in the process of products procurement while ensuring that end users pay a limited amount for the product. A subsidy is de ned as a bene t granted by government to the citizenry, business operators and institutions to remove some portion of the burden on the use or consumption of certain goods or services in an economy (World Bank, 2010). Petroleum products subsidies normally come in two main forms: those designed to reduce cost of consuming the products; and those aimed at supporting domestic fossil-fuel production (Burniaux, Martin & Oliveira-Martins, 2009). These two types of subsidies exist in Nigeria because the four government-owned re neries are allocated crude-oil below the international market prices and also maintained with public money.
Nigeria operates a subsidy regime mainly on two or three core petroleum products; PMS, DPK and AGO, but AGO and DPK subsidies were gradually phased out over the years. PMS subsidy has dominated, which makes it cynosure of public policy and political interest. Fuels subsidies y represents the difference between market price (called the 'derived' open market price [DOMP]) and government-approved retail price that is paid to marketers (CPPA, 2012). Nigeria has been encumbered into the regime of consumer subsidies for many decades, and the economy is heavily dependent on local and imported technologies powered by fossil fuels. But very little is known about the magnitude of public spending on subsidies of re ned petroleum products either on consumption or production during the past three or four decades till date.
Several reasons advanced as motivating factors compelling some countries to provide subsidisation on consumption petroleum products. There are three variants and sources of products subsidy under this arrangement, that is, producer's cost per barrel subsidy, exchange rate subsidy (in both the cost of crude oil and re ned products import). As at 1992, the prices of petroleum products in neighbouring countries were at least 700% of those in Nigeria (Iwayemi & Adenikinju, 1996) calculated the implicit subsidy in 2002 to worth N94billion or 1.8% of GDP. The prices of re ned petroleum products in Nigeria were much lower than in neighbouring countries and this is smuggling-induced consumption subsidy. Nwachukwu and Chike (2011) established that there is strong relationship between demand on petroleum products and energy and the related subsidies in Nigeria. Such subsidies made domestic price of petroleum products lower than its international price and also made the price of other energy become uncompetitive compared to fossil fuel energy. Mourougane (2010) states that petroleum products subsidies in uence demand for fossil fuel energy in two ways and explained that subsidies stimulate over-consumption of subsidized energy which leads to ine cient use of energy.
2.1.2 Domestic crude allocation utilisation, misuse and re ning production e ciency Re ning operation e ciency relates to the volume of crude oil supplies as input in re ning operations and its expected normal range of the output volume yield(s). This contextually links domestic crude-oil allocation(s) for local re ning production with utilisation of such allocated quantities and actual production volumes over time and also their other alternative usage. By convention, the average standard barrel of crude-oil using Bonny light specie as example; a barrel of crude is expected to yield of around 137 to 142 litres of assorted petroleum products under an e cient re ning production scheme. To buttress this fact, in 1989, the total of 108,000,000 crude allocations to the re neries were processed with actual yield of 14.2 billion litres of re ned products, which is 95% of 15 billion litres expected normal output. This presupposes that the 445000 barrels per allocation and 160200000 bpd allocation in 2001 and 2002 ought to have produced 22 billion litres of re ned assorted products but actually yielded 12.8 billion litres each.
The available data obtained from the Department of Petroleum Resources for the productivity of Nigeria's four existing re neries recently indicated that their total annual outputs hovered from ve to 20 percent during the past two decades. Furthermore, various nancial consultants that performed in Nigeria's Extractive Industry (NEITI) review and physical audit of the re ning activities of Nigeria's re neries reported that production of these re neries were ine cient with high volume of wastage. This presupposes that the 445000 barrels per allocation and 160200000 BPD allocation in 2001 and 2002 ought to have produced 22 billion litres of re ned assorted products but actually yielded 12.8 billion litres each. In real life, the available data obtained from the Department of Petroleum Resources for the productivity of Nigeria's four existing re neries recently indicated that their total annual outputs hovered from ve to 20 percent during the past two decades. Furthermore, various nancial consultants that performed the Nigeria's Extractive Industry review and physical audit of the re ning activities of Nigeria's re neries reported that production of these re neries were ine cient with high volume of wastages 2.1.3 Products subsidies budgetary allocations, disposition and spending performance Following Federal government's recognition of the necessity to subsidise the pump prices of certain the products particularly, petrol, kerosene and diesel consumed locally, government commenced direct reimbursement of consumption subsidies to the importers-marketers and distributors of these products. Nigerian government introduced budgetary allocation for subsidies scal expenditure in 2005 and tacitly discontinued it around 2013 but reinstated it in the same year through 2015. Nigeria has operated unbudgeted, budgeted and extra-budgetary scal subsidies payments between 1989 and now.
The budget credibility and scal discipline can be described as the process of ensuring transparency compliance to scal rules and proper accountability of public resources. Fiscal discipline requires that government maintains its scal positions in the manner that are consistent with macroeconomic stability and sustained economic growth and it warrants avoiding excessive borrowing and debt accumulation. At the same time, policy needs to be judicious in pursuing resource allocation and distributional objectives, and in smoothing output uctuations. It is also prudent to create budgetary cushions in order to allow for the possibility of a response to both adverse shocks and to deal with predictable scal pressures. Re ecting de cit and debt sustainability problems, weak scal discipline has often compromised stability and growth, and in the worst scenarios, lead to economic and nancial crises. It is generally acknowledged that discretion in the disposition of the budgetary allocation can be and often misused, which results in de cit bias and pro-cyclical policies. These, in turn, lead to weak scal positions, rising debt levels, and over time, a loss in policy credibility. However, the maintenance of scal discipline is essential to maintaining macroeconomic stability, reducing vulnerabilities, and improving aggregate economic performance.
Thus, this study focuses on import driven explicit subsidies since they represent transfers from government budget to consumers (Koplow, 2009). Budget deviation index (BDI) technique is frequently employed in empirical literature in assessing the relationship between actual annual scal expenditure with approved budget estimates of fuels subsidies in this study. Contextually, Nigeria as an oil exporting and importing nation, has incurred subsidies on both the local re ning productivity (the implicit type) and on importation-the explicit subsidies which is herein measured within the price-gap approach, and aptly representing budgetary/ unbudgeted spending arising from domestic sale of imported energy at subsidized prices (OECD, 2000) 2.1.4 Re nery infrastructure cost e ciency and re ning operation e ciency Fuels consumption subsidies and turnaround maintenance or producers' spending are two variants of government subsidy incurred for sustenance on products procurement for consumption. These two interrelated explicit expenditures are representatives' of "Make (re ne) or Importation" adopted in this paper's framework in comparison of scal decision of either effective routine maintenance of Nigerian re neries for steady production or reliance on importation. Re neries and petrochemical facilities run on a continuous rather than a batch production cycle must, every few years, shut down operations to provide access to the production units (Lawrence, 2013). This is in order that essential maintenance, modi cation and inspection work can be carried-out that could not be done while such units are in operation. Turnarounds are events that are planned well in advance and typically take place on a four-to-six year cycle. A turnaround maintenance in the context of oil processing industries) is de ned by the American Petroleum Institute cited in Lawrence,( 2013) as "a planned, periodic shutdown (total or partial) of a unit or process or plant to perform maintenance, overhaul and repair operations and to inspect, test and replace process materials and equipment. The length of a typical turnaround execution phase (ie, the period when the facility is shut down and hydrocarbon free) is usually around three-to-ve weeks (link this with TAM cost effectiveness). TAM is performed at least once in every three years during the economic useful life of re neries (FGN, 2012) but Ogbuigwe (2018) reported that the last TAM in PHRFC was in 2000 and 2008 for all other Nigerian re neries, is against the best practice.
Cost e ciency and effectiveness of TAM in facilitates comparative decision-making of direct subsidies scal expenditure on imported products consumption or building additional new re neries as an expansion programmer in ensuring steady su cient production, distribution and consumption. This is a variant of buy (importation) subsidise or make (produce) locally at lower costs with resource employment for domestic consumption and even export with reduced or zero subsidization (Lawrence, 2013). This effort enables the study to extrapolate the extent to which aggregate public subsidy expenditure that may alternatively be utilised for proper maintenance of existing re neries for sustained production in satisfying demand and consumption.

Electricity supply /usage and substitutionality on products consumption
The electricity power usage to the petroleum products consumption framework provides exploration of whether usage of electricity from the national grid has substitution effect in energy fuels consumption in the economy. Several factors such as population growth; increase in urbanisation, expansion in productivity or size of economy vis-à-vis electricity usage, supply and power generation are frequently mentioned as core factors that can induce substitutionality effect of the petroleum products consumption in prior studies. This model interrogates economic factors in uencing the national demand and supply for re ned petroleum products, and it focuses on electricity usage and supply as proxy for urbanization and productivity in comparison with increase or decrease in consumption of petroleum products.

Nigeria's petroleum subsidies experience and movement in products prices
The successive \Nigerian governments have adjusted the pump prices of petroleum products on several occasions; that commenced from the Obasanjo's rst Military reign in 1976 to1979) and the present Buhari's Administration from 2015 to date. The emergence of petrol subsidy in Nigeria was experienced around April, 1988 when the pump price for fuel was rst increased from 39.80 in 48 kobo and further to 60 kobo per liter in January, 1989 (Ogunlari, 2018). Thereafter, it has become a recurring event in the Nigeria's political economy. Furthermore, on October 2nd, 1994, the pump price of fuel increased from N3.25 to N15; and on October 4, 1995 the pomp price dropped from N15 to N11. It was further increased in 1998, from N11 to N25 and reduced it to N20 on January 6th, 1999. By the time that administration left o ce in 2007, Obasanjo's civilian administration took the pump price of fuel from N20 in 1999 to N75 (Ogunlari, 2018). However, the government of President Yar'Adua, considered it wise to reduce the price of fuel per liter to N65 in 2007. Then on assumption of o ce, President Jonathan increased the price to N143 and later N97 per liter of fuel after many days of protest, killings and destruction of properties (Ogunlari, 2018). In 2015, the present administration further raised the pump price from N97.00 to N143.00; and by the third quarter of (September) 2020, the government through NNPC increase it to N165.00 under the current deregulated pricing system.
The most recent change in Nigeria's subsidy policy began in January 2016, when PMS price was adjusted from ₦87 per litre to ₦86.5 per litre from independent outlets and ₦86.0 per litre from NNPC outlets (US$0.2 and 0.7 US cent reduction from an initial level of USD 0.43) (Ogunlari, 2018). At that time the price of kerosene was adjusted from ₦50 to ₦83 (USD 0.25 to USD 0.41) per litre. The new levels were estimated to be around market prices for each fuel (Adugbo, 2016; Ohaeri & Adeyinka, 2016 cited in Ogundari, 2018). The downward adjustment in the PMS pump-price was possible due to the rapid fall in world oil prices since mid-2014; while the upward adjustment in the HHK price was necessary because it had always enjoyed a larger per litre subsidy than PMS, and as such still required an upward price adjustment, despite low world oil prices.
Government announced that it was now making use of a "price modulation" policy, where it would adjust prices on a regular basis, either upward or downward, so that on average no subsidies would be paid, though at some speci c periods of time, this would involve over-charging and collecting revenue or undercharging and paying a subsidy (Ogundari, 2018). As of the middle of years 2016, one subsequent price adjustment has taken place for the price of PMS, increased to ₦145 (USD 0.72) per litre in May, re ecting a recovery in world oil prices (Gaffey, 2016). DPK prices were not adjusted at the same time, implying the return of an implicit subsidy on kerosene. In August, NNPC depots con rmed that the price of DPK had been increased to ₦150 (USD 0.46) per litre. Despite these changes, the government still approves retail prices set by the Presidency and there are no clear indices that determine when adjustments should be made and to what level, as previously reported by CPPA (2012). Price increases are usually resisted by citizens led by labour unions and civil society groups, including Standup Nigeria strike in 2012 and often leading to compromises and reduction in the level of price increases.

Petroleum products procurement, local production and consumption theory
Petroleum products or energy demand has been recently used as basis for maintenance of energy dependent systems or to produce output in excess of sheer system maintenance. Energy supply and demand derive their basis from the traditional assumptions of the pure theory of consumer and producer behavior. According to the theory of consumer behavior, the important factors that affect energy demand are: price of the commodity under consideration; consumer level of income; population size; as well as the price of other commodities, substitute or complement; Other factors include the tastes and preferences of the population; and, Income distribution between individuals. The theory of energy demand is founded upon the economic principle of diminishing marginal returns which underlies the conventional downward sloping demand curve. Consumers adjust their energy consumption to their income and the energy product price, assuming other things remain constant. Producers of energy products combine the available factors of production so as to produce a given level of output that maximizes their net pro t. Petroleum products consumption is a re ection of the theory of consumer behaviour derived from the demand for various non-energy goods and services with which it is consumed. Therefore, if the supply and demand for non-energy goods and services change, the consumption of the energy product will change. This implies that there is a relationship between energy uses and other economic activities. This relationship may be affected by the relative price of energy as well as the substitution possibilities in the economy.

Domestic crude allocation utilization and re ning production e ciency model
Re ning operation e ciency theorem links domestic crude allocation with ideal the volume of crude oil supplies as input in re ning operations to expected normal range of the output volume. By convention of the crude-oil re ning operation, the average standard barrel of crude-oil and using Bonny light specie; a barrel of crude is expected to yield of around 137 to 142 litres of assorted petroleum products under an e cient re ning production scheme. The forensic investigation on domestic crude utilization in this study leans on the established range of expected output from an average barrel of crude and aggregate input quantities in a given period in determining the degree of re ning operation e ciency for this industry in Nigeria.

Theories of petroleum subsidies and scal expenditure
Fiscal subsidies are widely used in several countries on several commodities such as petroleum products, food or farm inputs like fertilizer and machinery. Though, a subsidy can be a very powerful policy tool that can be used by the state to address market failures or achieve social objectives, it may also be an arti cial tool to skew markets and this can impose large economic costs with huge negative externalities such as corruption. Since government is the primary provider of subsidies, it is expedient that policymakers should be well equipped to decide whether, where and when to provide subsidies. It is equally important that any such subsidy injection should adequately recognize the costs to the economy of distorting competition when assessing subsidies and to identify where, if possible, such costs may be minimized. Cost e ciency of re nery infrastructure and e ciency in re ning operations are essential ingredients for production and supplying su cient petroleum products to satisfy consumers requirements at all times.
The "business benchmark" cost estimation model of the oil re nery industry as provided by Solomon Associates (Lawrence, 2013) is the theoretical framework supporting the selection of fuels importation or local re ning production' (produce) comparative subsidies spending decision for Nigeria in the rst angle. This cost estimation model effectively regular TAM of re nery complexes links local re ning production' make (produce) with fuels importation in analyzing judicious alternative subsidies spending in ensuring steady procurement and distribution of products in the economy. Benchmark TAM cost estimation model provides basis for comparison of the direct scal subsidies expenditure and estimation of more prudent concurrent spending of the same scal subsidies on routine maintenance in sustaining the re neries productivity to meet local consumptions without reliance on imports (Lawrence, 2013). The established principles of the oil re nery industry worldwide require that TAM is essentially carried out in re neries within every two to three years and maximum of ve years (Ogbuigwe, 2018). The life cycle costing or terotechnology that inter alia de ned as: 'the maintenance of physical asset cost records over the entire asset lines, is normally applied to the cost estimation of turnaround maintenance expenditure and pro t margin performance of a plant over a re nery' productive life cycle, including the pre-production stage (terotechnology), and to both company and its life cycle' (Sizer, 1996).
Prospect theory and cumulative prospect theory (CPT) also known as risk-aversion theory developed and adopted by Kahneman and Tversky (1979) is theoretical framework of nancial assessment strategy guiding investments in re nery infrastructure in comparison with scal spending on products consumption subsidies. The nancial appraisal of direct scal expenditure on products subsidies assesses the nancial impact of government's petroleum subsidy expenditure on public resources. It also assesses its implication on social welfare delivery.

Petroleum products consumption and energy use substitutionality theory
The

Review of Empirical Studies
Several studies have rarely been carried on the demand, procurement, distribution, consumption but more on consumption subsidies in different countries including Nigeria.
Ogundari (2018) examined effect of oil deregulation debate in Nigeria based on the price-demand elasticity analyses of petroleum products (petrol, diesel, and kerosene).shows that reductions in fuel subsidies in the past, translates to increase in fuel prices and induce increase in the demand trend for Page 15/30 petrol and diesel and or decrease in the demand trend for kerosene. This decrease in kerosene demand trend have signi cant implications for the environment as rural dwellers and urban poor would have to meet up their energy needs through using rewood from forest sources, as fuel replacement for their domestic energy needs. The ndings supports the argument for deregulation of petrol and diesel markets as price increases here do not foster demand collapse. However, the argument for the kerosene market would be to sustain and even increase subsidies for socio-economic and environmental reasons. KPMG (2017) on its part examined the pattern of fuels subsiding spending in Nigerian and found that in three years, NNPC paid itself roughly $6.5 billion to fund the subsidy on 15.6 billion litres of products that "apparently were not available to the Nigerian market. The study observed that NNPC spent hundreds of millions of dollars from domestic crude allocation revenues on pipeline protection, but levels of theft from some crude oil pipelines have risen, in some cases by over 500 percent in a year. The report further stated that since year 2011, NNPC spent as much as $7.52 per barrel to transport oil to the re neries by ship under an opaque, multi-vessel arrangement (as compared with $0.03 per barrel in pipeline fees), yet re nery outputs during the period did not improve.
The plausible research question for ascertaining the extent to which Nigerian government owned four re neries effectively served as source of procurement of the product is: To what extent did local re neries produce su cient re ned products to satisfy demands?
Aaron, Gilles and Katsouri (2015) assessed NNPC's discretionary spending from domestic crude returns and con rmed that it has reached runaway, unsustainable levels, averaging $6 billion a year between 2010 and 2013. The paper reported that the DCA facilitates some of the NNPC's worst habits, and no longer serves its intended purpose. NNPC's discretionary spending from domestic crude returns has reached runaway, unsustainable levels, averaging $6 billion a year between 2010 and 2013. Especially now that Nigeria faces major budgetary and savings shortfalls, unchecked off-budget spending on this scale threatens the nation's economic health. In 2004, NNPC retained around $1.6 billion, or 27 percent of the DCA's full assessed value. the amount had jumped to $7.9 billion or 42 percent of the value of the domestic oil for year 2012. The DCA revenues spent by NNPC deliver poor value for money and a large portion of withholdings is spent on subsidy payments that were vulnerable to misappropriation. The paper stated that Nigeria faces major budgetary and savings shortfalls as well as unchecked off-budget spending on this scale threatens the nation's economic health.

Related research question:
To what extent were domestic crude allocation effectively utilised in local re ning production? or To what extent was the domestic crude-oil allocation properly used for local re ning production? Sulistiowati (2015) examined the relationship between fossil fuel subsidies and growth, employing employs panel data analysis. The result of the regression con rmed that fossil fuel subsidies, coal subsidies, electricity and natural gas subsidies have negative and signi cant impact toward growth. The research found that oil subsidies are negative but not signi cant toward growth. Result con rmed that fuel, coal, electricity and natural gas subsidies have negative and signi cant impact toward growth.
However, oil subsidies are negative but not signi cant toward growth. Fuel subsidies are used to maintain stability of domestic price. Subsidies ll the gaps between international and domestic price. The trend shows that the amount of fossil fuel subsidies increase as the international price and the consumption increases. Subsidies distort the market prices and hinder growth by affecting government budget while huge subsidies spends depress scal budgets.
PriceWaterhouseCoopers (2015) report observed that despite the much canvassed transparency in handling of petroleum resources and revenues by successive Nigerian governments, nothing has change all together. The trade by barter of the allocations of crude-oil for local re nery production and domestic crude sales accounting still remains a sort of magic re; the more you look, the less you can see.
In order to assess the direction of optimum subsidies scal spending the paper demands that: To what extent could Nigeria have scal subsidy spends in optimizing consumers' welfare?
Asian Development Bank (ADB) (2015) measured the size of petroleum subsidies in Indonesia such as underpricing of petroleum products and electricity, tax exemptions, and subsidized credit. Results show that the short-term adverse impacts of subsidy reform turn positive in the long term as households and industry respond to changing market realities by adjusting energy demand, supply, and production capacity. Some pertinent policy options for sustainable energy use are provided to aid policy makers in their current subsidy reform process.
Hope et al; showed that energy subsidies are pervasive in many developing countries. The author revealled that oil exporting / developing countries heavily subsidises all domestic oil consumption; but several oil importer developing countries subsidize particular petroleum products. The study opined that subsidies for electricity, natural gas and coal are even more persuasive in virtually all of the countries studied which signi es that the prices of these fuels do not re ect their marginal cost. Whilst Birol, Aleagha, and Ferroukhi (1995) investigated the impacts of a subsidy phase-out in oil exporting developing countries of Algeria, Iran and Nigeria and reported that the effects of different deregulation policies in these three countries are substantial. The study revealled that a policy geared at more rational use of energy would permit these countries to save enough oil to meet future increases in demand while maintaining stable production.
Research question: To what extent does the consumption of re ned petroleum products have any direct substitutionality effect with electricity power supply and usage in the country?
International Energy Agency (IEA) (2016) estimated that the total value of the petroleum products subsidy in 20 non-OECD countries was $220 billion per annum in 2005. This increased to $250 billion per year when subsidies from other non-OECD countries were added. In 2007, these subsidies stood at $350 billion in the same 20 non-OECD nations. Iran was the highest subsidizer at $56 billion per annum, followed by Russia with $51 billion per annum. Other subsidizers were China, Saudi Arabia, India, Venezuela, Indonesia, Egypt and Ukraine with annual subsidies in excess of $10 billion per annum and most of these subsidies were aimed at lowering the price of fuel for the nal consumers Methodology This paper adopts ex-post 'facto' method in construction of petroleum products procurements through import and locally supplied sources, and supply gap measurement, discipline in public subsidy expenditure and comparison of 'make and buy' spending options. It also applies the nancial forensic investigation the assessment of inherent citizens' / consumers' social welfare bene ts or losses associated with either suboptimal local production of petroleum products or import and rampant price changes in the economy

Materials and Method of Collection
This is country speci c study that investigated petroleum products' production, importation, local production and demand gap, associated consumption subsidies expenditure, domestic crude allocations and usage, degree of discipline in budgetary allocation; e ciency in alternative use of subsidies and substitution effect of electricity supply to fuels consumption. The materials sourced and used also covered electricity power generation and supply; scal subsidies approved budgets, actual disbursements for fuels consumption and budget variances. These pertinent data-sets obtained through secondary source, published by government's agencies responsible for regulation and management of activities of the petroleum sector. These include: Department of Petroleum Resources (DPR), Nigeria's National Petroleum Corporation (NNPC), Central Bank of Nigeria (CBN) and relevant empirical papers.

Theoretical Foundation of Empirical Models
The "Structural Time Series Model (STSM)" method as in Almakki, 1987;Adagunodo, 2013; Abudullahi, (2014); government transfers spending on fuels subsidies (Koplow, 2009)  Price-gap approach theory vividly links petroleum subsidies as prescribed in Koplow (2009) with scal expenditures is applied in the "re ne (produce) and buy (products importation)" is analytical modeling in comparing actual scal expenditure on fuels subsidies with cost estimation of proper regular maintenance re neries in sustenance of production and supply of re ned products locally (Okafor, 2018). TAM "Cost e ciency and effectiveness business model" with direct scal expenditure is empirical model that guides the comparison of Nigeria scal subsidies expenditure and TAM cost estimations during the evaluated period (OECD, 2000;Lawrence, 2013). The strategy moderate alternating government's annual direct subsidies scal spending on consumption of imported products or the plausibility of local re ning of products thereby enhance utilisation of available labour and other resources. .

Model Speci cation and Development
The models' speci cations are con gured and presented in ve separate compartments.
(1) Local re neries production, consumption trends and demand-to-supply gap Similar STSM approach adopted in the rst model is replicated here to derive demand and supply analysis as well as linking actual local production of re ned products with aggregate volume consumed annually. It is further applied in the determination of actual volumes or quantities of products supplied from domestic sources of products in comparison with importation in satisfying consumption and in ascertainment of realistic local supply de cit.  Where Q 1 is the annual volume of petrol's procurement including domestic production and exports to which the total volume of locally produced is deducted to establish the short-fall or supply gap and representative of the aggregate annual volume of PMS imported in meeting its local demand as they were over the years. The re neries only process around 100,000 barrels per day. NNPC ultimately re-routes most DCA oil into export sales or oil-for-product swaps, and payments enter separate NNPC accounts, which NNPC o cials then draw upon freely. PPMC is supposed to send the oil to Nigeria's four state-owned re neries, sell the resulting petroleum products, and pay NNPC for crude it received, then, NNPC is supposed to pay the government.
(3) Petroleum products subsidies' spending budget performance evaluation model This model focuses on explicit subsidies of the petroleum products subsidies since they represent transfers from government budget to consumers (Koplow, 2009) and developed primarily to capture and evaluate the relationship between actual annual scal expenditure with the approved annual budget estimates during the years. Furthermore, evaluation of the magnitude of petroleum products subsidies focuses on consumption representing government transfers / budgetary (fund) disbursement for the consumer's refers to commodity optimal taxation / subsidisation in Stern (1984) and Ahmad and Stern to comparatively measure costs of building new re neries in another re ne (produce) and import linked consumption subsidies spending decision in measuring which of the two options that offers better citizens' social welfare. The equation function(s) for the re neries repair and re ne (local production) or import (buy fuels via import) comparative scal spending decision model that links the cost e ciency in Turnaround maintenance (TAM) variant of terotechnology is expressed as follows: Where; Pru-FSSPd is prudential scal spending standing for optimal make and buy decisions; Xxi:FG_Cose represents estimates of average annual turnaround maintenance from year I to n of the time horizon or path and Yyi:FG_fse-EXp is the aggregated annual scal subsidies expenditures cost actual annual products' subsidies expenditures is from year I to n of the time horizon or path (1989 to 2020). Where; Pru-FSSPd is prudential scal spending standing for optimal make and buy decisions; Xxi:FG_Cose represents estimates of average annual turnaround maintenance from year I to n of the time horizon or path and Yyi:FG_fse-EXp is the aggregated annual scal subsidies expenditures cost actual annual products' subsidies expenditures is from year I to n of the time horizon or path (1989 to 2020).

(5) Petroleum products consumption and substitutionality of electricity supply-usage
The purpose of this assessment is to establish core determinant factor that in uencing the consistent increase in the consumption of petroleum products in the Nigerian economy. Where; Ng ppc represents the aggregate volumes of petroleum products consumption over the time horizon. Then, Ng_seus is the aggregate electricity supplied and used by consumers in the corresponding time frame.

Techniques of Analyses
The con rmatory data analysis approach that is based on annual averages and periodic mean values were as measurement scale(s) as prescribed in Agbadudu (1994) and "absolute percentage error" (APE) method as developed and implemented in the Australian Commonwealth Treasury (ACT) were applied in statistical test of the models. The parameter for acceptance or rejected is premised on a ve percent signi cance limit as followed in in both Agbadudu (1994) and ACT et al. Thus, where the relevant derived test result falls within 5% signi cance limit as in both Agbadudu (1994) and ACT et al, the paper adopts the null hypothesis. But if otherwise, the alternative test result is upheld. The parameter for measuring budget credibility and discipline is set at the point where the overall subsidies budget variance does not exceed +5% or -5%.

Analyses And Results
Results of data analysis are presented in this section.

Data Presentation
The materials used in analyses were arranged in ve distinct sub-themes, namely; petroleum products procurement and distribution; local re neries production/lifting and aggregate annual consumption. The DCA and local re neries output; aggregate and average annual subsidies scal expenditures with the related aggregate and average annual approved budgetary allocations; aggregate and average annual subsidies scal expenditures with the related aggregate and average annual estimates for TAM and new re neries acquisition. The aggregate volumes of consumed petroleum products and electricity energy supplied through the grid are presented in the last sub-theme.

Numerical Descriptive Statistics
The aggregate annual local production of re ned products and importation data employed in supply-gap  (1) Result for local re ning output of petroleum products indicates that the major root cause of insu cient source of supply of products procurements was the re neries low productivity, which in turn compelled Nigeria to be reliant on importation in satisfying consumption requirements. The output from government owned re neries declined sharply the ratio of 1.01in the rst 16 years (1989 -2004) down to 37.5% around 2012 and down to an average of 18 percent in the last eight years with zero output in 2020.

Results of Analyses
Based on this result, the alternative hypothesis is adopted. This implies that Nigeria's is over overdependent on importation necessitates signi cant scal subsidies spends which is seen as the root cause of subsidies sand wastage of public resources.
(2) This result show that expected yields from domestic crude-oil annual allocations is a paltry 33 percent of the average annual consumption volume requirements; which leaves 67 percent ine ciency or imprudence in the utilisation of DCA for local production. The computation of domestic crude-oil allocation for production and distribution show that the expected normal outputs falls within the range of19.53 (20 billion approx.) billion litres compared 14.61 billion litres annually. Based on this nding the alternative hypothesis is adopted. It signi es that Nigeria failed to utilise the DCA prudently for local re nery productivity and consumption.
(3) Result of assessment of subsidies scal spending budget performance reveals excessive overspending / unbudgeted spends in the range of 1.49 percent (or 149%) adverse deviations for the total periods 15 years that products' subsidies budget were in place and about 1.88 percent (188%) for the entire 32 years' review period. The derived BDI were far greater than the statistically permissible limit of 5% scal budget variance for credible budget performance. The paper adopts alternative hypothesis. This con rms that Nigeria indulges in excessive extra-budgetary spending in petroleum products' subsidies scheme. and there is scal budget indiscipline.
(4a) The third model result indicates that 456 percent (556:1) and 142 percent (or 1.5: 2:1) of Nigeria's consumption subsidies spending as ratios to TAM spending within those 32 years based on the use of only 25 percent of dollar equivalence of the spends. The paper estimates that Nigeria's scal expenditure exceeds average annual TAM cost estimates of $36 million annually by 456%. Thus, the paper adopts the alternative hypothesis. This result con rm that Nigeria would have provided the consumers' with the required volume of petroleum products at much cheaper prices and lower public expenditure with greater social welfare bene t and macroeconomic (price) stability than by importation.
(4b) Result of supplementary analysis on building of new re neries option with the same 25 percent of scal subsidies show that Nigeria would have acquired two to three new re neries with capacity for 100000 to 125000 daily at average cost of $2.5-$3 billion plus TAM spends during the same periods.
(5) The evidence of -57.5 (ratio of 0.015: 0.026) percent undersupply of electricity supply emerges from this analysis result. In effect, there were 57.5% aggregate adverse variances between average aggregate normal ranges of expected electricity supply to consumers and only 27 percent of electricity supply was provided through the grid. There was prevalence of gross undersupply of electricity from the national grid. The substitution effect of electricity usage induced constant rise in petroleum products consumption.
Thus, the alternative hypothesis is adopted. Contrary to prior arguments that fuels prices and crosselasticities in uence petroleum products consumptions, this study established that substitutionality effect of shortage or electricity outages actually cause high fuels consumption in Nigeria.

Discussions
(1) There were sudden and consistent rise in demand, supply and consumption of petroleum products in last two decades. The aggregate volume of re ned products procurement in Nigeria from 1989 to 2020 was 504,721.25 million litres. The annual average volume of the products procured during the years ranges between 14.610 billion litres to approximately 20 billion litres per annum. This is in tandem with KPMG (2017) which con rms about 15.6 billion litres of products were apparently not available to the Nigerian market.
The trend pattern of ratio of the import to local production of re ned petroleum products steadily sharp decline in local production ranging 2. (2018) argued that which have total installed capacity of 445000 bpsd but due to the re neries poor operating performance in the last 20 to 24 years with less than 20 percent average capacity utilisation resorted to importation to meet consumers' demand.
A conservative estimate suggests that 55 million litres of petroleum products are consumed daily in Nigeria at the ratio of 35:12:8 for PMS, AGO and DPK respectively. Analysis also shows that at the current demand growth rate, we will need to process 750,000 barrels of crude per day to meet the nation's demand for petroleum product by 2020. There is currently a de cit of 2.6 million barrels per stream day between demand and supply of petroleum products in Africa.
(2) There would have been zero incidences of products shortages (demand-to-supply gaps) or zero requirements for petroleum products subsidies in Nigeria, if the re neries were in normal working conditions. Even with ve percent allowance out of the normal production yield based on 1989 re ning output, and given the quantum of daily DCA were su cient in producing su cient volume of assorted re ned products, Nigeria ought to have produced enough products for local consumption. The existing re neries proved to have operated sub-optimally over two decades. Similarly, had the revenue proceeds from the barter trading of 445000 bbl e ciently and judiciously ploughed into sourcing of imported products are reasonable bargain prices, Only about 100000 barrels of crude-oil or small quantity were most times processed by the existing re neries, leaving as much as about 335000 barrels per day for exchange or barter trading by the NNPC as stated in Aaron, Gilles and Katsouri (2015). If these allocations were judiciously utilised and properly managed, Nigeria would not have incurred signi cant scal expenditure on subsidies. DCA has been grossly mismanaged which has resulted in substantial scal subsidy spends. It is inappropriate therefore for government to impose the consequences of the nancial burden of fuels importation on the citizens thus no justi cation for government's agitation for subsidy removal without functioning re neries that produces su cient products for domestic need.
(3) There was the preponderance of excessive over-spending, unbudgeted spends and high degree of scal indiscipline in handling products subsidy funds and manifests higher order of malpractices (4) Nigeria would have provided consumers' the required volume of petroleum products at lower public expenditure with greater welfare bene t and economic (price) stability rather than resorting to importation. The acquisition and installation cost of mint re neries of 100000 to 150000 bpsd is within the range of $2 billion for 100000 bbl capacity; $2.5 billion for 125000 per day production capacity.
Whilst the 300000 bbl daily production capacity installed in India 10 years ago (in 2010) cost a total sum of $4 billion. It would have been more economical for Nigeria to have borrowed funds from the international nancial institution to nance the acquisition of four additional new re neries or modernization of the existing ones. The nation would also be better off than resorting to becoming net importer of re ned petroleum products over the years which advertently left the economy bleeding.
Nigeria's re neries were not effectively and e ciently operated for 15 years and about 23 years now . The maintenance of the local re neries were neglected for several years which resulted to their inability to be operating optimally. None of the Nigerian re neries produces aviation (ATK) fuels; meaning that the country predominantly relies on importation for the consumption of this product.
Nnodim (2021) stated that Nigeria, through the NNPC reportedly spent about N103.4 billion within 13 months in 2020 / 2021 without (zero) re ning productivity and it corroborates the degree of wastefulness in local re nery effort as extensions of subsidy spending. Even if Nigeria had opted to nance acquisition of two to four additional new re neries or modernization of the existing ones plus two-to-three new plants, through project loans from international agencies (using such project assets as part of collaterals), the nation would also be better off than resorting to becoming net importer of re ned petroleum products over the years which advertently left the economy bleeding.
Daily Trust news (n.d) reported that the total sum of $1.746 billon TAM investments had been spent by the Nigerian government from around 1998 through 2007 without increase in local production of re ned products. Reuters (2021) states that Nigeria has approved $1.5 billion TAM spending to Tecnimint of Italy for revamping the Port Harcourt Re nery Plant and that the project which has been split into three stages is expected to be completed with 44 months. In essence, the inability of Nigeria's policy makers and management of NNPC in managing the nation's re neries, domestic crude-oil allocations and lack of prudence in subsidy fund management have resulted in products' scarcity, indulgence fuels importations and wastages of public funds. Nigerian government's policies on fuels subsidies can be likened to the proverb of slave-debtor that was given the options of repayment of debts or cutting forest or drinking drums of pond water. They initially chose to cut and weed the forest only to opt-out to drum drums of pond water and later change to repayment of debts after 20 years of serving punishments.
(5) The factor triggering steady high volume consumption petroleum products is caused by lowering volume of electricity generation and supply. The Nigerian population relied more on consumption of petrol, kerosene and diesel as alternative sources of energy. Therefore, insu cient electricity power generation and supply is core factor inducing high fuels consumption of fuels.

Summary, Conclusion And Recommendation
This paper forensically investigated petroleum products procurement and distribution; local re ning production, lifting alongside the ascertainment of demand-to-supply-gaps of local re ning operation. It also examined domestic crude-oil allocation and utilization in satisfying consumption, assessment of the factors in uencing demand and supply of re ned products outside of prices and income; scal discipline of the approved subsidy expenditure budget. The results and deliverable from the study are highly rewarding.

Conclusions
The decline in domestic production of re ned products is the root cause of subsidies spending with all the associated wastages of funds and macroeconomic disturbances. Nigeria relied on importation for about 85-90% of fuels consumption; local re neries were ine ciently run, and DCA grossly mismanaged.
There was signi cant scal expenditure on subsidization re ned petroleum (petrol, kerosene and diesel) products and signi cant relationship between fuel demand and fuel subsidy factors. Domestic prices of petroleum products are highly subsidized; a phenomenon that has contributed to rapid growth in domestic demand. In effect decreases scal revenues and the rising cost of subsidy, becomes a serious scal policy concern. Sub-optimal power generation and supply contributed to high level fuels consumption due poor electric supply. There was lack of scal discipline was lacking in handling of allocated subsidies fund. Fiscal spending on subsidies would have funded proper routine TAM and build four new re neries which is nancing option that ought to have guaranteed 'pareto optimality' in the economy. If the subsidy is withdrawn, expenditure will remain high as long as domestic consumption ows from imports.

Recommendations
Government should refrain from her overdependence importation of the products and fast-rack resumption of normal local production. Government should increase domestic crude-oil allocation from 44500-to about 650000 bbl to ensure adequate production of domestic consumable fuels. Nigeria should ensure proper and regular routine TAM and build more re neries in order to produce su cient volumes of re ned products for both domestic consumption and exporting. Nigeria should drop the idea of subsidy but to sustain subsidisation on consumption of fuels (PMS, DPK and AGO) until such a time she also to produce and provide consumers enough products at lower prices, because subsidy withdrawal will reduce current excessive household consumption spending and macroeconomic disturbances. In order to moderate consistent rise in fuels demand and consumption, Nigeria should strive to enhance her electricity and alternative energy generation / supply of 40000 to 100000 kilowatt daily in order to moderate substitution effect of electricity usage on consumption of energy fuels.