Buy Sheep, Sell Deer, Make Profit.

For this post, let us assume you own Iya Eba, the popular food joint in Lagos Island. You love your customers, and to satisfy them, you devised a wonderful promotion called Amala and Coke. Here’s how it works: Coke is normally sold for N35 at your canteen, but you think customers should enjoy a discount. So you announce to all your customers that Coke (I mean Coca-Cola, not the other one NDLEA can lock you up for selling) now sells for N10 per bottle. How do you pay for this? You tell your shop manager to take money from the daily sales to buy 100 bottles of Coke (the number of bottles your customers normally drink). At the end of each day, you do some Arithmetic.

You ask: “Mary, how much did we make today?” She responds: “Madam, we sold 100 plates of Amala at N100 each, so we made N10,000.” You start counting the money, and notice there is only N8,000 in the tin of Milo. So you ask Mary, “how come there is only N8,000 here?” Mary reminds you she bought 100 bottles of coke at N30 each, which means she spent N3,000 from the money collected. Since you instructed her to sell the drinks at N10 each, she only made N1,000 back. You are satisfied and everyone goes home.

This continues till the day you get complaints from customers that despite your advert, a bottle of Coke still sells for N35 at the canteen. So you visit the canteen wearing a wig and big glasses, pretending to be a customer. To your dismay, a cold bottle of Coke is sold to you for N35 instead of the N10 advertised. At the end of the day, you return to the shop and order Mary not to sell Coke at N10 per bottle anymore. She asks why, and you say nobody pays N10 for the bottle so there is no need deceiving yourselves; Coke should now be sold at N35 per bottle. There are witnesses when you gave Mary this instruction, including your cousin who is being groomed to run the shop when you retire at the end of the year.

Fast forward this story by four years; you are now retired, living in a different country and your cousin is in charge. Mary is still delivering N8,000 per day, insisting she buys Coke at N30 to sell at N10. A waiter tells Mary he remembers your instruction to stop the discount, but Mary says she never heard you give the instruction. She asks him to show her a letter you signed, which formally instructed to her to stop. Let us pause here and wonder why Mary continues to buy Coke at N30 and report that she sells at N10.

This is what actually happens. Mary takes N3,000 from the money jar to buy 100 bottles of Coke. She sells each bottle at N35, so makes N3,5000. Instead of putting N3,500 in the money jar, she puts N1,000 and claims this is the amount she made (remember she pretends to sell each bottle at N10). She then goes home with N2,500 per day. In the last four years, Mary has made N3 million (N2,500 x 300 days x 4 years) from this scam, and established a canteen on the next street. Before you know it, she will steal all your customers.

This is what Sanusi Lamido Sanusi is accusing the Nigerian National Petroleum Corporation (NNPC) of doing. Despite a Presidential order in 2009 to stop the subsidy on Dual Purpose Kerosene (which we all know as Kerosene), the NNPC continues to deduct this subsidy from the Federation Account without approval. To worsen matters, nobody can remember buying kerosene at anything close to N50 per litre; everyone I asked buys it between N150 and N170 per litre.

This is what “they” say happens:
•NNPC imports a 30,000 MT vessel of kerosene at $30 million
•NNPC sells the kerosene on the vessel for $10 million to a middle man, charging a “subsidy” of $20 million to the Federal Government.
•The middle man sells the product at $37 million (full market price) and does not transfer the “subsidy” to the end user (you and I).
•The middle man makes a cool $27 million from the sales (buy at $10 million, sell at $37 million).
•This is shared by some people we don’t know at this time.

Now, NNPC imports an average of 9 vessels per month. At $20 million profit per vessel, that’s $180 million being stolen every month. We hear this has been happening for the last 20 months, so my arithmetic says Nigeria has lost $3.6 billion to this simple trick. For those wondering how $20 billion was allegedly stolen from the Federation Account, you now have $16.4 billion to account for.

As Nathan Rothschild once said, his secret of making money was to buy sheep (low) and sell deer (high).

Need more insight? This diagramKerosene_Subsidy[1] might help you