2016 Budget Faces Threat, As Crude Slumps Steadily

Oil workers, member sof PENGASSAN. Photo: naij

Oil workers, member sof PENGASSAN. Photo: naij

• Millions Of Barrels Unsold
• Experts Advocate Private Capital

THE Federal Government might be in for gloomy days as lingering decline in demand for the nation’s crude oil shows it might not be able to fund items in its 2016 fiscal policy.

Many buyers are dumping Nigeria’s crude for substitute from Angola, forcing the country, recently, to search for buyers for 80 crude cargoes worth N3.5522bn. If the gloomy outlook continues, government might have to look beyond oil revenue to execute projects under the 2016 budget estimates. Of 20 crude cargoes, only one was sold in November, even as the country is still struggling to find buyers for N2.679bn worth of the commodity.

The demand for Nigeria’s crude had been on the decline since price began a free fall last year. Specifically, about 35 million barrels remained unsold at the international market, last December. This came at a time when crude production dropped by 17,300 barrel per day, from 1,919m barrel per day recorded in November to 1.902m barrel per day in the same month.

The decline in sales has been attributed to the switch to Angola crude grades by Asian countries. It will be recalled also that the United States stopped buying Nigerian crude, in preference for its own huge stock of Shale.

Nigeria’s oil stock for December has already gone on sale. Two weeks after, however, it is still available. According to reports, the total of unsold cargoes, last month, stood at 20, dropping to 15 cargoes, last week, according to trade sources. The little differential was attributed to trend in gasoline refining, which slightly increased demand for Nigeria’s Light Sweet crude.

A peep into the country’s crude performance at the market revealed that Exxon Mobil sold a Very Large Crude Carrier (VLCC) of Qua Iboe and Zafira oil to international oil companies via a tender, while Total sold one VLCC load of Brass and Pazflor. Trafigura supplied a cargo of Bonny Light to Pertamina through a tender.

The decline in demand for Sweet Crude comes on the heels of downturn in production, as only about 63.34 million barrels of crude and condensate were produced in August, representing an average daily production of 2.04 million barrels.

This, according to the Nigerian National Petroleum Corporation (NNPC), represented a decline in production by about 6.16 per cent in July. All parties lifted a total of about 65.2 million barrels of crude oil and condensate in the same month, while NNPC lifted 21.5 million barrels on behalf of the federation.

In the face of the dwindling revenue from crude, occasioned by reduced sales and falling prices, experts say the way out for Nigeria to finance the 2016 budget is use private capital.

The Managing Director of RTC Advisory Services Ltd, Mr. Opeyemi Agbaje, suggested the use of private capital for crude oil production, road and rail construction, as well as management of key sectors, like aviation, and especially the construction and management of airports.

“Nigeria needs to use a lot of private capital to finance capital projects in its 2016 fiscal policy. In that way, the impact of whatever is going on with oil in terms of prices and sales will become minimal. I am happy that NNPC has started to use private capital to fund joint venture oil production, which will now be like any other business. Let them source for fund to produce, sell and pay back, so that only the profit will be shared between the joint venture partners including the government, to fund the budget.”

Opeyemi also recommended outright privatisation of airports. To generate additional income for the government, he said there is need to extend the country’s tax net to cover all taxable Nigerians.

An economist, Mr. Odilim Ewegbara, emphasised the need to direct attention to the informal sector and adopt financial intelligence to curb fiscal crimes.

On how the economy can be diversified to increase revenue for budget financing, Ewegbara said: “Coming up with some set of master plans on virtually all the critical sectors of the economy, particularly such unconventional plans to increase the nation’s power generation, transmission and distribution to as high as 100,000MW in the next decade, should require speed. Since no area of the economy should be left out, the quick transformation of Nigeria’s millions of informal businesses into small and medium scale businesses should take priority.

“Merging of the Economic and Financial Crimes Commission (EFCC) and Independent Corrupt Practices and Other Related Offences Commission (ICPC) to what should be called the Nigerian Economic and Financial Intelligence Agency (NEFIA), headed by someone whose understanding of the science of economic and financial crime makes him, if not ahead of the criminals, at least, as sophisticated as the financial criminals themselves, is the best reform awaiting our anti-graft war.”

In the 2013 budget implementation report by the immediate past Director General of the Budget Office, Dr. Bright Okogu, he confirmed that all was not well with implementation, particularly the capital component.

According to him, the 2013 budget was quite challenging partly because of the shortfalls in projected revenue, which affected the full implementation of the capital budget.

The CBN in its annual report for the fiscal year ended 2013 said: “The fiscal operations of general government resulted in a primary deficit of N648.2bn (0.8 per cent of GDP) and an overall deficit of N1,513.1bn (1.9 per cent of GDP), compared with N1,168.1bn (1.6 per cent of GDP) in 2012. The deficit in the review year was financed, largely, with borrowing from domestic sources, namely, the banking system, non-bank public and other funds.

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1 Comment
  • amador kester

    Sound suggestions. Should have been implemented years ago, the economy should have diversified years ago but no one listened. And even now some idealists are dreaming of some return of oil boom days.Suggestions?until lessons are learnt, Hypothesis non fingo!