As oil prices soar to record levels, many Nigerians, ordinarily, would expect that their country would be raking in billions of dollars and realising accretion in external reserves, as was the case in the past, especially during the Gulf War and some other international emergencies. Unfortunately, this is not the case.
Crude oil price hit $139 per barrel on Monday, but Minister of State for Petroleum Resources, Chief Timipre Sylva, said recently that the country would be comfortable with the price range of between $70 and $80 per barrel.
Analysts say the reason for this odd wish is the country’s huge fuel subsidy payment and its complete dependence on imported petrol to meet domestic consumption.
In addition, there is the problem of waning investment in the oil sector as well as massive oil theft that has gone unabated in the last few years and drastically reduced Nigeria’s crude oil export, leading to inability to meet the country’s OPEC quota. These factors have combined to ensure that the country does not benefit from the current soaring crude oil prices, buoyed by the Russia-Ukraine war.
For instance, in terms of rig growth, Nigeria’s count had fallen from 11 in September to nine in October 2021, according to data released by OPEC. This got worse after Nigeria began shutting down many of its offshore platforms as oil prices took a downward slope and the producers’ group embarked on production curbs to stabilise the market.
Historic rig count figures earlier obtained by THISDAY showed that in May 2020, the country’s producing oil rigs fell from 16 to eight and two months later, in July, it fell further to six.
In January 2021, only six rigs produced while in February, it was seven; in March, it fell to six again, while in April 2021, total rig count was just five.
In the oil industry, the rig count is a major index for measuring activities in the upstream sector.
Recently, a THISDAY review showed that Nigeria was producing far less oil than it did 25 years ago when the estimated population was lesser than what it is today and government spending was far below what it is in 2022.
A comparison of the country’s average oil production per day in 1997, as indicated in the NNPC yearly statistical bulletin, showed that while Nigeria pumped 2.344 million barrels per day, plus condensates, over two and a half decades ago, it can hardly produce 1.4 million as of this year.
Furthermore, while 26 rigs were in operation, on both onshore and offshore terrains, in 1997, Nigeria as at January this year had just about 12 active oilrigs, with about half of them not in use.
To underscore the gravity of the problem, just yesterday, Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, lamented that the rise in crude oil price had further widened the country’s budget deficit.
Brent crude price stood at $112.43 a barrel yesterday, while the US West Texas Intermediate (WTI) crude rose 63 cents to $109.33 a barrel.
Concerned by the scarcity and high cost of aviation fuel, which has exacerbated flight delays and cancellations in the aviation sector, Group Managing Director of the Nigerian National Petroleum Company (NNPC) Limited, Mr Mele Kyari, yesterday assured Nigerians that the company would work with relevant authorities to ensure that the current crisis in the aviation sector was resolved. Aviation fuel, which presently sells for N670 per litre, far higher than the N190 per litre sold about a month ago, is also imported 100 per cent.
However, the Nigeria Labour Congress (NLC) yesterday faulted the claim by the federal government that it would spend N3 trillion on petrol subsidy this year. NLC described the claim as bogus, unreal, insisting that the real government subsidy component in petrol consumed in Nigeria was N19 per litre.
But President Muhammadu Buhari recently requested the National Assembly to approve a total of N2.557 trillion for the federal government to fund fuel subsidy in 2022 after the current administration suspended its plan to remove the monthly under-recovery. This may be exceeded with the skyrocketing international crude prices.
The lack of funding for major upstream infrastructure has ensured incessant breakdown of existing assets. This has led to the highest single-month crude oil loss in a long time, as a result of disruptions due to maintenance and declaration of force majeure at the Forcados terminal and others in January.
Country Director of World Bank, Shubham Chaudhuri, recently said Nigeria’s decision to postpone the full deregulation of the downstream sector of the petroleum industry by 18 months might cost the country over N4 trillion in subsidy payments on petrol in 2022. Chaudhuri argued that for a purely economic phenomenon, Nigeria was not meant to make a political decision, adding that the decision to defer the subsidy removal will cost the country in fiscal terms.
It is estimated that with the current surging price of crude oil, Nigeria could be paying as high as N300 as subsidy per litre of petrol supplied at the pumps.
NNPC Limited recently disclosed that it spent N173.488 billion in excess of the budgeted N36.893 billion on petrol subsidy in January.
A document detailing the company’s presentation before the Federation Account Allocation Committee (FAAC) showed that instead of the projected under-recovery for the month, NNPC paid N210.382 billion for the purpose. During the month, NNPC had also failed to make any contribution to the Federation Account, although its forecast payment for January topped N122.7 billion.
To underscore the severity of the problem, in 2021, NNPC recorded a whopping deficit of approximately N2 trillion out of its projected N2.511 trillion remittances and was unable to pay roughly 80 per cent of its contribution to the Federation Account for the year.
Rising Crude Oil Price Has Widened Budget Deficit, Ahmed Laments
Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, stressed that rising crude oil prices had widened the country’s budget deficit. Ahmed pointed out that the federal government was presently in the process of amending the budget to accommodate fuel subsidy.
The minister spoke yesterday at the 10th African Fiscal Forum titled, “The Political Economy of Fiscal Reforms,” organised virtually by the International Monetary Fund (IMF).
She said, “We are cleaning up our subsidies; we had a setback as we were to remove subsidy by July this year, but there was a lot of pushbacks. We have elections coming and also because of the hardship that companies and citizens faced due to the COVID and we were told that the timing was not right, so we pulled back.
“But we have been able to quietly implement subsidy in the electricity sector and as it is, as we speak, we don’t have subsidies in the electricity sector.
“Fuel subsidy is a huge problem for us. It has thrown up our deficit much higher than we planned. What is happening to the global oil prices is also going to, perhaps, worsen matters. But the current review we are doing is to say we will hold the subsidy at the level in which it is planned.”
Speaking on how much global prices would affect subsidy payment, Ahmed said, “We are currently doing a budgetary amendment to accommodate the incremental subsidy as a result of the reversed decision and we want to cap it at that.
“Hopefully, the parliament will agree with us and also at least contain the subsidies; otherwise, the way things are going now, we will not be able to predict where the deficit will be as a result of the fluctuation in the global markets.”
Commenting on increased revenue generation recorded by the country, she explained, “We have also enhanced our budget process. Three years ago, we had no government enterprise on the national budget, just the government itself. We started with 10, three years ago.
“Two years ago, we brought in 40 and now we have all the government-owned enterprises, which is about 61 agencies, in the national budget. So, we are able to see the whole of the revenue and the whole of the expenditure.
“This is enhanced also by automation in terms of the public financial management. As a result of that, we have been able to see the need to refine our fiscal laws.
“We have seen revenue from government-owned enterprises increase by 100 per cent within a 12-month period just by being able to pull everything together, put monitoring mechanisms, and being able to track and also put regulations and laws in the finance bill that caps the expenditure to revenue ratio of these government enterprises to 50 per cent. “So, we saw our revenue double and we are seeing the potential revenue from these enterprises again doubling in this current year as we speak.”